Kolkata: A New Hot Spot in India

Kolkata - This city at the mouth of the Ganges should be a jewel in India's crown. The former capital of the British Raj—then known as Calcutta—has a huge English-speaking workforce, decent highways, a vast port, and plenty of cheap land. Yet the metropolis of 13 million has long lagged the likes of Delhi, Mumbai, and Bangalore in job growth. One key reason: For 32 years the state of West Bengal—of which Kolkata is the capital—has been run by Communists who still revere Marx and Mao.

Kolkata may soon catch up. In municipal voting in July, the city's Communists were booted out in favor of Trinamool Congress, a local group allied with the Congress Party that leads the national government. That followed nationwide elections this spring in which India's Communists lost more than half their seats in New Delhi. And in December, state elections will likely see the West Bengal Communist leadership bounced as well: At least two polls predict a blowout.

While social welfare in Kolkata tends to be better than in much of the rest of India, in recent years the city has suffered economically relative to places that have fully embraced free markets. The Communists have emphasized health care and land reform but have done little to attract business. The growing gap has fueled voter disaffection with the Communists. On July 21, 100,000 people thronged Kolkata's main drag to celebrate the Trinamool victory, blocking traffic as monsoon rains flooded the streets. "Unless [the Communists] are ousted from power, no development is possible in West Bengal," Mamata Banerjee, the firebrand Trinamool chief, told the rally.

ELECTRICITY SHORTAGESIndia Inc. is pleased with the change. Outsourcing companies have long eyed Kolkata's capable, inexpensive workforce and would like to expand operations there. Sector V, an industrial park in a drained swamp, illustrates the potential. The Communists agreed not to recruit the park's workers into West Bengal's powerful trade unions, and Sector V now provides jobs for 75,000 people at 550 technology, outsourcing, and call-center companies. The park's export revenue climbed 46% last year to $1 billion, a figure that's expected to hit $1.6 billion this year, while the state's growth is below 10%. And Delhi-based Jindal Steel is planning a mill on land designated as a special economic zone, exempt from state labor rules. "There is great potential for IT in Bengal, for the auto industry, for petrochemicals," says Saugat Chatterjee, regional head of the Confederation of Indian Industries.

Still, the changes won't happen overnight. Corruption, electricity shortages, and a rejection of foreign capital have left the city in rough shape. A year ago, the Communists angered farmers when they seized land for a $450 million plant to build the ultracheap Tata Nano car; protesters led by Banerjee managed to scuttle the plans, creating the opening for Trinamool.

The Communists aren't giving up without a fight. Kolkata has hosted two international trade fairs in the past year, a state agency is offering vacant land to factory owners, and the state has launched an $80 million venture capital fund. But for the old-school Communists running the party out of a decrepit bungalow with peeling posters of Lenin, Mao, and Stalin, the sudden unpopularity seems to be a shock. "Frankly, the reasons for our distance from the people are not known to us," politburo member Biman Bose says, flicking his cigarette into an ashtray modeled after a Marlboro box. The election results, he says, "caught everyone by surprise."

    Before it's here, it's on the Bloomberg Terminal.