KARNATAKA GOVERNMENT IN LIMBO

UNCLAS SECTION 01 OF 03 CHENNAI 001490

SIPDIS

SENSITIVE BUT UNCLASSIFIED

E.O. 12958: N/A
TAGS: PGOV PINR IN
SUBJECT: KARNATAKA GOVERNMENT IN LIMBO


1. (SBU) SUMMARY: Bangalore, India's leading
technopolis and the capital of Karnataka, is burdened
with a tardy and incomplete state government led by
contending coalition partners. Local business leaders
complain that the new Singh government has overshot
the mark in shifting focus from urban to rural
development and they have even threatened to move out
expansion projects, but the Congress-JDS coalition
government has not responded convincingly. Chief
Minister Dharam Singh's pliable politics, however,
might permit the coalition to limp along longer than
Bangalore business leaders would like. END SUMMARY.

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Karnataka Government in Limbo
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2. (SBU) Nothing better epitomizes the current state
of the Karnataka Government than its inability to
build a full cabinet team. Five months have passed
since the Congress-Janata Dal-S (JDS) coalition
government, the first of its kind in the state, came
to power. Chief Minister Dharam Singh has established
and missed several deadlines for expanding the cabinet
from its present strength of 12 ministers to the full
strength of 34. According to Bangalore journalists,
the conflicts between Congress and JDS leaders as well
as the infighting within the JDS have prevented Singh
from accomplishing the task. Important portfolios
such as primary education, health, and IT have no
political heads of their own. "Dharam Singh has to
look after 24 portfolios, apart from coalition
politics; how can you expect anything better?" asked
Ranganath, Editor of Bangalore's prominent daily, the
Kannada Prabha.

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JDS - Congress Tension Delays Projects
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3. (SBU) Deep divisions in the coalition have also
thrown a monkey wrench into the works of several
projects. Business houses had expected the much-
delayed Bangalore airport project at Devanahally to
proceed faster than it has, given that the same party
is in power at the Center and in the state. "We have
a coalition government in the state, you know," Chief
Executive Officer Albert Brunner of Bangalore
International Airport explained to Post, "The present
Deputy Chief Minister (who belongs to the JDS) wants
to reexamine the state support agreement the previous
Congress government had finalized, and it takes much
longer than we expected." Brunner, however, was
hopeful that the issue would be sorted out eventually,
perhaps within a few days. India Today correspondent
Steven David was more pessimistic about the airport,
citing whimsical, politically driven changes to the
plan that carried significant additional financial
costs.


4. (SBU) The Bangalore-Mysore Infrastructure Corridor
project of the previous government is also stuck,
after JDS leader Deve Gowda charged the previous
Congress Government with corruption. Former Chief
Minister SM Krishna reacted angrily with a letter to
the Chief Minister asking him to scrap the project and
return the acquired land to the farmers. Krishna's
pet private-public partnership to facilitate
Bangalore's infrastructure development - the Bangalore
Agenda Task Force - is another casualty of the change
of government. The project, though still alive on
paper, remains completely non-functional.

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Industry Captains Complain of Misplaced Priorities
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5. (SBU) During recent meetings in Bangalore conducted
by visiting New Delhi PolCouns, politicians,
journalists, and business leaders complained that the
Singh government had overshot in shifting its focus
from urban to rural development. Several, including
Infosys Chairman N.R. Narayana Murthy, assailed Chief
Minister Singh for his lack of any vision for
Karnataka's future. As evidence of his misplaced
priorities, several IT leaders cited the Chief
Minister's failure to meet even once with the
technology community. The director of a top-tier US
technology company remarked that unlike the past (when
the office of Chief Minister Krishna was a stop on the
itinerary of every visiting US executive) his CEO
wouldn't even ask to call on Chief Minister Singh,
preferring to go straight to the source in New Delhi,
where the government is viewed as more responsive to
industry concerns. Releasing company results on July
23, Azim Premji, Chairman of Wipro and India's richest
man according to Forbes, threatened to relocate all
expansion projects elsewhere if the city's
infrastructure is not improved.

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Dharam Singh Promises; Industry Skeptical
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6. (U) Many Post contacts have expressed doubt that
the Karnataka Chief Minister has the focus or dynamism
to deliver on his promises. Pressured by industry
leaders, Chief Minister Dharam Singh has made some
attempts to publicly recognize the importance of
Bangalore's infrastructure, announcing on November 15,
for instance, that the government would repair 900 km
of road surface in Bangalore. Consul General Haynes
asked the Chief Minister on November 18 if the project
had started and the Chief Minister said only "We will
assuredly do it." On November 1, inaugurating
Bangalore IT.Com, Dharam Singh announced a $90 million
Hi-Tech City Project in Bangalore spread over 1070
acres and said: "We will leave no stone unturned to
ensure that Bangalore maintains its pre-eminent
position as an IT destination in India and the world."
Karnataka IT Secretary Shankarlinge Gowda informed
Post, however, that apart from an increase in the tax
on computer hardware from 5% to 12%, nothing has
changed in the new government's IT policy. Industry
remains skeptical of Dharam Singh's ability to deliver
responsive administration.

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Delhi: Yes to Bangalore, but Farmers Come First
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7. (U) On October 19, the Deccan Herald reported that
Prime Minister Singh called Chief Minister Dharam
Singh to urge him to repair the Bangalore city roads
in response to complaints from the IT czars. The
Times of India reported on October 21 that several
Bangalore industrialists raised the matter also with
Rahul Gandhi, Sonia's son and an MP in his own right,
when he toured the city. "No new industries are coming
to Bangalore...If investors drop Bangalore from their
list, it will be India's loss," they reportedly told
him, reminding him that the competition was not with
any other Indian city but with China. According to
the newspaper, Rahul Gandhi's reply was: "Indian
politics is narrowly focused on issues and short-term
gains. Here, in Bangalore you are working on the
latest of technologies while in my constituency
(Amethi in UP) and other villages there are people who
are living without water and electricity too. I feel
sad about this and have been grappling with this
situation day in and day out."

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Congress' Partner Competing for Farmer Vote Bank
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8. (SBU) The JDS is even more focused on the
agriculture sector, a priority area the Congress would
not like to leave exclusively to their coalition
partner. Talking to Consul General Haynes, Bangalore
Deputy Chief Minister and JDS leader Siddaramaiah, who
also handles the Finance portfolio said that one of
the most important things the new government has done
is to make available subsidized loans from cooperative
societies to farmers at 6% interest in place of the
12.5-13.5% interest charged previously. He has also
doubled the annual budgetary allocation for
agriculture from its previous $100 million.
Industries Minister and JDS leader P.G.R. Sindhia
acknowledged to PolCouns that the state government has
been slow to address Bangalore's yawning
infrastructure gap and was "still finding its feet."
But he was unapologetic about the JDS focus on rural
constituencies, arguing that this was an overdue
corrective to former Chief Minister Krisna's urban
preoccupation.

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Villagers Don't Care for IT, But Bangalore Helps All
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9. (SBU) According to Ranganath, Karnataka citizens in
general, particularly the ones outside Bangalore, are
not excessively concerned over Bangalore's IT sector's
concerns. "If they were a manufacturing industry,
there would have been a little more support from the
people," he observed. However, he added that over a
period of time, the government's incompetence on all
fronts would affect the popularity of the government."
Business sources, meanwhile, continue to point out
that Bangalore provides about 60% of the state's GDP,
and any shortfall in Bangalore would affect the entire
state.

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Pro-Farmer Policy Fig Leaf Can't Hide Inefficiency
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10. (U) COMMENT: Interpreting the 2004 election
results as a mandate to change from a pro-urban, IT
driven development strategy, the present government
seems to have found an excuse for being less active on
the IT front despite loud protests from business
leaders. On paper, the new government's priorities
are rural development and farmers' welfare, areas that
no government can ignore. In reality, however, the
leaders spend more time and energy on coalition
politics, warring over spoils and settling old scores.
To the new generation of Bangalore businessmen, at
least, it is back to the old Congress politics of
muddled thinking, lip service to the poor, and an
increasingly irrelevant government. But Dharam
Singh's flexible politics may help to keep his
government in power much longer than Bangalore's
business community would like. END COMMENT

Haynes