Growth in India's industrial hub leaves many behind

Corruption, overregulation, and lack of jobs contribute to the wide gap between India's rich and poor.

Bhan Sai makes about $1.40 a day. The minimum wage is almost twice that, but if he complains, he says, the steel mill will fire him.

Squatting by the roadside after a shift, his hands chalk-white from work, he says he came from the neighboring state of Jharkhand for this job, leaving his home to live in a tent camp outside town. The bus fare from there is one-fifth of his daily salary.

But among India's more than 300 million unskilled rural laborers, he is fortunate. He has a job.

Far from the call centers and air-conditioned malls that characterize the New India, the Old India has labored on almost unchanged. Increasingly, India is hoping industry will help lift India's poor. Yet at the center of India's industrial heartland here in Korba, the hoped-for flood of jobs has not yet come.

India's capital-intensive approach to development, combined with the leadening effect of overregulation and corruption, is spreading India's newfound wealth down the economic ladder slowly, say experts. The gap between rich and poor is actually widening, economists say.

"The sectors that are doing well in India tend to be capital-intensive," not labor-intensive, says Ashish Narain, an economist at the World Bank in New Delhi.

In many respects, India's sudden economic growth has come from its "inspiration" businesses – like back-office operations and software development – rather than the "perspiration" heavy industries that characterize China's success story.

That is slowly changing with India's new emphasis on industry. But unlike the industrializing Chinese countryside, this part of India does not make Spider-Man action figures or cotton trousers. Instead, it produces electricity and steel – desperately needed fuel for a country that is plagued by power shortages and building as fast as brawn and bulldozers will allow.

In this way, Korba is a portrait of the emerging industrial India. Sitting on the country's richest coal seam in the remote state of Chhattisgarh, it is a Pittsburgh of the subcontinent – a thicket of smokestacks amid a landscape of rice paddies.

Earlier this year, seven power companies agreed to establish new plants in state of Chhattisgarh, where Korba is located. Two of India's largest conglomerates – Tata and Essar – are building new steel mills. In all, Chhattisgarh attracted more foreign investment than any other state in India during the first half of 2006.

This will surely bring jobs. By 2015, investment in India's coal belt – comprising Chhattisgarh, Jharkhand, and Orissa – could create jobs for 700,000 people "the majority of whom would be from the rural and small town population," according to a survey by McKinsey, a consulting firm.

But the gap is enormous. Nearly two-thirds of the country is still caught in the agricultural sector, which is growing at a negligible 2 percent annually. Moreover, more than half of all Indians are aged 25 or younger, meaning the country will need to add as many as 8 million jobs each year just to keep up.

"It is very misleading to justify heavy investments in capital-intensive projects on the grounds that they will create employment," says Jean Drèze, an honorary professor at the Delhi School of Economics, in an e-mail. "This is unlikely to do much for the rural poor."

Rajendra Mishra, a local labor leader, would like to see the government play a more active role in helping the rural poor find employment.

"The first responsibility is with the government," says Mr. Mishra. "The regulations are all there."

Indeed, India does not lack for regulations. There are 47 national labor laws and 157 state laws, by Mr. Narain's count, creating an almost impenetrable tangle of rules. "It's extremely difficult for anyone to know what their rights and responsibilities are," he says. "Part of the problem is the complexity."

The other part of the problem is corruption. A survey by Transparency International last year proclaimed that Indian businesses were the most willing to pay bribes to do business abroad. At home, the story is the same.

"In India, there are many regulations, but there is very little regulation," says Professor Drèze. "The regulations are routinely evaded or used as an opportunity for extortion."

Suresh Bharti is one of those 20-somethings who needs a job. With his designer jeans and a denim cap, he does not fit the image of a poor Indian. But, he says, "I have no prospect of finding a job."

He can't find work at the local mine – the largest open-cast coal mine in Asia. Nor can he find a job at a factory in town.

Like many people here, he believes that industries hire only migrant workers from other states like Mr. Sai, who are easier to control. There is an element of truth to this, say experts, as industries prefer to hire migrant workers, who are less likely to cause trouble or disappear for days on end to attend a wedding or festival.

The numbers of migrant laborers are "not huge," says Narain, "but businesses will hire whoever they can get cheaply."

More deeply, however, Mr. Bharti's discontent also hints at a mounting unease among rural Indians, as they struggle to adapt to a new economic order that they barely understand. For generations, land has been the primary benchmark of economic security here – even unskilled farmers could live off their own crops.

As industry's growing footprint swallows farmland, many – like Sai – have been forced to leave their homes in the hopes of finding a job.

"If we had any land, we wouldn't have come here," he says in the gathering dusk. "Nobody wants to live in a foreign place."