CORRUPTION PLAGUES ANDHRA PRADESH'S BIG TICKET SPENDING

UNCLAS SECTION 01 OF 02 CHENNAI 000640

SIPDIS

SIPDIS

SENSITIVE

E.O. 12958: N/A
TAGS: ECON EINT EINV PGOV IN

SUBJECT: CORRUPTION PLAGUES ANDHRA PRADESH'S BIG TICKET SPENDING
PROGRAMS


1. (SBU) SUMMARY: Andhra Pradesh's ruling Congress party has been
spending billions of dollars on social programs targeted at the
"common man." The spending programs, though politically popular,
have led to much talk that Chief Minister YSR Reddy's government is
engaged in corruption beyond the norm for India. Opposition leader
Chandrababu Naidu used the high-profile September 9 collapse of an
under-construction overpass in downtown Hyderabad to argue that
corruption is so rampant in the Congress government that it is
endangering the state's citizens. Complaints of corruption seem
unlikely to give the opposition much traction against the ruling
Congress party, however. END SUMMARY.

CONSTRUCTION MISHAP BRINGS CORRUPTION CENTER STAGE
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2. (U) On September 9, the collapse of an overpass which was under
construction in central Hyderabad killed two people and injured
several others. The collapse of the high-profile construction
project in the heart of Hyderabad's commercial district gave the
leader of the opposition TDP and former Chief Minister, Chandrababu
Naidu, the opportunity to amplify his ongoing campaign of criticism
against the ruling Congress party's "rampant" corruption in
infrastructure projects. Visiting the scene of the collapse, Naidu
reportedly blamed "corrupt practices" for the deadly incident.
Naidu's attack touched a nerve with the Chief Minister. Reddy
countered by alleging that Naidu had enriched himself during his
tenure as Chief Minister and challenged the opposition leader to a
joint investigation into their respective personal finances. Naidu
rejected the challenge on the grounds that the proposed inquiry
would not be fair.

CORRUPTION BEYOND THE PALE (EVEN FOR INDIA)?
--------------


3. (SBU) Reddy has used populist spending programs to great
political effect. The government's massive housing and irrigation
programs merit special attention. The housing program provides
material, grants, and loans to eligible citizens for the
construction of homes. The government claims more than 1.1 million
of a planned 2 million houses have already been built under the
first phase of the program. An additional 4.1 million houses are
planned for phases two and three. At a price of $650 to $1000 per
house depending on locale, the total program will cost four to six
billion dollars. At the same time, the irrigation program aims to
spend more than eleven billion dollars over five years on 26 major
irrigation projects.


4. (SBU) There is consensus in Andhra Pradesh that the irrigation
and housing programs are beset with corruption. On separate visits
to Hyderabad we heard allegations of widespread graft from several
neutral observers. An economist who studies the effectiveness of
government programs in Andhra Pradesh said with only "four to five
companies executing the projects though the work of numerous small
sub-contractors" and little oversight there are many opportunities
for graft in the irrigation program. A reporter said he had no
doubt that many people were profiting from it. He added that the
scale of the corruption was beyond the norm for the state.
"Typically five to seven percent is lost to corruption, but in
Reddy's irrigation program that figure is more like fifteen to
twenty percent," he said. Speaking about the housing and irrigation
programs, an editor for a prominent daily also focused on the
difference in the scale of the corruption in the current government.
He said "We thought Naidu was bad, but that was child's play
compared what is happening now."

EVERYBODY KNOWS, BUT DOES ANYONE CARE?
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5. (SBU) Widespread corruption in the Congress government seems to
an open secret in Andhra Pradesh, but the political impact is
unclear. One media contact told us the man on the street expects
it. He said: "corruption is inalienable. It is rather acceptable."
Another reporter said citizens are fine with corruption so long as
some the money flows down to them, adding that as long as Congress
continues to spread the wealth it actually "strengthens its position
in the state." A third journalist observed that at a minimum the
Congress is consolidating its political base "offering small
contracts to party workers, making them happy."


6. (SBU) COMMENT: Many elites are disgusted by the level of
corruption in the Congress government. The sheer size of Reddy's
signature programs, with literally billions of dollars at play every
year, leaves much room for "leakage" to Congress party officials and
their allies. But the size of the programs also means that even
with a substantial percentage lost to corruption, a lot of money
still must be making its way to the common man. With this in mind,

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Congress seems confident that corruption will not be an effective
issue for the TDP. When Naidu tried to raise it in the wake of the
overpass collapse, Chief Minister Reddy took it right back at Naidu
accusing him of corruption during his tenure. Congress appears
willing to bet that people will focus on what they are getting from
the programs and ignore the likelihood that corruption under Chief
Minister Reddy dwarfs that which preceded him. END COMMENT.

HOPPER