The future of the Nano - the world's cheapest car - remains in doubt as protestors besiege the partly built factory where production of Tata's £1,250 vehicle is supposed to begin within a month.

Work at the Singur plant, in West Bengal, stopped on Friday when Tata said that it was too dangerous to send its workers to the site. More than a week ago, Ratan Tata, its chief executive, gave warning that he was ready to abandon Singur if the protests continued. Such a move would involve Tata writing off as much as $350 million (£194 million).

Several of India's most prominent businessmen have said that the shutdown risks ruining the country's credibility as an emerging industrial superpower.

Tens of thousands of demonstrators at Singur claim that 400 acres were taken illegally from smallholders by the state's communist-led government and are demanding the land back. On Thursday more than 3,600 workers were prevented from leaving the plant by angry mobs. After receiving threats of further violence, the company told its staff to stay at home.

The decision is a severe blow for the Indian conglomerate, which had wanted the Nano to reach showrooms in time for a Hindu festival in October. The car was unveiled in January, when its engineering was hailed as a breakthrough, but the Singur crisis and the soaring cost of raw materials threaten to scupper its viability.

The Nano's significance was underscored on Wednesday when Mukesh Ambani, a rival industrialist, gave a rare show of support for Tata. “A fear-psychosis is being created to slow projects of national importance,” he said.

Sunil Bharti Mittal, chairman of Bharti Airtel, India's largest private-sector mobile phones group, said: “The Tatas pulling out would be unfortunate for India. The wave of industrialisation in the country could suffer.”

Several companies, including Vedanta, the FTSE 100 miner, have encountered problems in establishing large projects in India, where property rights are often disputed.

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