Almost as soon as the ink on the memo dried, however, farmers and fishermen living near the factory and port sites - and tribal people near the inland mine site - began a campaign to stop the project. They claimed they did not want to lose their livelihoods, or be forced to move.

As the protests snowballed, Posco launched a public relations campaign to convince opponents that the steel plant would help them through better education facilities, health care and jobs, and that they would be compensated and provided with alternative livelihoods.

But continued opposition - coupled with lengthy delays in getting court permission to use forest land and a prospecting licence from India's federal government - have meant the project, already delayed by two years, is on hold. The Supreme Court was due to make a key ruling yesterday.

The delay has been a public relations nightmare for the company and an embarrassment for the state government, which is desperate to attract investment to one of India's poorest states.

Shashanka Pattnaik, spokesman for Posco India, disputes claims that local opposition had been a factor in the delay, saying 80 per cent of the 500 families that will be displaced by the steel plant support Posco's plans.

'No cost calculation has been done by Posco about the delay,' he says. 'At the moment the cost is minimal, but more delays mean more costs ... When the MoU was signed, the chief minister [of Orissa] said the clearances for licences would happen by the end of March. That has not happened, so it does not make sense to go for the ground-breaking ceremony. We are hoping the Orissa state government will chalk out a revised plan and give us a definite date for the ceremony.

'It's turning into a bit of a headache. Our total energy and concentration is focused on the project.'

Asked whether the delay might mean the end of the project, he says that 'there is no reason to think that'.

But experts believe the delay will force Posco to think twice about setting up in India and deter future investors. Policy economist Shreekant Gupta, a visiting faculty member at the National University of Singapore, says the project could provide huge economic benefits to Orissa's poor communities, but the delay means the likelihood of the steel company continuing with its plans is slim.

Dr Gupta says the state government should shoulder responsibility for the delay as officials should have foreseen the problems in getting licences and planned their economic policy accordingly.

'Posco is a huge company and it will only wait a limited time because then the economics of the project change ... For Posco, it's no big deal. They can go somewhere else. The Orissa state government will be a big loser, because of the lost revenue and the possibility of jump-starting the economy. The people of Orissa will also lose out.'

Dr Gupta says Orissa is a backward state and its government desperately needs money. 'This delay gives very bad signals to the investment community at large ... It's just poor management by the state government. They wanted this investment and they are close to botching it. If there's one person who must take the blame, it's the chief minister of Orissa. He's the CEO of the state and he's bringing in the investment.' There was no comment from the office of Chief Minister Naveen Patnaik despite repeated requests.

In Dhinkia, a village of 192 families and the heart of the anti-Posco movement, a hand-painted scarlet sign across a cursory wooden gate presages the delay. The Oriya words 'Posco Pratirodh Sangram Samiti', or Posco Opposition Armed Struggle Association (PPSS), greet visitors.

If you support Posco, you are not welcome. There is no middle ground, not even on the potholed road that leads up to the village's lush paddy fields from a police check post 10 minutes away. Hundreds of anti-Posco protesters are gathered in the area, amid a heavy police presence, to demonstrate.

Streams of sunlight hit 55-year-old Kulumoni Malik's face as he picks betel leaves with calloused hands. He owns no land, but grows betel leaves on a neighbour's property, earning about 70 Indian rupees (HK$14) a day for a crop produced all year round.

'Posco won't do anything for us,' he says. 'This work is labour intensive and it pays well. We don't want this factory ... I'm not frightened of Posco. I will fight.'

Mr Malik, and thousands like him, supplement their incomes by tending rice paddies and cashew nut farms, earning more than 200 Indian rupees a day. It is a substantial amount by Indian standards.

Dhinkia resident and PPSS founder Abhaya Sahoo, 50, is standing firm. 'There should be a balance of both agriculture and industry. You can't have industrialisation if the cost of having that results in the loss of the agricultural sector. People do not want to be displaced. Promising jobs and facilities will not work. The issue is the displacement of livelihoods.'

Agriculture is a mainstay of India's economy. While the amount farming contributes to the country's GDP has fallen since the early 1980s, figures from the federal Ministry of Finance show agriculture supports more than half a billion people and provides work for 52 per cent of the workforce. It is also an important source of raw materials for industry, which is rapidly growing.

The steel plant site sits in a fertile part of eastern Orissa's agricultural belt, known for its fishing and banana, betel leaf, cashew and rice cultivation. Orissa is also rich in minerals, including coal, iron ore and chromium, needed to produce steel.

But Orissa is among India's poorest states. Villagers in Dhinkia have water but no electricity, and are sceptical about the plant improving their lives. The state's track record makes bleak reading. Economic growth has largely failed to help, particularly in rural areas where two-thirds of residents still have no access to safe drinking water.

The PPSS says some 20,000 people - 90 per cent of the population - living near the factory and port sites oppose Posco's plans, as do 30,000 tribal people living on land earmarked for Posco's mines.

Mr Sahoo says that only a handful of farmers and fisherman are in favour. Farmer Narayanan Raut, 24, and his brother Jagarnath, 26, in the neighbouring village of Govindpur are in the pro camp. They say they would consider leaving for the right amount of compensation.

'We may give up the land if the price is right,' the younger brother says. 'The price, that's up to the village head.'

While the delay has sent alarm bells ringing among Orissa officials, New Delhi's federal Ministry of Steel is confident that if the Posco deal does not happen, other steel companies will fill the breach.

'People think that if the Posco story fails, the India steel story fails,' says Nihar Dash, a Ministry of Steel director. 'With or without Posco, the steel industry will grow in India. Someone will fill the vacuum.'

The Indian Supreme Court, which by law must examine any planned economic development that involves forest land, was yesterday due to issue a verdict on whether Posco could be granted a lease to build a port and plant or whether the proposals must be modified. Posco must comply with the court ruling and there will be no right to appeal, steel company officials say.

The federal government has also told Orissa that Posco cannot be granted a prospecting licence because the state government failed to give a fair hearing to around 250 other companies that had also applied for permission to prospect in the area. State officials must re-hear all the applications, a process Posco says could take two to three months, before recommending a new candidate.

Priyabrata Patnaik, the Orissa nodal officer for the Posco project, says he cannot confirm when building will begin as he is awaiting the court's decision. He refuses to comment further. But legal intricacies mean little in Dhinkia, where the battle lines have been drawn in the shade of its betel vines. For villagers, the stakes are high. They weigh a desire to continue their way of life against fears that promises of development benefits are empty.

'Our basic motto is not to give an inch of land to the company because they are going to set up a plant at the cost of villagers' livelihoods,' Mr Sahoo says. 'There is no alternative to the agriculture that these people do. We will not change our minds.'