The governor of the West Bengal began meeting farmers and opposition party members on Thursday in a bid to end protests against a factory making Tata Motor's cheap Nano car, officials said.
The controversy over the factory in eastern India has hurt the state's image as an investment destination, and also reflects a wider conflict in India between industry and farmers unwilling to give up land for factories without adequate compensation.
Discouraged by the protests, which have been led by the local opposition Trinamool Congress party, Tata Motors suspended work at the plant this week despite investing $350 million. It said it was looking at alternative sites.
This would undermine production capacity but is unlikely to delay the planned October launch of the $2,300, snub-nosed car, billed as the world's cheapest, as some units could come from existing plants.
West Bengal governor Gopalkrishna Gandhi separately met state officials in a bid to broker a settlement, setting the stage for a possible tri-partite meeting on Friday.
Trinamool Chief Mamata Banerjee has softened her stand this week and said on Wednesday a solution could emerge soon, in comments echoed by the state governor.
"I am hopeful about a solution in the talks set for Friday because both the West Bengal Chief Minister and Mamata Banerjee are sincere in their efforts to end the stalemate," Gandhi said.
Gandhi had invited Tata Motors to join Friday's talks but the company's response is not yet known.
The Nano project has been billed as key to the rejuvenation of industries in West Bengal, where the world's longest-serving democratically elected communist government has changed tack after decades of focusing on agriculture and poor farmers.
But many farmers say they were forced off their land and offered paltry compensation to make way for the factory. Of 1,000 acres (400 hectares) of farmland seized for the factory, they are demanding the return of around 400 acres.
The possibility of Tata pulling out has sparked anger among supporters of the project, many of them members of the state's ruling communist party or farmers who had got compensation or jobs at the factory.
The Trinamool has also come under pressure from urban citizens who see the protests as counterproductive to the state's efforts to industrialise.
Trinamool leaders said they would join the talks with a positive mind.
"We are going to the talks armed with enough documents to establish the land of the unwilling farmers could be returned," said Partha Chattopadhayay, a senior Trinamool leader.
"If there is light at the end of the day our chief Mamata Banerjee would join the talks. We want the Tatas to stay."