What's Holding India Back

Business is battling farmers over land, putting $98 billion in investments—and an industrial revolution—on hold

Vedanta's aluminum plant in Orissa can't yet use locally mined bauxite Sanjit Das

By Mehul Srivastava, with Prashant Gopal in New York

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"We understand a sacrifice is being made," says Tata's Pattanayak Sanjit Das

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Mohanto outside her new home in a Tata resettlement colony Sanjit Das

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Spitting a fine stream of red betel-leaf juice into the knee-deep waters of his rice paddies, Subhash Mahapatra points to the line dividing his land from his neighbor's. It's not much, but his family has cultivated rice on the two acres of dark, loamy soil for generations, and Mahapatra knows of no other way to feed his children. "If I don't want to sell it, do I not have the right to say no?" he asks.

The answer to that question may determine whether India will see a new industrial revolution, one broad enough to provide the jobs needed to lift millions out of poverty. Mahapatra's property is part of a 4,000-acre parcel that the government of Orissa state five years ago promised to steelmaker Posco (PKX). The South Korean giant had hoped it would be home to India's biggest steel mill, a $12 billion behemoth with its own port on the Bay of Bengal. So far, Posco hasn't even managed to build a fence around the site, as Mahapatra and thousands of others have battled police, once even taking Posco workers hostage for a few hours.

Across India, similar struggles are holding back nearly 200 proposed factories, railroads, highways, and other projects. Add it up and you'll find that some $98 billion in investment is in limbo, the Association of Indian Chambers of Commerce estimates. On Oct. 5, Luxembourg-based ArcelorMittal (MT) said problems getting land may force it to reconsider a $20 billion plan to build two steel mills near the Posco site. Automaker Nissan-Renault, London-listed metals giant Vedanta Resources, and Indian outsourcing stars Infosys and Wipro have all seen initiatives scuttled or delayed by troubles in acquiring land. "All I want to do is build a steel plant," says Gee Won Sung, Posco's India director. "If we can, a whole city will be created," says Sung, his voice barely registering in the air-conditioned conference room on the sixth floor of the company's glass-fronted office building in Orissa's capital, Bhubaneswar. "In 10 years, this whole region would change."

That requires convincing Mahapatra and his neighbors to move. Under Indian law, the answer to Mahapatra's question is clear: He doesn't have the right to say no once the state has decided to acquire his land. But under Indian reality, there's not much Posco or the government can do if Mahapatra stays put. Politicians hate the idea of evicting voters, and riots have broken out when surveyors show up with measuring gear. In Mahapatra's village, locals stand guard at a gate they erected, ready to fight any effort to move them out.

ADVANTAGE CHINA

A proposed expansion of Mumbai's airport has been slowed because the runways abut a slum that residents refuse to vacate. Tata Motors (TTM) halted construction on a factory for its $2,500 Nano subcompact in West Bengal state after locals blockaded the site for months. The company finally decided to build the plant 1,300 miles away, in Gujarat. On the beaches of Goa, fishermen heckle Environment Minister Jairam Ramesh when he defends moving them from the coast to make way for resorts that charge foreigners $400 a day to sunbathe on fenced-off stretches of sand.

If these problems can't be resolved, India will be hard-pressed to create the kind of sustainable economic growth enjoyed by its giant neighbor, China. Some 280 million Chinese work in factories; fewer than 45 million Indians do so, and India's industrial output is about the same as Spain's. "People who've gotten a little too excited about the India story seem to have forgotten that without solving a basic issue like land, it's difficult to see the country having any sort of industrial revolution," says Robert Prior-Wandesforde, senior Asia economist at bank HSBC.

With its anemic manufacturing base, India's economy offers scant opportunities for the rural poor. Cities such as Bangalore and Mumbai have been transformed by tech services, but fewer than 10 million people work in that sector. India's largest employer is its fields, where some 550 million farmers such as Mahapatra toil in conditions little changed for centuries. "There's nothing here," Mahapatra says as his daughter-in-law prepares a meal of rice, lentils, and vegetables in the two-room hut shared by his extended family of nine people. "Jobs? Development? I was born a farmer, and I will die one."

Finding new homes for farmers lies at the heart of the dispute. Under Orissa law, the displaced are given small plots elsewhere—but never more than five acres, regardless of the amount of land acquired by the government. Other provisions include employment for one member of the family, up to $500 in cash for job training, and help building a new house. "We understand a sacrifice is being made," says P.K. Pattanayak, who is overseeing development of a $4.5 billion mill that Tata Steel wants to build in eastern Orissa. "Unless villagers are convinced that we are sincere in our efforts to care for them, I don't think any industry can move forward."

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