Orissa govt halts land takeover for $12 bn Posco plant

Orissa govt halts land takeover for $12 bn Posco plant

Bhubaneswar: Orissa government has stopped acquiring land for a proposed $12 billion steel plant to be built by South Korea’s Posco after protests, further delaying the biggest foreign direct investment (FDI) in Asia’s third largest economy.

The project by Posco, the world’s third biggest steel company, is the most high-profile of numerous industrial plans delayed because of protests over land, which analysts warn could hurt economic growth and worsen a current account deficit.

“It has been halted indefinitely," said S.K. Chaudhuri, the top official in the district where the land is being acquired.

“We are waiting for further instructions from the (state) government," he told Reuters.

The explosive issue of land acquisition, key to India’s industrialization drive, has often pitted poor farmers against the private sector.

The government of Prime Minister Manmohan Singh 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 the 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 state government will try to negotiate with protesters and offer better terms for their land needed to build the plant.

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.

Posco signed the agreement for the mill in 2005, but the project has been bogged down by protests and inquiries into alleged illegalities at a related mining concession have delayed it. Green clearance from the environment ministry in New Delhi only came in January.

India’s economy is widely expected to slow in the current fiscal year that ends in March 2012, but the Union government has been hit by policy paralysis from a series of corruption scandals and has done little to boost sentiment.

The country faces a widening of its current account deficit as foreign investment declines and its import bill rises. Top executives and bankers warn that without reforms, India could see an economic slump that would be difficult to recover from.