THE WALL STREET JOURNAL
By ERIC BELLMAN and JACKIE RANGE
May 1, 2008

India, a nation of 1.1 billion, has a chronic labor shortage, in the area where it needs workers most.

As it grows rapidly -- tilting from a stagnant, rural economy to a developing, urban one -- India is building thousands of new homes, offices, malls, airports, roads, ports, power plants and industrial parks.
 
•  The Issue: India, which is trying is to improve its infrastructure, has a shortage of skilled and semiskilled construction labor.
•  The Background: Spending on major infrastructure is projected at more than $60 billion annually for the next six years.
•  The Bottom Line: The labor shortage is causing delays in projects and may slow India's economic growth.

So many projects are now under way in India that the pool of workers with even the most basic skills is running dangerously dry. The shortage of bricklayers, rod benders, welders, wall painters and other skilled and semiskilled laborers is threatening to slow the construction of projects that are key to the nation's economic growth.

Improving its decrepit infrastructure is one of the most pressing issues India faces. It is crucial for unclogging chokepoints that are stoking inflation, which is rising fast. And it will determine whether India can keep growing at a pace that will allow it to fulfill its aspirations of becoming a commercial superpower to rival China.

"The shortage of labor is hurting everyone," says Deepak Parekh, chairman of Housing Development Finance Corp., India's largest housing lender, and Infrastructure Development Finance Company Ltd., a government-owned infrastructure financing company. "It's hitting the construction companies, the road projects and it's slowing down the infrastructure. The repercussions are a longer time to complete projects and slower [gross domestic product] growth."

Spending on major infrastructure such as ports, power plants and roads is projected at more than $60 billion annually for the next six years, and will require 92 million man years of labor. Even before taking into account a concurrent boom in industrial, residential and retail building, that's around 33% more labor than the market can provide today, according to India's Construction Industry Development Council, a think tank.

"We are not getting enough people in the civil-construction sector, not enough skilled labor," Finance Minister P. Chidambaram said in a recent interview. "An economy growing at over 8% requires far more skilled labor than the supply is."

Labor bottlenecks are popping up, in differing degrees, in other fast-growing countries. China has plenty of labor overall, but in the Pearl River Delta, the nation's manufacturing hub, wages have been rising fast enough to prompt some factories to move elsewhere. Expanding economies in Central and Eastern Europe, such as Poland and Slovakia, have begun to suffer manpower shortages since many residents emigrated to Western Europe for better pay.

In the Persian Gulf, a building boom triggered by soaring oil prices has construction firms scrambling for building material, contractors and skilled and unskilled workers. The region imports most of its labor, offering relatively high wages for foreign workers, especially from Pakistan and India.

The construction industry in India already employs 33 million, the second-largest employer after agriculture. But many of those do unskilled manual work and moved into construction to flee similar jobs in the stagnant agricultural industry. Many skilled workers have left for the Persian Gulf or Singapore, where wages are higher.

Construction sites have few machines to replace muscle. Developers depend on men, and many women, to carry loads of bricks on their heads, dig ditches and holes with shovels, cut steel bars with mallets and move sand with spades.

Workers typically are trained on the job because India's education system offers limited vocational training. Many construction workers have little schooling of any sort; most are illiterate. Rajesh Gerard Joseph, who runs a company that trains construction workers in Bangalore, says his organization has to teach new recruits not only how to use a ruler, lay bricks, paint walls and mix cement, but also how to use an elevator and even a toilet.

After growing at almost 9% annually in recent years, India's economy is slowing, with many economists predicting growth of around 7% this year. A lack of decent infrastructure is one of the reasons. More than 40% of the 657 large government infrastructure projects under way that have a scheduled completion date are running late, according to the Ministry of Statistics and Program Implementation.

Slow Progress

The delays vary from one month to 10 years, and cost overruns from those projects already total more than $6 billion, the ministry says. "Slow progress" from building contractors is cited on more than 100 projects as a top reason. A 90-mile stretch of highway in the eastern state of Orissa, for example, was delayed by more than three years due to "inadequate deployment of qualified staff by contractors," according to the ministry's most recent status report.

It took developer West Pioneer Properties Ltd. six months longer than it expected to hire all the workers it needed to build a new mall north of Mumbai. The mall opened in April, but the food court and multiplex cinema aren't finished yet.

Amit Jatia, chairman of West Pioneer Properties, says the lack of experienced workers meant that a lot of the final touches at the mall had to be redone. The painting was often blotchy, the tiles uneven and the railings along the upper floors were built with gaps that children could fall through. The glitches were fixed before the mall opened, the company says. "We did face problems of getting qualified labor to build the mall," says Mr. Jatia. "A lot of rework had to be done."

The surging demand for labor can be seen at the morning "Naka," or labor market, of Vashi, a growing Mumbai suburb. More than 2,000 construction workers crowd onto the same corner each morning at 8:30. Skilled workers stand behind the tools of their trade: pipes for plumbers, brushes for painters, long leveling boards for concrete and bricklayers. The nomad women from Rajasthan, marked by their mirrored skirts, are usually tapped for tiling.

Contractors, recognizable from their gold rings and cellphones, dive into the crowds and place orders for skilled and unskilled workers. Those interested swarm around the contractors, negotiate a daily wage and then leave for building sites. Most of the workers are gone before 11 a.m.

There are hundreds of Nakas across Mumbai, and there have been for decades. But recently, there's been a sharp rise in pay and expectations. Wages for some skilled laborers have more than doubled in the past two years to more than $10 a day. Unskilled laborers are making around $2.50 a day, about 50% more than before.

Workers have become pickier, says contractor Mantesh Jamadar, who comes to the Vashi Naka every morning. Many skilled workers don't even show up at the morning market any more, he says. Instead, they have cellphones, and contractors make appointments to see them. "They used to go anywhere for work but now they refuse to travel," Mr. Jamadar says.

More than 80% of the people in the construction industry today are unskilled workers, usually working as day laborers or migrant laborers in tiny crews. But there has been a sharp rise in the number of huge, complex engineering and construction projects undertaken by large Indian companies. To get the workers they need, these companies are embarking on mass training programs.

When Reliance Industries Ltd., India's largest private company by market value, started building a giant new oil refinery two years ago, it was around 20,000 workers short of the 70,000 it needed. In the past two years, Reliance has ramped up recruiting and trained close to 10,000 carpenters, welders, pipe fitters, riggers and grinders to stay on schedule.

Trainees in Gujarat

At the industrial site in the western state of Gujarat -- a site so large it has its own highways -- Reliance trainees sit in one of 100 practice booths, slicing 1-inch segments off of thick steel pipes. After two months of training, they are tested. The company needs to keep the program running because Reliance-certified workers are so in demand that it loses hundreds each month to competitors, mostly in the Gulf.
[Indian laborers work on a high-rise building in Siliguri last year. Wages for some skilled workers have doubled amid a construction boom.]
Indian laborers work on a high-rise building in Siliguri last year. Wages for some skilled workers have doubled amid a construction boom.

Ten years ago, when Reliance launched an identical project, 500 people would show up looking for work just on rumors that the company was hiring, says Yogesh Patel, vice president of human resources at the refinery.

Today, he will advertise and fewer than 100 will show up to apply. "I have to do it again, two, three, four or five times," he says. He scours the country for big projects that are about to end and sends recruiters to competitors' gates looking for skilled workers. He even asks suppliers to get names and numbers of the competitors' managers so Reliance can try to poach them.

Migrants usually live on the job in bleak accommodations. In the fast-growing New Delhi suburb of Gurgaon, 22-year-old construction worker Sheetal, who goes only by one name, loads sand and bricks on and off trucks. He and four colleagues live in a makeshift tent made from bits of old tarpaulin weighed down with bricks, which has been home for six months. In front, there is a small fireplace with a frying pan. There is constant drilling, banging and clanging from the nearby construction site that blends with the steady snarl of traffic from a nearby multilane highway.

"Water is a big problem," says Sheetal. "Even if the water is dirty, I don't mind drinking it because there is no other option. We have fallen ill several times; that's what life is."

He earns about $1.50 a day. For toilets, Sheetal gestures to an open field behind the workers' tents. The crew has no electricity and relies on the floodlights on a large crane nearby to provide light at night.

But for some construction workers, the shortage of labor has started to make a difference, not just to their wages but also to their standard of living. Just across the fence from their camp, is a site run by DLF Laing O'Rourke, a joint venture between India's largest property-development company, DLF Ltd., and British construction firm Laing O'Rourke PLC.

The 37-acre site, which will house a multistory office complex, teems with cranes, cement mixers, and men bending steel rods and molding concrete.

To attract and retain skilled laborers, the nearby workers' living space has a sewage-treatment plant and 24-hour power, something not available in even some of Delhi's neighborhoods.

The site, which houses 5,500 workers, has prefabricated accommodation blocks with dorm rooms where, one recent balmy evening, workers lay on bunk beds under whirring fans. Others made fires in communal cooking areas. Strains of Bollywood hip-hop pulsated through the camp. The camp has bathroom facilities, a day-care center, and a first-aid station with a medical worker on duty.

At another DLF housing site in the area, Angoori Vishwakarma, 27, is playing with her baby, Ritu. Her husband works for DLF as a foreman. She prefers the place to her village in the northern state of Uttar Pradesh, she says, because the facilities are better and there's a constant supply of water and electricity, unlike in the village.

With such living standards, DLF has been able to hire back workers from overseas, even though wages, on average, are about 10% to 15% lower than those in the Middle East. "We are now starting a reverse brain drain at the bottom of the pyramid," says Rajeev Talwar, group executive director of DLF.

Karuna Kant, a 29-year-old senior foreman for DLF Laing O'Rourke in Gurgaon, says he came back from the Gulf because he wants to get married, and it's easier to arrange that here. "This company is a very good opportunity for the safety and the salary," he said.

--Tariq Engineer and Vibhuti Agarwal contributed to this article.