Movie scrapped because of budget or risky business?

So Universal pictures decided to scrap a Kate Blanchett movie. The Excuse? Budget issues. There could be some truth to it if it weren't for the fact that the film, based on the non-fiction book about the end of British rule in India (to be filmed in India), also touched on an issue sensitive to the Indian government, mainly, the alleged affair between Edwina, the wife of British officical Lord Mountbatten, and the newly appointed (first) prime minister of India, Jawaharlal Nehru.

No scenes of physical intimacy between Nehru and Lady Mountbatten are allowed, no gestures or actions or words of love or affection between the two .

BBC correspondent Soutik Biswas on the Indian government's objections.

Atonement director Joe Wright told Variety magazine he was 'between a rock and a hard place' because the studio wanted to make it a love story while the Indian government wanted to make it more about the history.

Wright wanted to film in India to make the film rich in heritage and authenticity while giving Indian citizens the opportunity to be used as extras in large crowd scenes.

So here is the question I pose to you classmates;

Should a country's government censor the script of a movie filmed in their country?

Let me use an example that doesn't involve non-ficition. Eli Roth was allowed to film his horror film epics 'Hostel' and it's subsequent sequels in Barrandov Studios, Prague and in Český Krumlov, Czech Republic even thought the film is set in Slovakia. As a result, the Slovakian government was appalled and mortified at the rough portrayal of their country while Roth argued the ferocity of the location was to add to the ambience, adding that even though Texas Chainsaw Massacre is set in Texas, it doesn't discourage people from going to Texas.

BBC News Article

BBC's Soutik Biswas's blog on the matter

Hostel on wikipedia