<html> <head><style type ="text/css">body { font-family: "Bloomberg Prop Unicode I", Verdana, sans-serif; font-size:125%; letter-spacing: -0.3pt; color: #FF9F0F; background-color: #000000; text-align: left; } p {line-height: 1.25em; max-width:900px; width:expression(document.body.clientWidth > 900? "900px": "auto" );} h1, h2, h3 { text-align: left; font-weight: normal; color: #FFFFFF; } h1 { font-size: 130%; } h2 { font-size: 115%; } h3 { font-size: 100%; } #bb-style { font-size: 90%; max-width:900px; width:expression(document.body.clientWidth > 900? "900px": "auto" ); } b, strong { font-weight: bold; } i, em { color: #FEC54A; } pre { font-family: "Andale Mono", "Monaco", "Lucida Console"; letter-spacing: -0.3pt; line-height: 1.25em; } table { border: 0; font-size: 90%; width: 100%; margin-left: auto; margin-right: auto; } td, tr { text-align: left; } td.numeric { text-align: right; } a:link { color:#53B2F5; text-decoration: none; } a:visited {color:#53B2F5} a:active {color:#53B2F5} a:hover {color:#53B2F5} </style> </head> <body> <p>By Chandrahas Choudhury</p>&#xD; &#xD; <p>It's possible that, in the long view, 2011 will be seen as Indian democracy's summer of discontent. It's hard to escape the sense of simmering mass unrest bred by the cynicism and cupidity of the political class.</p>&#xD; &#xD; <p>In the capital, the UPA coalition government, led by the Indian National Congress, has been rocked by corruption scandals and forced to deal with huge protests organized by&#xA0;groups in civil society. In Mumbai, a series of bomb blasts on July 13 led to a <a href="http://www.bloomberg.com/news/2011-07-20/mumbai-bombs-breed-anger-and-resignation-world-view.html">backlash</a> against the state government's inability to protect its citizens. The dominant issue in Parliament and among the public is the <a href="http://www.bloomberg.com/news/2011-06-21/indians-divide-over-policing-a-watchdog-world-view.html">Lokpal Bill</a>, seen by its proponents as a radical anti-corruption measure. The latest episode in this year's extended drama of political distrust and dishonor occurred July 31, when the chief minister of the south Indian state of Karnataka, <a href="http://indiatoday.intoday.in/site/story/who-is-yeddyurappa/1/146375.html">BS Yeddyurappa</a>, reluctantly <a href="http://articles.economictimes.indiatimes.com/2011-08-01/news/29838654_1_defiant-yeddyurappa-bs-yeddyurappa-bjp-brass">handed in his resignation</a> after being implicated in a mining scam.</p>&#xD; &#xD; <p>The Telegraph <a href="http://www.telegraphindia.com/1110801/jsp/frontpage/story_14316013.jsp">reported</a>:</p>&#xD; &#xD; <blockquote><p>[I]n a grand finale to mark the end of his 38-month tenure, the scam-tainted Yeddyurappa led hundreds of supporters, including some 70 [members of the Legislative Assembly] , ministers and 14 MPs, to Raj Bhavan to submit his resignation to governor H.R. Bhardwaj.</p>&#xD; &#xD; <p>A staunch believer in astrology, Yeddyurappa chose an auspicious time, setting out from his residence around 4 in the evening to walk the approximately 1km distance to the governor&#x2019;s house.</p>&#xD; &#xD; <p>&#x201C;No sacrifice is above the party,&#x201D; said the BJP strongman who kept the party high command on tenterhooks till the last minute with his defiant stand and set of demands that included presidentship of the state unit.</p>&#xD; &#xD; <p>But the pressure to resign had mounted since the state anti-corruption ombudsman&#x2019;s report, handed in on Wednesday, <a href="http://indiatoday.intoday.in/site/story/yeddyurappa-transactions-lokayukta/1/146386.html">charged him with receiving kickbacks</a> of [about $7 million] from a mining company.</p></blockquote>&#xD; &#xD; <p>Yeddyurappa's resignation was significant for at least three reasons. First, he was toppled not by a no-confidence motion in the Karnataka Assembly or by a judgement against him in a court, but by <a href="http://www.livemint.com/2011/07/27181222/Lokayukta-report-indicts-Yeddy.html">a damning report</a> on illegal mining in Karnataka produced by Santosh Hegde, the Lokayukta of Karnataka. The Lokayukta is an independent ombudsman appointed to look into complaints about the state administration. So it might be said that while the revelation of a chief minister's abuse of his powers was yet another blot on Indian democracy, the fact that it was achieved by an ombudsman's report was a sign that some of the checks and balances in the system are working.</p>&#xD; &#xD; <p>Second, Yeddyurappa's ouster has political ramifications. He belongs to the main opposition party in Parliament, the Bharatiya Janata Party (BJP). It was primarily through Yeddyurappa's influence as a mass leader (he belongs to the influential <a href="http://ibnlive.in.com/news/will-congress-tryst-with-lingayats-see-revival/172250-60-115.html">Lingayat caste</a>, one of the largest of Karnataka) that the BJP had, in 2008, established its first-ever government in Karnataka or, for that matter, in any of the states of the Indian south, an area where it has historically had very little influence.</p>&#xD; &#xD; <p>The BJP had so far taken the moral high ground on corruption. In order to keep up its campaign against the national government, the party was forced to take action against Yeddyurappa. But the deposed chief minister isn't the principal accused in the report. The main ones are the <a href="http://www.telegraphindia.com/1110731/jsp/7days/story_14312048.jsp">notorious Reddy brothers of Bellary</a> -- Gali Karunakar Reddy, Gali Janardhan Reddy and Gali Somashekhar Reddy -- who have made massive fortunes from iron-ore mining, are the prime funders of the BJP in Karnataka, and are all ministers in the present Karnataka government. The brothers rule over what is sometimes called "<a href="http://www.tehelka.com/story_main44.asp?filename=Ne030410coverstory.asp">The Republic of Bellary</a>," flouting laws with impunity and hounding and intimidating business rivals and critics. More heads may roll in Karnataka in the months to come, leading to further embarrassment for the party.</p>&#xD; &#xD; <p>Third, Hegde's&#xA0;25,000 page report is one of the most detailed and revealing documents ever published about the methods and stratagems of political corruption in India, and therefore contains intelligence not just particular to this case but of a general nature. It reveals the systematic plunder of the country's natural resources by ruthless entrepreneurs in cahoots with political parties. The report indicted <a href="http://www.tehelka.com/story_main50.asp?filename=Ws270711KARNATAKA.asp">six ministers, 784 bureaucrats and 100 firms</a>, providing an extensive map of the networks that have created what some have called "<a href="http://www.ft.com/intl/cms/s/0/635c59e6-19cd-11e0-b921-00144feab49a.html#axzz1Tu45SOzi">the split personality</a>" of India's extraordinary economic boom in the last decade. It puts the scale of loss to the Exchequer at an astounding $3.5 billion, which could make this, as one commentator put it, "<a href="http://www.deccanchronicle.com/editorial/op-ed/skeletons-bellary-633">the most brazen scandal in independent India</a>."</p>&#xD; &#xD; <p>In a report called "<a href="http://articles.economictimes.indiatimes.com/2011-07-31/news/29833502_1_illegal-ore-iron-ore-reddy-brothers">Anatomy of Bellary Mining Loot,</a>" the Economic Times said:</p>&#xD; &#xD; <blockquote><p>The barons of Bellary called it the 'zero-risk system'. It was a long, superbly organised supply chain to carry out what was, even by our elevated standards, a loot on an extraordinary scale. Police officers, forest officers, customs officials, government clerks, mining inspectors &#x2014; they were all in the know and on the take. And all of it with one single objective &#x2014; to feed to the exploding global demand for iron ore, which between 2006 and 2010 tripled to $150 per tonne. The players even had a codename for the illegal ore they carried away &#x2014; they called it 'zero material'.</p>&#xD; &#xD; <p>Under the law, all miners can only mine up to a certain amount of ore per year. If they mine ore above and beyond these amounts, it is 'illegal' ore. Also, any ore transported without paying royalties to the government, or without appropriate transport permits to carry the ore, is also illegal.</p>&#xD; &#xD; <p>In Bellary, miners dug out more ore than they were allowed to, transported it without paying royalty, and without the appropriate permits. [...] A single middleman assume[d] the entire risk of transporting illegal ore safely from mine to port, including paying off all officials on the way.</p></blockquote>&#xD; &#xD; <p>In one of the most revealing pieces about the Yeddyurappa affair and the state of Karnataka politics, "<a href="http://www.tehelka.com/story_main50.asp?filename=Ne060811COVERSTORY.asp">The Baron Might Go. The Robbery Goes On,</a>" the journalist Ashok Malik wrote:</p>&#xD; &#xD; <blockquote><p>What is happening in Karnataka will no doubt have an old-school socialist and an anti-reforms intellectual saying, &#x201C;I told you so.&#x201D; However, it can be equally &#x2014; if not even more &#x2014; disquieting for a free market liberal. This is not what the liberalisation compact of 1991 was supposed to be all about.</p>&#xD; &#xD; <p>Until 10 years ago, Karnataka was the poster-boy of the new India &#x2014; the state of Bangalore and Infosys, the migrant magnet of technology wizards and young kids earning more at BPOs than their parents ever did, the land that saved the world from Y2K.</p>&#xD; &#xD; <p>Today, Karnataka identifies with all that can go wrong with India. International trade and private enterprise have translated into not virtuous growth but iron ore pillage &#x2014; with buccaneers uprooting a finite national resource and simply shipping it to China. Admittedly, the Yeddyurappa government has moved towards a policy of value addition by building steel plants in Karnataka and using local iron ore, but there has been no attempt to actually curb robber-baron mining.</p></blockquote>&#xD; &#xD; <p>And the columnist Paranjoy <a href="http://www.deccanchronicle.com/editorial/op-ed/skeletons-bellary-633">Guha Thakurta</a> drew attention to how Hegde's report showed that parties across the political spectrum were complicit in the same kinds of robber-baron economic activity. Guha Thakurta wrote:</p>&#xD; &#xD; <blockquote><p>There&#x2019;s another aspect of the iron-ore scam that has not been adequately highlighted. Besides the Lad family, which has been implicated in Justice Hegde&#x2019;s report &#x2014; mine-owner Anil Lad is a Congress MP in the Rajya Sabha, the Gali Reddy brothers were very close to former Congress chief minister of Andhra Pradesh, the late Y.S. Rajasekhara Reddy and his son, Y.S. Jaganmohan Reddy.</p>&#xD; &#xD; <p>It would not be an exaggeration to say the loot from iron ore mining and exports from Bellary has covertly enriched the two largest political parties in the country.</p></blockquote>&#xD; &#xD; <p>A version of Guha's point was made recently by the economist Vivek Dehejia, who argued recently in a piece in the International Herald Tribune called "<a href="http://www.nytimes.com/2011/04/14/opinion/14iht-eddehejia14.html">After The Robber Barons</a>":</p>&#xD; &#xD; <blockquote><p>Is corruption the flip side of rapid economic growth? History appears to answer this provocative question with a heretical yes.</p>&#xD; &#xD; <p>The exemplary instance is the Gilded Age in the United States, the era of the robber barons. It was a period of rapid growth, rampant corruption, rising wealth and income inequality.</p>&#xD; &#xD; <p>Recently, Ashutosh Varshney, a political science professor at Brown University, has drawn the <a href="http://www.ft.com/intl/cms/s/0/635c59e6-19cd-11e0-b921-00144feab49a.html#axzz1Tu45SOzi">striking comparison</a> between that age and contemporary India, which too features dizzyingly rapid growth, a new class of superrich entrepreneurs, a clutch of crooked politicians and a seemingly unceasing carousel of corruption scandals.</p>&#xD; &#xD; <p>Historical analogy is tricky, but it is certainly true that India today broadly resembles the earlier American experience, both in the rapidity of economic growth and the structural transformation from an agrarian to a modern economy, and the accumulation of staggering fortunes, often through illicit means, with the attendant widening gaps between rich and poor.</p>&#xD; &#xD; <p>One could equally point to other large emerging economies, such as Brazil, Russia or China (with India, the BRICs), which all have experienced this combination of rapid growth, rising inequality and corruption.</p>&#xD; &#xD; <p>What is the explanation? In all of these cases, the causal mechanism is the same: Unregulated capitalism generates both rapid growth and burgeoning inequality.</p></blockquote>&#xD; &#xD; <p>And last, an interesting footnote to the Yeddyurappa affair was the influence on the former chief minister not so much of political rent-seekers as the moon. When Yeddyurappa was finally persuaded by the BJP's national high command to resign, he insisted he would not do so in the month of Ashadh in the <a href="http://www.hindunet.org/hindu_calendar/">Hindu lunar calendar</a>, because this is considered an inauspicious time. His <a href="http://indiatoday.intoday.in/site/story/yeddyurappa-to-resign-on-july-31/1/146402.html">resignation statement</a> to the press read: "The month of Ashada will be over on 30th July on the New Moon day or Amavasya. I will be tendering my resignation as Chief Minister on the forenoon of 31st July 2011."</p>&#xD; &#xD; <p>Inauspicious time over, the former chief minister <a href="http://www.thehindu.com/news/states/karnataka/article2316584.ece">promptly moved</a> the Karnataka High Court against the Lokayukta's report, demanding that the chapter dealing with him be quashed. On the same day, Lokayukta Santosh Hegde's five-year term ended, and he <a href="http://www.ndtv.com/article/india/karnataka-lokayukta-santosh-hegde-demits-office-today-123661">retired from his post</a> after a job well done.</p>&#xD; &#xD; <p>(Chandrahas Choudhury, a novelist, is the New Delhi correspondent for the World View blog. The opinions expressed are his own.)</p>&#xD; &#xD; <p>To reach the writer of this blog: <a href="mailto:chandrahas.choudhury@gmail.com">chandrahas.choudhury@gmail.com</a></p>&#xD; &#xD; <p>To contact the editor responsible for this article: <a href="mailto:mberley@bloomberg.net">mberley@bloomberg.net</a></p>&#xD; &#xD; <p> <br></br> </p> </body> </html>