CPM POLITBURO PLANS MORE OPPOSITION TO ECONOMIC REFORMS

UNCLAS SECTION 01 OF 03 CALCUTTA 000423

SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: PGOV ECON EINV ETRD IN
SUBJECT: CPM POLITBURO PLANS MORE OPPOSITION TO ECONOMIC REFORMS



1. (SBU) Summary: September 12-13, the Communist Party of
India-Marxist (CPM) Politburo met in Calcutta to discuss its
progress since the party`s 18th Congress in 2005 and aspects of
the GOI`s economic reforms that the CPM intends to oppose. The
CPM Politburo plans to force a change in the Special Economic
Zones (SEZ) act, believing the present law permits too much land
being given to the private SEZ developers for property
speculation. The CPM will also contest the GOI's decision to
allow importation of wheat and other essential commodities. The
CPM drafted a policy paper opposing lifting the cap on Foreign
Direct Investment (FDI) in the insurance sector. Still
confident from its successes earlier this year in the Kerala and
West Bengal state assembly elections, the Politburo outlined
plans to expand its influence other states. The effort to
rollback or block economic reforms, ostensibly based on
ideological commitment, also protects Indian domestic corporate
interests. End Summary.




2. (SBU) CPM contacts provided post with a read-out on the
initiatives and policy positions discussed by the CPM leadership
at the recent Politburo meeting in Calcutta. A few notable
points included: the CPM would lobby the GOI to support
Venezuela's candidacy for a rotating seat in the U.N. Security
Council; India's differences with Pakistan should be resolved
through dialogue; recent terrorist attacks in Mumbai and
Malegaon should be investigated; the party would send
representatives to express solidarity with the victims in those
areas; however, anti-terrorism efforts should not follow the
USG's lead. In addition, the CPM's Uttar Pradesh state
committee will meet mid-October to discuss the party's strategy
for that state's upcoming legislative assembly elections and
provide suggestions to a subsequent Politburo meeting. Finally,
the CPM identified states such as Maharashtra, Tamil Nadu,
Andhra Pradesh and Jharkhand where the party can expand outside
its traditional strongholds of West Bengal, Kerala and Tripura.






3. (U) On September 14, CPM General Secretary Prakash Karat
spoke at the Federation of Indian Chambers of Commerce and
Industries (FICCI) - Eastern Regional Council on the subject of
an "Agenda for Inclusive Growth" and further elaborated details
of the Politburo's positions. Karat agreed that while India
needed a high rate of economic growth, the emphasis should be on
more inclusive growth, which involved four elements:
agriculture development, employment generation, enhanced social
justice and bridging the regional divide. On agriculture, Karat
argued that India is facing an agrarian crisis as evidenced by
reportedly 100,000 farmer suicides between 1993-2003. To
alleviate this crisis, public investment in agriculture should
be increased to counterbalance the perceived decade-long neglect
of the agricultural sector. The CPM opposes the importation of
wheat and other grains as undermining the domestic farmers. On
increasing employment, Karat's solution was to link agriculture
to industry and gave the example of West Bengal which is the
highest vegetable producer in India but which has no food
processing industry. With regard to social justice, Karat felt
that the commercialization of higher education was making
exclusive "enclaves" for the rich and there was a need to
regulate fees being charged by private institutions as well as
to refocus on primary education.




4. (SBU) Karat called for policy measures to counter the
increasing regional divide between more rapidly developing and
stagnating states. He felt that the GOI Special Economic Zone
(SEZ) policy would further accentuate the divide. He observed
that many of the planned SEZs were concentrated in five western
and southern states where much of India's economic development
was already occurring. Karat also questioned the reported
structuring of the SEZs with 25 percent of the SEZ land being
used for actual industry and the remaining 75 percent for the
private investor to use for property development to help finance
the SEZ infrastructure. He argued that the proposed SEZs looked
like speculative real estate scams. He suggested the adoption
of the "Bengal" model of SEZs which would permit use of 25
percent of the land for infrastructure, 50 percent for industry
and processing, and the remaining 25 percent for property

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development. Speaking with ConGen after his remarks, Karat said
that the CPM would ask the GOI to review its SEZ policy before
approving additional SEZs. (Comment: In an apparent double
standard, West Bengal's SEZs, being already approved, would go
forward as planned. End Comment.)




5. (SBU) The CPM and its left allies have also submitted a note
to the ruling United Progress Alliance (UPA) opposing the
raising of the FDI cap in insurance from 26 to 49 percent. The
CPM claims that foreign insurance companies have not been
profitable in India, reflecting a lack of efficiency and
service. It also questioned the reputation of some of the
insurance companies, noting that Prudential Financial Services
is being investigated in the U.S. for falsifying documents. In
addition, the CPM disagrees that the insurance sector will help
channel investment into infrastructure.




6. (SBU) ConGen asked Karat whether West Bengal's economic
reforms and efforts to seek private investment were consistent
with the national CPM's position. Karat responded that the
state government's economic policies were compatible with the
views of the CPM. He said the CPM supports private investments
in new airports, and agreed on privatization of loss-making
public sector units. Karat claimed that his party accepts that
a mix of private and public sector is required for economic
growth, adding that the party reacts to prevailing conditions
set at the national and international levels. On the issue of
foreign investment in education, Karat said the subject was
being discussed at the level of the World Trade Organization
(WTO) and within the framework of the General Agreement on Trade
in Services (GATS) and that the CPM does not have an articulated
position.




7. (SBU) Ostensibly the Politburo's agenda, Karat's remarks to
FICCI and comments to ConGen reflect anti-reform positions based
purely on leftist ideology. However, the CPM is also influenced
by domestic corporate concerns. The CPM's anti-reform positions
protect the interests of key business supporters and
corporations. Karat's conversation with ConGen at the FICCI
event was interrupted by local real estate developer Harsh
Neotia who objected that the SEZ policy allowed SEZ developers
to build houses, schools and other facilities and to sell the
properties tax free. Neotia said people working in the SEZs
could simply purchase properties on the local economy. Left
unsaid was the fact that Neotia earlier made his fortune
developing housing on free land he received from former West
Bengal Chief Minister Jyoti Basu. In turn, Neotia is widely
considered to be a significant financial backer of the state
CPM.




8. (SBU) The CPM's objections to lifting the 26 percent cap to
FDI in the insurance sector, are similar to earlier objections
raised by ITC CEO Y.C. Deveshwar to Treasury Undersecretary
Timothy Adams during Adams' May visit to Calcutta. Deveshwar
is the only member of the CEO Forum in East India and ITC is the
only large Indian corporation with headquarters in Calcutta.
While not discussed at the Politburo meeting, the CPM has
opposed FDI in large-scale retail as well, supposedly out of
concern for potential job losses in the unorganized, small-scale
retail sector. However, the GOWB is permitting Reliance
Industries Limited (RIL) and the RPG Group to establish large
retail operations modeled on foreign retail companies.




9. (SBU) Comment: Ideology aside, the CPM's agenda is designed
to expand the influence of the party at the state and national
level. Its opposition to economic reform measures appeals to
Indian corporate supporters and its call for "public investment"
in the agricultural sector cultivates votes in CPM's rural base
(with more unsustainable giveaways to poor farmers, and without
fundamental restructuring of the economic conditions that create
rural poverty.) Pressuring the Congress and UPA to implement
"inclusive" growth policies also serves to accentuate divisions
within the coalition between the Nehruvian old guard that

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retains a fondness for Socialism and the reformers seeking
market-oriented policies. In this calculus, the CPM's old
ideologies offer new opportunities for promoting party growth
and influence.
JARDINE