DELHI TRADERS BEND TO RULE OF LAW, FOR NOW

C O N F I D E N T I A L SECTION 01 OF 04 NEW DELHI 007827 SIPDIS C O R R E C T E D C O P Y - CORRECTING TEXT THROUGHOUT SIPDIS DEPT FOR SCA/INS, DRL E.O. 12958: DECL: 08/31/2016 TAGS: PGOV ECON EINV KJUS PHUM PREL PINR ASEC SCUL IN SUBJECT: DELHI TRADERS BEND TO RULE OF LAW, FOR NOW REF: A. NEW DELHI 6583 ¶B. NEW DELHI 7577 NEW DELHI 00007827 001.3 OF 004 Classified By: Deputy PolCouns Atul Keshap for reasons 1.4 (B,D) ¶1. (C) SUMMARY The long simmering crisis in Delhi surrounding the "sealing" of illegal businesses seems to be inching towards a dramatic conclusion. On November 6, the Supreme Court (SC) stuck by its earlier decision (reftels),denying a petition by traders seeiing relief and ordered the Municipal Corporation of Delhi (MCD) to resume sealing operations with heavy police protection if necessary. To ensure the SC order was carried out, the police blanketed the city with 15,000 security forces, including Indian Military Police and Border Security Force (BSF) paramilitaries. The MCD, with the support of the augmented police forces, began sealing shops on November 8 in South Delhi neighborhoods, where they expected less opposition. Although the situation was tense, and there were some arrests, shops were sealed with little to no violence. The closed businesses included Maruti and Hyundai car dealerships and Tommy Hilfiger and Nine West stores. Even a government of India office renting space in a residential area was sealed. Having taken strong action against the traders, the government then moved to placate them by filing an affidavit with the SC to halt further sealings, and the SC accepted a compromise arrangement which should allow the situation to ease. Although the traders have been forced to back down, the BJP still hopes to gain political benefit from this issue, which has affected some 270,000 people in their core support groups, including thousands of shopkeepers and their employees. Meanwhile, the economic impact on Delhi is likely to be substantial as the government goes about implementing a court order fixing its own mess. END SUMMARY SUPREME COURT SOFTENS -------------- ¶2. (C) On November 6, the SC denied a petition submitted by over 44,000 affected traders seeking relief and ordered the MCD to resume sealing commercial shops illegally established in residential zoned areas. In its decision, the court strongly chided the Delhi government for its inability (or more exactly - unwillingness) to maintain order and enforce the law. The court also ordered the MCD to use whatever police or other force necessary, to carry out the verdict. The traders responded with a 24 hour strike call on November ¶7. Chief Minister Sheila Dixit, who has proven less than decisive, called a meeting of her Ministers, while the Central government did likewise. At the conclusion of the GOI Cabinet Meeting, Urban Development Minister S. Jaipal Reddy sealed the fate of the traders by confirming that his Ministry would implement the court's verdict. The government, however seemingly adopted a two-pronged strategy that it hoped would appease both the SC and the traders. It began to comply with the SC ruling while at the same time submitting another affidavit requesting relief for those traders who agreed to voluntarily close their doors within a given time frame. Seemingly appeased, the SC eased up and allowed certain shops based on size, location, and merchandise to remain open until November 20. We expect these shops to be regularized under the new city plan the government expects to pass in 2007. These measures will allow approximately, 25,000 shops to escape forced closure, adding to the 10,000 already exempted from the sealings, NEW DELHI 00007827 002.3 OF 004 while the sealing drive will continue in full force on over 5,000 remaining shops. A journalist contact told us that the SC softened its stance only after stores belonging to the in-laws of two judges were targeted for sealing. PROTESTS EASE, BUT TRADERS CONTINUE AGITATION -------------- ¶3. (C) There was a day of calm on November 7, as the Delhi government, claiming that it feared a renewal of violence, suspended sealing operations, and Delhi schools remained closed on November 7 and 8. On November 8, the MCD began sealing shops in South Delhi neighborhoods where they expected the least resistance. Delhi police took no chances, deploying 40 companies of well-armed personnel to major markets and intersections. Additionally, the GOI called in para-military forces, including Military Police and the BSF for a total of 15,000 security forces personnel. ¶4. (U) Since the sealings resumed, there have been stray incidents of violence and police have arrested over 150 traders who attempted to obstruct operations. Although the situation has been tense, there have been few violent confrontations and no repeat of the previous violence in which a few innocent bystanders were killed. After the recent SC ruling, tempers cooled among the traders, although they promised to continue their agitation. Even those traders who benefited from the SC ruling remain frustrated, as they are obliged to close their shops for an unknown period until the government legalizes them under a new city plan, and could experience a significant loss in revenue. Furthermore, the shops that will close in perpetuity will in all likelihood not be able to relocate and reopen since the cost of commercial land has become prohibitive in the Delhi area and zoning remains strict. EVERYONE'S AFFECTED -------------- ¶5. (SBU) For the past 40 years, traders have bribed MCD and other government officials to set up shops in residential zones all over Delhi, in both low income and wealthy neighborhoods. The shops sell everything, including convenience items, medications, furniture, high end clothing, and cars. Now that the SC has demonstrated that it means business and will not cave to the traders demands, the government seems to have concluded that it has no choice but to enforce the SC order. Despite the wide-spread distribution of bribe money, no one is immune to the sealing drive. Our sources tell us the Telecom Regulatory Authority of India, a government agency that regulates the entire telecom industry had its rented space in a residential zone sealed. Additionally, Maruti and Hyundai car dealers and Tommy Hilfiger and Nine West stores felt the impact of the verdict. Media offices are also affected, including an Indian Express office and another small TV station. THE BJP SENSES AN OPPORTUNITY -------------- ¶6. (C) The BJP began its political life as the party of North India's petty traders and has long nourished this essential constituency. Remaining true to its base, the BJP demonstrated that it would support the traders regardless of whether they were acting legally or illegally; this was NEW DELHI 00007827 003.3 OF 004 reflected in meeting dates with our contacts consistently being pushed back based on whether or not the politicians got arrested. One contact told us that the BJP is determined to gain maximum political mileage from this issue in hopes of returning to power in upcoming Delhi municipal elections. Long chafing under Congress rule and resenting the popularity of Chief Minister Sheila Dixit, the BJP is desperate to re-establish its hold over a city where it was once strongly entrenched. Another high level BJP contact, former Minister in Vajpaiyee's government Vijay Goel, expressed extreme frustration with the SC and the Congress government, stating that no one is representing the traders and taking their humanitarian needs into account. He compared the recent ruling to the SC asking the traders, "to commit suicide or be murdered," as they will not be able to recover from the financial losses incurred while they are closed down. He added that the cause of the problem is the "ego" of the SC, which refused to provide relief, and the government, which did not act quickly to pass a new city plan, leaving the traders in the lurch. Goel maintained that his primary focus is to keep the traders unified and mobilized despite the setbacks. The BJP agenda is to pressure the central government to pass legislation providing long term relief to all traders. They see the sealing issue as a win-win situation that will gain them sufficient popular support to return to power next year. WHERE DO TRADERS GO NOW? -------------- ¶7. (SBU) A dramatic increase in rents across the board regardless of location is impacting legal and illegal businesses. A local commercial real estate firm estimates that in the National Capital Region rents on legal commercial properties have increased up to 80 percent. Since the sealing drive began six months ago, rent in South Delhi has increased 75-90 percent or up to 200INR (USD 4.50) per square foot per month. Outlying areas are affected too. Gurgaon has seen a 75-90 percent increase in rental space (up to 70INR (USD 1.50) per square foot per month). Overall, commercial space prices experienced a 25 percent jump to up to 20,000INR (USD 455) per square foot. The rising rents are pushing small to medium businesses out. There is not enough zoned commercial space in Delhi proper to absorb the dislocated traders, and the majority of them are unable to relocate due to the cost. Should these traders be forced to close for good, it could increase unemployment as they are forced to let their sales staff go. COMMENT: PLENTY OF BLAME FOR ALL -------------- ¶8. (C) The SC verdict reflected its frustration with the government's corruption and mis-management, the selfish defiance of the traders, and the opportunistic and hypocritical manipulation of the Congress and BJP political parties. The court threw down the gauntlet and made it clear that it would countenance no further efforts to undermine the rule of law or question its authority. By lashing out at the government for its inability to govern, and at the traders for using violence to hold the city hostage, the SC has provided Delhi's errant politicians with an opportunity to restore their good name by fixing the system they broke. Possible solutions include relocating the illegal shops to commercial zones the government failed to establish in the NEW DELHI 00007827 004.3 OF 004 first place. However, one should not count on such a sudden change of heart from a venal political establishment. Each move by the government or the SC has been taken at the expense of the city's long suffering population. The solution still remains with the government. If it fails to do the right thing, it will result in further suffering for the traders, who will lose their shops and their livelihood, and the citizens of Delhi will continue to live in the midst of a chaotic urban mess. END COMMENT MULFORD