GOI MINISTER: NO THIRD FRONT, UPA TO PUSH FOREIGN

C O N F I D E N T I A L SECTION 01 OF 02 NEW DELHI 006846

SIPDIS

E.O. 12958: DECL: 09/05/2015
TAGS: PGOV EINV EFIN ECON PREL ELAB IN
SUBJECT: GOI MINISTER: NO THIRD FRONT, UPA TO PUSH FOREIGN
RETAIL INVESTMENT

REF: NEW DELHI 6637

Classified By: A/DCM Geoff Pyatt, for Reasons 1.4 (B, D)


1. (C) Summary: GOI Minister and Congress leader Jaipal
Reddy told A/DCM on September 2 that the US-India
relationship was welcomed "across the political spectrum" in
India, despite some insincere sniping from the opposition.
While the Left Front has staked out opposition to some UPA
efforts, it will not obstruct issues it cannot win, because
it is too committed to the UPA government. Reddy speculated
that West Bengal CM Buddhadeb Bhattacharjee will be the
future Communist Party of India (Marxist) (CPM) leader, and
dismissed the possibility that the CPM would split from the
UPA to form a third front with regional parties. Congress
leadership, hoping to make progress on financial reform after
several false starts, believe that the government can open
the retail sector to foreign investment. End Summary.

All Welcome US-India Agreement
--------------


2. (C) Congress Party leader and Minister for Information
and Broadcasting Jaipal Reddy said that politicians "across
the spectrum" welcomed the US-India joint statement following
PM Singh's July Washington visit. The BJP and Left had
chosen to posture in opposition instead of taking credit for
their part in the transformed relationship, but Congress
might have done the same in opposition, Reddy admitted. The
BJP did not oppose the agreements out of principle, he said,
so their complaints have fallen flat.

Left Front Committed to UPA; No Third Front
--------------


3. (C) Although the Left has grumbled about the US-India
relationship, the UPA has staked out such an inflexible
position in this area that the Left has no choice but to go
along, Reddy said. They cannot oppose the agreement
successfully without withdrawing support from the government,
which they will not do. The Left Front leadership
"indicates" to the UPA where it can yield and where it will
not, Reddy reported, but will not in any case defect to a
"third front" with regional parties as they know it would not
be viable. Although the BJP is now in disarray, Reddy
conceded it would "get its act together" if the government
fell due the Left Front, and the strong anti-incumbency
sentiment in Indian politics could benefit the BJP in an
election to the detriment of the Congress and Left.


4. (C) The Left's "accomplishment" overall has been to slow
the pace of economic reform, but not stop it, Reddy stated.
The CPM has to echo the positions of the trade unions who are
the source of its funding, but any leader who has had to
rule, like West Bengal's former and current Chief Ministers
Jyoti Basu or Buddhadeb Bhattacharjee, knows how difficult it
is to follow the Left's full-employment schemes. Even
"sloganists" in the CPM know that their slogans are
impractical, Reddy commented.

UPA's Reform Agenda: Retail Next
--------------


5. (C) After conceding to the Left's redlines on
disinvestment and earning its approval on the recently-passed
rural employment guarantee bill (reftel),Reddy stated that
the UPA would turn to liberalization in the retail sector,
including opening to foreigners, as the next reform area.
The Left Front has signaled that it would not obstruct this
area, unlike the more sensitive (to the CPM) issues of
disinvestment. COMMENT: The BJP, however, will put up a
fight on behalf of small traders, many of whom support the
party. END COMMENT.
Congress Will Lose Kerala to CPM
--------------


6. (C) Reddy admitted that in addition to winning the 2006
legislative assembly elections in West Bengal, the Communists
would likely win in Kerala at the expense of Congress. The
Congress Party does not see even a chance of defeating the
CPM. Bhattacharjee will be the future CPM national chief, he
speculated, noting that ultimately the pragmatic reform
ideology of Bhattacharjee's West Bengal branch of the CPM
would prevail in the party, but it would take time for the
institution to change its position.


7. (C) The media perception of current CPM Prakash Karat as
an ideological hardliner is not correct, Reddy stated. Karat
understands economics, but he is professing a hardline
Communism in order to fight the elections in West Bengal and
Kerala. Karat also understands that his current Left Front
share in the Lok Sabha is "unprecedented," and unlikely to be
repeated, Reddy added, and will not risk his influence by
bringing down the UPA government.

Comment: Smooth Sailing for Congress
--------------


8. (C) Despite recent media spotlight on the disagreements
between the Congress and its Left Front supporters, Reddy's
optimism suggests that the Congress leadership believes that
it will be able to push forward its agenda of strengthened
ties with the US and moderate advances in domestic economic
reform. Although the UPA is undeniably disappointed at
losing battles with the Left over disinvestment in public
sector undertakings, it seems to have reached an
accommodation with the Left parties to avoid certain sacred
cows in exchange for permission to tinker with the remaining
areas for economic liberalization.


9. (U) Visit New Delhi's Classified Website:
(http//www.state.sgov/p/sa/newdelhi)
MULFORD