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Saturday, 18 July 2015 00:00
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The best example of why not to make in India


The latest reason for the $12 billion Posco plans in Odisha being shelved appears to be the lack of a valid mining license for iron ore—the mine allocated to Posco stands de-allocated after the mining law was changed in March, and the company now needs to participate in a new auction. Apart from the fact that this could drive up costs of the ore, the significantly hiked royalty rates—including a contribution to the district mineral fund—will probably also alter the project’s economics, particularly at a time when both global ore and steel prices are at such low levels. Given the mess in India’s steel sector —RBI has flagged it as a significant threat to Indian banks—Posco not coming up may appear a mixed blessing right now, but at a larger level, Posco is the best example of why not to make in India.

The Korean steel major signed its deal with the Odisha government in 2005 and the project had been strongly backed by both chief minister Naveen Patnaik as well as then prime minister Manmohan Singh. Despite this, it remained stuck, thanks to a poor land acquisition procedure as well as a hostile environment ministry—remember, this was the phase when, for instance, environment minister Jairam Ramesh stopped the Vedanta clearances which enabled Rahul Gandhi to go and tell the tribals he was their sipahi in Delhi. When land acquisition proved a trial, Posco re-engineered its project and cut down the land requirement by a fourth, but around 450 families held up the land acquisition. This number has to be seen in the context of the 12-million tonne plant creating 48,000 permanent jobs in the state—more than 9 times that amount during the construction phase—and several thousands of crores of annual tax revenues.


While Odisha was to blame for the slow progress in getting land for the project, the environmental activism at the Centre made things worse. One expert group, for instance, argued 70% of the land being acquired was forest land while a former environment secretary found it was mainly sandy land with scrubs that was being acquired. Another fact-finding mission faulted the project for not doing enough to identify the tribals who would be dislocated; the environment ministry itself had to admit later that the site was not a Fifth Schedule Area where tribals reside. After a new environment minister was brought in to replace Ramesh—M Veerappa Moily—the project got its environment clearance, a few days before the Korean president’s official visit to India. But, and this is why Make-in-India is so tricky, the project had also got mired in a court case challenging the mine allocation—a local firm, Geomin Minerals, had argued it was in line for a mining licence before Posco was. While this was being sorted out, the central mining law itself got changed … Prime minister Modi will need to tackle all of this for Make-in-India to work—and if Posco does finally walk out, it is certain the resultant bad publicity will give India a very bad name.


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