When India's Tata Motors unveiled what it billed as the world's cheapest car early this year, it was greeted by industry applause and forecasts the vehicle would revolutionise how millions travel.

But since then, the jelly-bean shaped Nano has crashed into the competing interests of India's farmers and industry.

Now a battle at the Singur plant in Marxist-ruled West Bengal, where the mini-car was slated to be made, is being seen as a test case for India's industrialisation.

On Tuesday, Tata announced it was suspending work at the plant and seeking other sites in the face of unrelenting protests by activists demanding the return of farmers' land taken for the project.

The plant situation is "hostile and intimidating", said a spokesperson for Tata Motors, India's top vehicle maker.

Tata Group chairman Ratan Tata conceived of the no-frills 100 000-rupee ($2264) car as a means to get millions of India's poor masses off their motorbikes and into safer cars.

He even compared the car's launch to a landmark in the history of transportation, like the first powered flight by the Wright brothers and the first lunar landing.

But he has been facing spiralling raw material costs, with the steel, plastics and rubber needed to make the vehicle all shooting up in price in recent months.

That means the target price may not be feasible for longer than an introductory period.

Now a write-off of the factory, on which Tata has spent $350-million, could put a further burden on the firm's bottom line, analysts say.

The West Bengal government wooed the Tatas to set up the plant in the impoverished state to create jobs.

Tata Motors, in turn, "came to West Bengal hoping we could add value, prosperity and create job opportunities in the communities in the state", the Tata spokesperson said.

But the atmosphere at the plant site has soured with almost daily protests culminating last week in massive rallies that blocked the highway leading to Kolkata.

The plant itself is plastered with posters threatening employees with "fatal consequences" if they show up.

Indian industrialists have warned the fate of the project could tarnish the nation's appeal as an attractive investment destination.