India's economy, now with muscle

In fact, the plant has been so successful that Hyundai recently decided to make India its "export hub for small cars to the rest of the world," says Lheem. The facility is adding a second factory on the campus to double its capacity to 600,000 cars a year – half for India, and half for export.

Nearby, 16 Korean suppliers have sprung up to support Hyundai's operations – providing everything from brake pedals to wheel axles. Fifteen more will arrive when the second factory opens.

This is the "halo effect," with supporting industries establishing satellite factories near a main plant. "It's one of the biggest influences in the economy, and it's one reason countries like the motor-car industry so much," says Garel Rhys, an auto-industry expert at Cardiff Business School in Wales.

It's also one reason that Chennai has come to call itself the "Detroit of India" with an affection for the Motor City that only a Tigers fan would know. In addition to hosting Hyundai, Ford, and BMW factories, Chennai has become the hub for an Indian auto-parts industry forecast to grow to $25 billion in 2015 from $10 billion in production this year.

Each of these halo companies offers more jobs, as is evident in the Hwashin factory nearby, where Indian workers weld fenders and hoods amid showers of sparks.

In contrast to the climate- controlled coolness of the Hyundai production floor, where a white- fingered glove could swab the floor without complaint, Hwashin is a riot of activity and a cacophony of crashing steel.

It is the sound and sweat of industry, and these are 885 jobs that India needs. More than half of India's 1.2 billion people are age 25 or under, and in order to keep up with the demographic wave to come, India needs to add as many as 8 million jobs a year.

India's youth is both a blessing and a challenge. The young demographic contrasts with China's, where the one-child policy has yielded an older work force less attractive to foreign investors.

Yet the employment pressures it creates cannot be solved by IT alone. By leaping straight from a premodern agrarian economy to a white- collar service economy, India essentially skipped an economic step: It never built a blue-collar industrial base. Today, 70 percent of Indians are still employed in agriculture.

So when the economy grew by 6 percent from 1995 to 2005, the growth passed them over. During this time, poverty in India fell by only 0.8 percent, according to a study by the National Sample Survey Organization here.

Manufacturing is the only sector that can begin to fill the gap, adding about 4 million jobs a year, says Mr. Mangaleswaran of McKinsey. "You can't take [people] off a farm and put them in a call center," he says. "But you can put them in a factory."

At Hyundai, they come from as many as 30 miles away, filing off buses that line up nose-to-tail like expectant schoolchildren. With its low-cost work force and abundant natural resources, India has much good to recommend it to manufacturers along with the problems of infrastructure and access.

But the government appears to be placing its greatest faith in the small-car industry, reducing the excise tax on small cars to 16 percent from 24 percent earlier this year.

"With 1 billion people to feed, you cannot depend on services," says Sugato Sen, director of the Society of Indian Automobile Manufacturers in New Delhi.

"You need manufacturing, which the government realizes," he says, "and the auto industry is one industry that can really make a contribution."

When Nokia decided it was time to build a factory in India, a curious thing happened: Many of its calls to explore investment went unanswered.

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