South Korean steel giant Posco said Tuesday it would scrap a $5.3 billion deal to build a steel plant in India because of delays and local opposition.

The company said in a stock market notice that it would drop the project in India's southwest Karnataka state after failing to secure land and infrastructure due to opposition by residents.

Posco, the world's fourth-largest steelmaker by output, signed an initial agreement in June 2010 to push ahead with the project.

But its decision to scrap the deal was seen as a blow to India's efforts to attract foreign investors.

Posco has been involved in a separate $12 billion steel plant project in India's Orissa state.

In March, a bomb explosion in a village in Orissa state killed three people involved in protests against the project.

The village has been the epicentre of protests since Posco signed a pact with the state government in 2005 for the plant.

Local residents say the planned steel mill -- touted as India's biggest single foreign direct investment -- would interfere with their traditional forest-based livelihoods and uproot them from their homes.

The Posco deal in Orissa state has been watched as a test case by foreign investors eager to enter India's fast-growing economy but wary of the potential for environmental and other concerns to derail their plans.

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