South Korean steelmaker POSCO said Oct. 19 it plans to start work on a $12 billion, 12 million-ton-capacity steel plant in the eastern Indian state of Orissa by April 2008. The announcement by POSCO CEO Lee Ku Taek came after the POSCO board met in New Delhi with Indian Prime Minister Manmohan Singh on Oct. 18. The South Korean firm has re-emphasized that it plans to complete the deal. But India's difficult foreign investment atmosphere could convince POSCO that the project is not worth the effort. The POSCO steel plant is India's single largest foreign investment project ever and fits into a long-standing Indian strategic initiative to become a heavyweight in the steel industry. With an industry dominated by Indian steel tycoons Ratan Tata of Tata Group and Lakshmi Mittal of Arcelor Mittal, India is now the seventh-largest crude steel producer in the world, as well as the largest producer of iron. POSCO is the world's third-largest steelmaker and aims to increase its steel production substantially through foreign investment projects in India, Vietnam, Mexico and Thailand. For its part, the Indian government is eager to boost its steel production and attract more foreign investment through such a lucrative partnership. But among the project's most daunting challenges are India's farming and village communities. With the help of India's powerful communist parties, farmers and villagers have achieved explosive successes during the past two years in staving off foreign direct investment (FDI) projects that threaten to seize their land. The series of violent riots that has taken place during the past year in West Bengal state over the building of a Tata Motors small-cars factory provides a dramatic example of this phenomenon. The POSCO project, which is expected to displace some 4,000 villagers, also has sparked such unrest. During the past 27 months, villagers in Orissa have erected bamboo barricades to prevent POSCO and state officials from setting foot on the land designated for the plant. Though on paper the state government says it has given more than 1,100 acres of land to the company, the government so far has handed over only 193 acres out of the 4,004 acres required for the project. And the anti-plant protesters also have stepped up their campaign. During the week of Oct. 7, villagers abducted four POSCO officials, only releasing them after local police intervened and promised the villagers that POSCO officials would not enter the area. POSCO has developed a high tolerance for violent and drawn-out labor protests from its experience in South Korea. But in India, foreign companies like POSCO will find it increasingly difficult to fall back on government assistance to help quell these vibrant protest movements. India's FDI policy can be extremely short-sighted and inconsistent, with most political leaders far more concerned with re-election than with long-term economic strategy. Unwilling to sacrifice votes from India's large and impoverished farming community, the government has sought to distance itself from the ugliness that surrounds FDI projects and land acquisitions in order to save political face. Recent revisions to India's deeply flawed special economic zone (SEZ) policy include measures under which SEZ planners themselves, not the government, will be responsible for negotiating land seizures directly with local communities. This places an immense burden on corporations to ensure that their plans get implemented (which often involves buying off local police). Indians in general are highly suspicious of government compensation schemes and are more than likely to fight to protect their land. Further complicating matters, Orissa is in Naxalite country. Indian Maoist rebels, known as Naxalites, are most active in the country's eastern states of Jharkhand, Orissa and Chhattisgarh — where 70 percent of India's coal reserves and 55 percent of its iron ore are located. This means most of the new steel plants are being built in Naxalite-infested areas. Recognizing the growth of India's burgeoning steel industry, India's Naxalite rebel movements now are focused on attacking steel mills, and they have publicly announced this strategic shift. POSCO is a resilient company and is not risk-averse, provided it can get its work done. But if delays persist in India (and they probably will), POSCO might have to close up shop and move its steel plants to a more favorable investment climate, such as Vietnam.