In Depth October 8, 2009, 5:00PM EST

What's Holding India Back

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The Pune group and those that Reliance dealt with, though, are relatively sophisticated farmers on the fringes of India's largest cities. Vedanta Resources, a $6.6 billion aluminum, zinc, and copper producer, has spent five years staring down an indigenous people who inhabit a remote section of Orissa called the Niyamgiri hills. The 8,000 Dongria Kondh still hunt with bows and arrows and worship one of the hills, calling it Niyam Raja, or God of Justice. The Dongria's face-off with Vedanta caught the eye of activists in Britain, who have mounted a vigorous publicity campaign against the company. Bianca Jagger has led protests at Vedanta shareholder meetings in London, while others have lobbied the Church of England to sell its $4 million investment in the company. Troubled by Vedanta's actions, Norway's government investment fund sold its $15 million stake in 2007.

"THERE WAS NOTHING HERE"

The protests, though, only delayed Vedanta in Orissa. Below the Niyamgiri, the company in August finished the first section of a $9 billion plant, which when completed will be the world's biggest aluminum refinery. Touring the facility, Chief Operating Officer Mukesh Kumar can barely contain his pride. "There was nothing here, absolutely nothing," he says. "And in record time we have built this amazing plant."

But Vedanta today isn't making its aluminum using bauxite mined from the Dongria's sacred hills, and instead trucks it in from the other side of India. Before the plant can reach its full potential, the company must get permission from India's environmental watchdog to start mining at the site. After fending off opponents who say the mine will decimate the landscape, the company is likely to get final clearance from Delhi by yearend—though the Indian Supreme Court has ordered Vedanta to hand over 5% of the facility's pretax profits to an environmental group. Today, a half-finished conveyor belt snakes up the slopes from the plant, ready to start feeding on the hilltop's 78 million tons of bauxite.

While the dispute highlights the difficulties of getting land, it also reveals the complexity of the debate. Even as the Dongria Kondh have opposed Vedanta, their cousins who lived at the foot of the Niyamgiri agreed to move in exchange for new houses, a school, and one job per family that pays some $250 a month. "I am not saying we are philanthropists, or that we are going to save the Dongria," says Kumar, the Vedanta plant boss. "But I honestly believe that we will create opportunities here."

Up on the unspoiled hillsides, the clock seems to have stopped ticking centuries ago. During a recent harvest festival, villagers beat drums and carry out ritual slaughter of chickens and water buffalo while a holy man runs over a bed of red-hot coals. But the Dongria are deeply impoverished and often perish by their early 40s from cholera and other preventable diseases. Exhausted by their hardscrabble life and weary of protests against Vedanta, some are now ready to accept the plant and the changes it will bring. "Two years ago, my wife died because there was no road for a doctor to come up here," says Damo Majhi, a 32-year-old Dongria. Had the Vedanta project been built, he muses, she might have been saved. "If there's a road, there is a doctor, there is a school, there is food, then my daughters might not die."

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Cutting Through Red Tape

Finding land isn't the only hassle faced by companies setting up shop in India. The World Bank's Doing Business in India rates 17 cities in areas such as contracts, taxes, and registering property. Ludhiana and Hyderabad get high marks, while Kolkata and Kochi rate poorly.

To view the report, go to http://bx.businessweek.com/india-business/reference/