By Josh Chin (’07)

HOSPET – This once green town in Bellary District in the heart of southern India has recently turned the color of rust.

The same reddish-brown tone stains the walls of restaurants, the sides of cars, and the fur of stray cats dodging autoricksaws in the dusty streets. At the relatively luxurious Hotel Malligi in the center of town, it tints the towels and sheets—and covers everyone who ventures outside.

“It’s everywhere,” P.N. Sreepad, the Malligi’s owner, warns a recently arrived guest. “You cannot escape it.”

Hospet’s new cloak comes from a nearby cluster of low mountains where dozens of open-pit mines kick up clouds of red dust. The mines contain some of India’s richest reserves of iron ore. Since 2003, the beginning of a China-driven explosion in global demand for the mineral, the region has been in the grip of a “red gold” rush as frenzied and lawless as the gold rush that put San Francisco on the map 150 years ago.

The total value of iron ore produced in Bellary has jumped roughly 800 percent in the last five years, transforming the district from a poor backwater into an industrial epicenter. The process has wreaked havoc on the environment. And while it has made a handful of the district’s 2.3 million residents into overnight millionaires, it has sucked tens of thousands of others including children under 14 into slave-like labor. Now, a political controversy over the rush threatens to consume leaders at the highest levels of the state government.

The issue at the center of the controversy is not the environment or child labor—both problematic– but an epidemic of illegal mining practices that has robbed the state government of millions in revenue, according to critics. More fundamentally, the rush raises questions about how and to what extent India’s people are benefiting from the country’s vaunted economic development.

“This is public property, the wealth of the nation, but the mine owners can get it for themselves by paying a bribe to get a lease,” says Father Jose Pazheparambil who lives in Hospet. “Meanwhile, not a rupee, not even a paisa, is spent for the development of the area.”

Pazheparambil, the director of the Don Bosco-Centre for Social Action, a Catholic NGO that runs schools for the children of mine workers, is one of the most vocal critics of the government’s management of the mining boom. His chief complaint is how easy and lucrative it is for mine owners to extract and export some of the country’s most valuable iron ore

Private mining of the ore was heavily restricted in India until the late 1990s, when the World Bank urged the government to loosen controls. In 2000, local leaders introduced a new policy to actively push for privatization. In Bellary District, the number of private mining leases has swelled to 111 this year, from 48 in 2001.

While the government still technically owns the deposits, private companies pay only a periodic lease renewal fee and a royalty of 50 cents a ton for the right to extract iron ore that can fetch as much as $60 a ton on the open market.

Last year, the district’s mine owners earned at least $645 million in profits, with the majority coming from government-owned deposits, according to official statistics. State royalties from iron ore last year amounted to a paltry $18 million.

“We’re sick of seeing the cash,” says Gururaj, a worker in the Hospet branch of the State Bank of India that was still humming with business at 5pm on a Saturday in March. “People walk around with briefcases full of it.”

Signs of the new wealth are readily visible in the streets outside, where black Mercedes Benzes with tinted-windows honk their way through Hospet’s perpetual logjams. If a new luxury car is sold in India, a local saying goes, you’ll see it in Hospet first.

And local newspapers reported earlier this year that mine owners had applied to purchase 32 helicopters, presumably to bypass dirt roads battered by a constant stream of overloaded ore trucks. The purchases would give Hospet the highest per-capita concentration of private helicopters in all of Asia, according to the reports.

Not all mine owners are thrilled with the boom. Although he has profited immensely from increased production, H.G. Rangan Goud, a third-generation mine owner who grew up in Hospet, is among the critics. “It’s not healthy growth,” he says. “It has become an unscrupulous trade.”

The problem, according to Goud and others, is a “mining mafia” comprised of powerful mine owners who bribe government officials and local law enforcement to bypass environmental regulations. This allows them to encroach on protected forestlands and produce beyond quotas without being fined.

Local officials interviewed earlier in the year either denied illegal practices existed or said the government had simply been overwhelmed by the sudden boom.

But in March, the state’s top forest official released a report detailing numerous violations said to have cost the state millions in lost revenue. In June, allegations began to fly that the same forest official had accepted bribes from mine owners totaling $32 million on behalf of Chief Minister H.D. Kumaraswamy. More recently, an elected official from the opposition party appeared with one of the region’s most powerful mine owners to present blurry video alleged to show the bribery taking place.

A June report on the controversy in the Indian investigative magazine Frontline noted that many of the officials involved in the fracas are either mine owners or have close connections to the industry. While the critics have welcomed the revelations, they fear political corruption will prevent any real changes.

“It’s all rotten,” says B.T. Venkatesh, a lawyer and social activist from Hospet. “There is not a single mine there that is not doing something illegal.”

“I think [the corruption] is there, but that is not an official position,” says a top district official who spoke only on condition his name not be used. “You ask why certain fines have been lowered and why the royalty has stayed the same. Maybe there’s your answer.”

An issue largely ignored in this political fight is the exploitation of an army of migrant laborers, many of them children, who have been lured into the mines from the region’s failing farms.

Of the 400,000 who work in the mines, roughly half are under age 14, according to a report last year by Indian labor and environmental NGOs. While the more skilled adults have found decent work driving trucks or operating machinery, most workers live and labor in barren, sun-baked fields with little or no water, pulverizing fist-sized lumps of iron ore with sledge hammers. They earn 15 cents for every putti—a shallow iron basin the size of an outdoor grill.

A family of four working together can earn as much as $25 a week, five times what they’d earn in agriculture. But it is a miserable life.

“I would smash my fingers,” recalls Lakshmi, a shy, bright eyed eight-year-old girl recently rescued from the mines by Father Pazheparambil. “And there was no water, so I couldn’t take a bath.”

“Shards of rock would fly into her eyes,” adds her mother, Thimmakka, 45, who brought her daughter to the mines two years ago after her husband died of tuberculosis and left them penniless. Forced to work more hours now that her daughter is in school, she can afford to stop only briefly before shuffling out to the bus that will take her back to the iron ore plot.

By most accounts, the boom will continue. China pays handsomely for Indian iron ore, which it converts into steel to feed a frenzy of construction in the lead-up to the 2008 Olympics. Chinese steelmakers agreed to a 71-percent price increase last year and this summer accepted another 19-percent rise.

“How can anybody stop this?” asks Rahul Baldota, Executive Director of MSPL, one of Bellary’s largest mining companies. Chinese demand, according to Baldota, will undermine any effort to clamp down on the iron ore rush.

Meanwhile, the state’s Commissioner of Mines and Geology remains committed to the privatization of mining, which he insists must be seen in a global context. “If the resources are there, they have to be used,” the commissioner, Gangaram Baderiya, says, “not just for the people of India, but for the whole world actually.”

Igreshappa, a long-time resident of Ramgad, a village high up in the Ramandurga mountain range south of here, has a different assessment of the boom. The 87-year-old remembers when India’s old colonial rulers used to come in search of the region’s red gold. “From the time the British left until now, it’s been the same, except for the dust,” he says, adjusting the folds of his dhoti stained the color of rust as he watches a truck loaded with ore rumble down the hill. “We’ve seen no benefit from the mining. The workers are not getting anything.”

[NOTE: This story originally appeared as a two-part article in the June 13-16 2006 issue of India's Frontline Magazine. See part one here, and part two here]