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August 18, 2010
Despite Scandals, Indian Mining Bosses ThriveBy JIM YARDLEYBELLARY, India —
Janardhana Reddy insists he is not a king. No, no, no, he protested, as a
servant trotted across the courtyard to deliver a cup of cooled water. Men with
machine guns stood outside. An architect waited to discuss the new mansion,
while another man hovered nearby, sitting in the grass.
“He’s the state minister of health,” Mr. Reddy said of the man in the grass,
who
stood up, made a little bow and hurried away.
Mr. Reddy may not be a king, but he does represent a new phenomenon in the
political economy of India: He and his brothers are the country’s most powerful
mining bosses at a time when illegal mining has become a national scandal, amid
accusations that billions of dollars of publicly owned minerals have been
stolen, often by people holding public office.
For decades, moneyed interests have bankrolled India’s political parties, but
nouveaux mining magnates like the Reddy brothers have conflated money and
politics in far more naked fashion, as the thirst for iron ore in India, and
more so in China, has created huge fortunes.
Mining scandals have emerged in at least five Indian states, with more than
20,000 complaints of illegal mining filed nationally in the past three months.
Politicians in several states are accused of enriching themselves or their
friends, including a former chief minister of the state of Jharkhand, who is
charged with extorting huge bribes in exchange for granting mining leases.
This week, the Indian media reported that the central government would form an
inquiry to investigate illegal mining across the country, a move regarded as a
first step in reversing past failings in regulation. Here in the southern state
of Karnataka, the controversy surrounding the Reddy brothers has become a
national political melodrama, threatening at different times to bring down the
state government, while also throwing global markets for iron ore into turmoil.
The Reddys, who say they are innocent of claims of illegal mining, have
transformed themselves in less than a decade from obscure activists for the
Hindu nationalist Bharatiya Janata Party, or B.J.P., into political bosses who
directly or indirectly control three state ministries and dominate local
government in the Bellary district, which holds the state’s richest iron ore
deposits.
“You’ve never had mining dons entering politics and controlling government,”
said Ramachandra Guha, a historian who lives in the state capital of Bangalore.
“They are more or less uncrowned kings in their district. There is a level of
brazenness that even by the standards of Indian politics is new.”
What prompted the change, and the rush by political figures into mining, was
the
steady rise in iron ore prices during the past decade. India relaxed its export
restrictions at roughly the same time that China was in the throes of the
biggest construction boom in history, culminating with the 2008 Olympics in
Beijing. Technical advances allowed more types of ore to be exported, and the
price per metric ton soared. Where once it had brought about $17, today the
price is about $130.
“It encouraged practically everybody who was somebody to come into this
business,” said N. Santosh Hegde, a former justice on India’s Supreme Court who
is leading an official corruption investigation into illegal mining in
Karnataka. “People who had no knowledge of mining but who had money power or
muscle power — either would work — they came into mining. It really became sort
of a rat race.”
Mr. Hegde’s investigation has discovered that at least 10 members of the Indian
Parliament or the Karnataka state assembly control leases in the Bellary
region.
By 2004, when the Reddys got their first lease, they had emerged as political
players. The sons of a police constable, Janardhana Reddy and his two brothers
had been key supporters of a B.J.P. candidate, Sushma Swaraj, in a local
parliamentary race in 1999 that became a national showdown against Sonia
Gandhi,
the scion of the governing Indian National Congress Party.
Ms. Gandhi won the race, but the Reddys would steadily turn the Congress Party
stronghold toward the B.J.P. Ms. Swaraj, now the leader of the opposition in
Parliament, became their patron. To get rich, however, the Reddys transcended
partisanship and allied themselves with the Congress Party’s Y.S.R. Reddy (who
is no relation), the powerful chief minister in the neighboring state of Andhra
Pradesh. Iron ore deposits straddle the border of the two states, and the
Reddys
obtained leases on the Andhra Pradesh side.
The Reddys got richer, bought a helicopter and are believed to have bankrolled
numerous political campaigns. In 2008, they financed B.J.P. victories that
helped the party to take over the Karnataka state government. As his reward,
Janardhana Reddy became the state’s minister of tourism; his brother Karunakar
became minister of revenue; his brother Somashekhar became president of the
state’s powerful milk federation; and their close ally, B. Sriramulu, became
the
health minister.
Last year, when the state’s chief minister, B.S. Yeddyurappa, tried to levy a
fee of about $21 per truckload of ore, the Reddys led an internal party revolt,
rallying loyal legislators and threatening to withdraw support for the
government. Faced with the potential collapse of his administration, Mr.
Yeddyurappa relented on the levy, fired two close allies who had opposed the
Reddys and wept during a news conference. Meanwhile, Janardhana Reddy’s
portfolio also included the post of minister in charge over the Bellary
district. “The entire government machinery is under his belt,” complained
Raghavendra Rao, a spokesman for the Baldota Group, a mining conglomerate at
odds with the Reddys.
Now, though, the Reddys’ power is being tested. Last year, their patron in
Andhra Pradesh, Y.S.R. Reddy, died in a helicopter crash. Without his political
protection, the Reddys were subjected to notices for illegal mining, building
illegal roads and moving state boundary markers to expand the reach of their
mine. In the interim, their mining in Andhra Pradesh has been suspended.
At the same time, Mr. Hegde, the corruption investigator, is looking into
claims
that the Reddys have been secretly controlling mining on the Karnataka side of
the border by illegally operating leases held by other people — and taking the
majority of the ore.
With bad publicity mounting, the B.J.P.’s national leadership has appeared
divided over the Reddys. The Congress Party, sensing opportunity, held a
190-mile protest march from Bangalore to Bellary. The B.J.P. held a counter
rally.
Under pressure, the Karnataka chief minister recently acknowledged that illegal
mining was rampant and blocked exports from state ports, a move that
contributed
to a spike in prices of about 4 percent on global markets. Yet the chief
minister has still protected the Reddys by blocking an investigation by India’s
Central Bureau of Investigation and saying no wrongdoing had been proved
against
them.
Sipping his cup of water, Janardhana Reddy seemed unconcerned about the growing
uproar. Asked about the investigations, and about whether he controlled the
state and local governments, Mr. Reddy blamed partisan politics, saying the
Congress Party was determined to smear him to win back Bellary.
“Go and ask any common man and they will tell you that I don’t act like a
king,”
he said. “God is great. And God has been giving me these beautiful mines.”Hari
Kumar contributed reporting. Saimah Khwaja contributed research from New Delhi.
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