In what is a giant blow to India’s bid to garner more Foreign Direct Investment inflows, the South Korean steelmaker Posco has decided to suspend its 12 billion dollar project. Reason: the land acquisition process is too onerous and farmer protests have stalled the project for a decade. To be levelheaded in one’s assesement without resorting to the sort of hyperbole that seems to surround issues like these, ten years is a long long time in the world of business. Nevertheless the project was problematic from the start. The Forest Rights Act (FRA) had been openly and deliberately flouted in the 3096 acres of forest land required for the steel plant.
The administration not only refused to recognize the rights of thousands of families in the project area under the Act, it also deliberately withheld information on the palli sabha resolutions passed by the villages opposing the project. Some of the environmental threats completely overlooked by the Environmental Impact Assesement were the possible adverse impact on the viability of the thriving Paradeep port, an impending water crisis in the Mahanadi delta which would have erupted due to the immense water needed for the project and severe negative impacts on already threatened wildlife species such as Olive Ridley turtles, dolphins, Royal Bengal tigers and elephants. If the project had taken off, the Orissa government’s decision to allocate 600 million tons of the highest grade iron ore available in India to Posco, taking precedence over more than 200 domestic and international applicants, would have been an unprecedented handout to the company. However the real reason for the steel companies withdrawal are altogether different. The company this week reported a 76% drop in consolidated net profit in the April-June period on year to Rs.11,740 crore won ($104 million) due to a global slump and losses among its subsidiaries.
Operating profit shrank 18.2% on year to 686.3 billion won and sales fell 9.1% to 15.2 trillion won. Posco announced a drastic restructuring of its business—it has 48 subsidiaries—and said it would cut the number of its domestic-market businesses by half and jettison 30% of its overseas operations.In the end it was a lack of profit from global sales rather than protests in Orissa which may have had a party to play in Posco’s withdrawal. This in simple,lucid terms is a severe blow to the Narendra Modi government’s agenda of spurring on investment growth. It will also put the land acquisition bill in hotwater. Unable to create a consensus on the contentious land acquisition bill, the National Democratic Alliance government is being forced to go slow on pushing ahead with the amended legislation.There is growing realisation in the government that it will be difficult to secure the passage of the bill in the monsoon session of parliament, opening next Tuesday. The coming monsoon session will be a difficult one for the government.