BHUBANESWAR // Protests have forced an Indian state to halt land acquisition for a proposed $12 billion steel plant, dealing a blow to the Indian government's plan to woo foreign investment amid corruption scandals.
The steel plant project by South Korea's Posco, the world's third biggest steel company, is the most high-profile of numerous industrial plans delayed because of protests over land.
SK Chaudhuri, the top official in the district where the land is being acquired in the east Indian state of Orissa, said: "It has been halted indefinitely. It is because of the so-called protest.
"We are waiting for further instructions from the [state] government," he said.
The explosive issue of land acquisition, key to India's industrialisation drive, has often pitted poor farmers against the private sector.
The government of Manmohan Singh, the prime minister, has dithered on which way to go, not wanting to alienate a core electoral base but at the same time keen to push India's economic growth to double-digits.
Thousands of villagers have protested against Orissa state taking over land for the Posco plant, with women and children forming human rings around the site this month after the project received final clearances from the environment ministry.
It is most likely that the government in Orissa, a poor eastern state, will try to negotiate with protesters and offer better terms for their land.
The vice-president of Posco India, Vikas Saran, said he had not been told of the decision by the state, while a Seoul-based spokesman for the firm said the project would go ahead.
"There is no change in our stance on the project. We will proceed with the project," the spokesman said, adding that it expected the Orissa government to continue talks with residents over land acquisition. Posco is free to start work on the 2,000 acres of land it already has.
As its economy slows on a combination of high inflation and interest rates, policy paralysis and global uncertainty, India has not been in such need of foreign direct investment for two decades.
But as the government pushes for highways, power plants, steel mills and ports, it has come across stiff resistance from poor farmers who are worried about their future after their lands have been taken over for these projects.
A Mumbai-based analyst, who declined to be named, said" "It is a setback for foreign investment. And that is the reason many foreign steel companies are entering India through joint ventures with Indian companies. It becomes easier to overcome regulatory hurdles.
"It also shows that despite government clearances, projects run the risk of inviting the wrath of local residents. Without the consent of local villagers, it is difficult to acquire land."
The plant was to have come on stream in 2011, but Orissa's government has only just started acquiring the land. Posco needs 4,000 acres (1,600 hectares) for the mill, which will initially produce 4 million tonnes of steel a year.
For the past six years the project has been bogged down by protests, environmental concerns and inquiries into alleged illegalities at a related mining concession. Green clearance from the environment ministry in New Delhi only came in January.
India's economy is widely expected to slow in the current financial year, which ends in March 2012, but Mr Singh's government has been hit by policy paralysis from a series of corruption scandals and has done little to boost sentiment.
The federal and state government have dithered on these protests, not wanting to alienate the 600 million farmers who form a core vote base but at the same time keen to push India's economic growth to double-digits.
In northern Uttar Pradesh, the local government came up with a new land acquisition policy favouring farmers after protests against a $2bn (Dh7.34bn) motorway, while in eastern West Bengal state, the newly elected government has decided to return to farmers land acquired for a now-abandoned plan to build a car factory.
The federal government has promised to bring in a law that will offer market or better rates to farmers for their land, a move that will ease such deals and speed up projects.
Concerns remain that India's competing authorities and regulatory bodies, and a lack of clear rules, will hold back some foreign companies from entering India, despite the investment opportunities the country of 1.2bn people offers.