CORPORATE KOLKATA HOPES NANDIGRAM WILL NOT AFFECT

UNCLAS SECTION 01 OF 02 KOLKATA 000364 SIPDIS SENSITIVE SIPDIS DEPT PLS PASS USTR E.O. 12958: N/A TAGS: ECON PGOV EINV EFIN EIND EAGR IN SUBJECT: CORPORATE KOLKATA HOPES NANDIGRAM WILL NOT AFFECT INVESTMENT REF: A) KOLKATA 351, B) KOLKATA 345, C) KOLKATA 356, D) KOLKATA 41 KOLKATA 00000364 001.2 OF 002 ¶1. (U) SUMMARY: In the aftermath of recent violence in Nandigram, Post surveyed leading industry contacts to discuss the potential impact of the violence on investment in W. Bengal. Business owners and senior corporate managers generally believe that the recent government sponsored attacks in Nandigram and the ensuing anti-government protests will do little to dampen enthusiasm for creating opportunities in the state. However, continuing violence, last minute strikes, and a general sense of disorder are giving many people jitters and the GOWB is concerned about the state's image. Should the rash of strikes, protests, and violence continue, W. Bengal will see investors looking elsewhere. END SUMMARY ¶2. (U) From November 6-11, violence escalated in West Bengal's Nandigram as cadres of the ruling Communist Party of India - Marxist (CPM) attacked supporters of the Bhumi Ucched Pratirodh Committee (BUPC) (Reftel A). In the week after the violence, many West Bengal intellectuals and opinion makers -- who generally had been sympathetic to reformist Chief Minister Buddhadeb Bhattacharjee and the CPM -- rallied against the government and its brutal tactics. Kolkata's media also criticized the CPM and the state government's role in Nandigram. But opinion is divided on whether the prevailing anti-CPM and anti-government sentiments will send a negative signal to Indian and international investors. ¶3. (U) On November 14, leading industry association Assocham president Venugopal Dhut told reporters in Kolkata that the Nandigram violence will have no impact on West Bengal's industrialization process. "We see no reason to revise our forecast of USD 25 billion flowing into Bengal over the next five years," Dhut announced. He said the state's fundamentals were not changed by Nandigram and that Assocham continued to believe that West Bengal had the potential to grow at 12 percent annually on a sustained basis. Dhut's Videocon Group has a considerable commitment in West Bengal. It has pledged USD 3 billion to set up a three million ton steel unit and a 1,600 MW power plant, though land acquisition for these projects has not been completed. Videocon also has permission to set up four 
Special Economic Zones (SEZ)in the state. ¶4. (SBU) The GOWB's decision to allow a consortium led by Indonesia's Salim group to develop a chemical SEZ on 10,000 acres in Nandigram had originally sparked the protests there. Prasoon Mukherjee, a Jakarta-based partner of the consortium, told Post that as long as the state government remains steadfast in its industrial policy, incidents like Nandigram will have no impact on the investment flow. He felt the incident was not going to tarnish West Bengal's image in the international community. He pointed out that even when CPM cadres were rampaging all over Nandigram, the international media was more concerned about the Congress party convincing the Left to allow negotiations on the U.S.-India nuclear deal. (Comment: Media coverage of the events in Nandigram was consistently front-page, above the fold stories in W. Bengal and in many Delhi papers. The Salim Group's projects are going to be delayed. While Mukherjee has held West Bengal's bureaucracy responsible for this, citing problems getting clearances from the municipal and environment departments, some of the delay is due to the Salim Group's internal management issues. West Bengal's senior bureaucracy is concerned with the delays as well, which are affecting the GOWB's image and bolstering opposition against investors coming from "outside." End Comment.) ¶5. (SBU) One Post contact at the Indian Chamber of Commerce - a Kolkata based chamber -- believed that more than the political violence in Nandigram, it was the general strike organized by the political parties opposed to the CPM on November 12 that sent out wrong signals about West Bengal's business environment. According to Genpact (the General Electric arm which runs a BPO operation out of Kolkata) frequent strikes undermine Kolkata's comparative advantages in the IT sector, where Kolkata has been able to utilize a large talent pool and offer available real estate to compete with growing saturation in other Indian IT metros, more than Nandigram has. ¶6. (SBU) A partner with Deloitte & Touche expects no Nandigram effect on West Bengal's medium and long term investment prospects. He opined that the India business environment is "challenging" because the country is in the middle of a transition from agriculture to a service economy. He noted that even with ongoing conflicts such as the Naxalite/Maoist problem, investors have still flocked to cities like Hyderabad. In contrast, a senior officer with Pepsico - a U.S.-based KOLKATA 00000364 002.2 OF 002 multinational that has invested in West Bengal's sensitive agro-processing sector - believed that Nandigram will push West Bengal back in investments by at least ten years. He said that Chambers of Commerce spokespersons are pumping out "GOWB spin" to keep the investors' mood upbeat. An official with HSBC Bank, which has approximately 3,000 people in its Kolkata back office operation, said that given the recent strife in West Bengal, HSBC is looking to hedge its operations in India in general and is considering new offshore facilities in the Philippines or Sri Lanka. ¶7. (U) The November 21 riots (reftel C) made matters more difficult for the GOWB. After Wednesday's riots, CM Bhattacharjee said that the "series of violent incidents" will have a negative impact on West Bengal's image and investor confidence. On the other hand, post-Godhra Gujarat has witnessed an upswing in investment in that state, indicating that sound economic management and infrastructure can outweigh breach of law and order and human rights violations so far as investment location is concerned. Hence the GOWB spin: while one-off incidents like Godhra or Nandigram may not impact investment decisions, a series of disruptions like strikes or riots will send out adverse signal on business environment. ¶8. (U) COMMENT: At heart, the violent incidents in Nandigram and Singur and the high profile protests against the state government by West Bengal's civil society are still about the GOWB's non-transparent land acquisition policies and violent local politics (reftel D). The Left Front government's industrial policy is not in question yet, and so far Chief Minister Buddhadeb Bhattacharjee has ruled out any policy reversal. But given W. Bengal's reputation for frequent strikes and civil unrest, it has to try harder. West Bengal's comparative advantages will wither away should there be a return to its earlier strike-filled era, and it now must work to control the political violence and civil disorder. JARDINE