WHAT WOULD LENIN DO? KERALA CPM SAYS "SEEK OUT FDI"

UNCLAS SECTION 01 OF 03 CHENNAI 000272

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E.O. 12958: N/A
TAGS: PGOV PREL PTER PHUM ECON ENRG IN
SUBJECT: WHAT WOULD LENIN DO? KERALA CPM SAYS "SEEK OUT FDI"

REF: A) MUMBAI 360 B) CHENNAI 251 C) NEW DELHI 2012


1. (SBU) Summary: Political Counselor and Consulate staff surveyed
Kerala's political and economic scene in conversations with
political and business leaders, journalists, and academics during an
August 11 -12 visit to the South Indian state's capital, Trivandrum
(Thiruvananthapuram). In a major shift, senior leaders from the
state's ruling Communist Party of India (Marxist) (CPM) pleaded for
assistance in attracting U.S. private sector investment in Kerala.
Interlocutors from across the spectrum agreed that the CPM and its
allies could lose a substantial portion of the 19 of 20
parliamentary seats they currently hold in upcoming elections. But
the potential for Congress to pick up seats in Kerala may be blunted
by successful CPM outreach to Muslim voters. The CPM is already
aggressively courting Muslims by trying to tap into anger at the
Congress party over U.S.-India civil nuclear cooperation; Congress
worries that a possible U.S. confrontation with Iran will put it
further into trouble with this important constituency. End
summary.

Kerala's CPM follows the West Bengal path
--------------


2. (SBU) In separate meetings, three Kerala CPM leaders emphasized
that the once-hostile leftist government is now eager to attract
foreign investment to the state. CPM State Secretary Pinarayi
Vijayan opened the meeting, which was held in his office underneath
framed pictures of Stalin and Lenin, by telling Political Counselor
that "we need your assistance" in drawing U.S. investment to the
state. Vijayan, who is a member of the CPM Politburo, added that
"we have no problems with American companies, no hesitations at
all." He explained the change in the Kerala CPM's position on
investment by saying that "government does not have enough money to
adequately develop the state. We need money from the private
sector."


3. (SBU) Kerala Finance Minister Thomas Isaac (CPM),echoed the
sentiments expressed by Vijayan, with whom Isaac is close. Isaac
said "rapid industrialization is desirable but the government budget
is unable to support the required investment." "We have to tap into
the private sector," he added while noting that "we'll use public
private partnerships" for infrastructure development. As the
meeting closed, Isaac pulled Consulate Political/Economic officer
aside and requested that we urge U.S. companies to visit him to
discuss investing in Kerala. Education Minister M.A. Baby (CPM),
also a close associate of Vijayan, agreed that Kerala needs foreign
direct investment (FDI) and made a spirited effort to convince
Political Counselor that Leninist economic principles permit FDI.


4. (SBU) Sources outside of the CPM confirmed the shift in the
Kerala CPM's mindset towards private sector investment. A
journalist said "change in the Kerala CPM is happening, but Baby and
Isaac have to make the changes through the backdoor; otherwise they
will be called 'neoliberals' or 'Gorbachev-ists' by the hardliners."
Executives from US Technologies, an American IT company with a
major presence in Trivandrum, told Political Counselor that after
the CPM came to power in 2006 the Chief Minister met first with the
information technology sector to assure them that they would
continue to receive the support of the government. The executives
added that they have since received "phenomenal support" from the
CPM government. The 84-year old Chief Minister, V.S.
Achuthandandan, a hard-line ideologue, declined to meet with the
Political Counselor. He claimed that he was in the middle of a
series of ayurvedic treatments, using the same reasoning to skip out
of a concurrent state-level party conclave that challenged his
policy approach.

Welcoming private investment, with some caveats
--------------


5. (SBU) The CPM leaders, however, made clear that their new
interest in FDI has its limits. Vijayan and Isaac said that the
government would welcome investment in the service sector --
especially information technology, biotechnology, and tourism -- but
the state's commitment to protecting its environment makes it less
amenable to manufacturing. Isaac said that Kerala will establish
more Special Economic Zones (SEZs),but the state will insist on
unionization in the SEZs. He added that the state will "act to
protect its traditional farmers." Education Minister Baby said that
although Kerala welcomes exchanges with U.S. universities the CPM
remains "ideologically opposed" to FDI in higher education.
Responding to Political Counselor's question about the long-running
dispute that has shut down Coca Cola's Kerala bottling plant,
Vijayan argued that the troubles experienced by Coca Cola should not
dissuade other U.S. companies from investing in Kerala. "The Coca
Cola issue was not about American companies," he said, "but a local
problem, an environmental issue." Vijayan went on to say that Coca
Cola got caught up when anti-Western New Delhi-based NGOs took up
the case.


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Congress will gain seats, but how many?
--------------


6. (SBU) There was a consensus that the CPM and its partners in
Kerala's Left Democratic Front (LDF) alliance would be hard-pressed
to replicate their 2004 performance when they won 19 of the state's
20 seats in the Lok Sabha (the Lower House of India's Parliament).
Finance Minister Isaac responded to Political Counselor's question
about the CPM's prospects in the upcoming Lok Sabha elections by
saying "we have nowhere to go but down." Isaac said that recent
infighting within the CPM has upset voters, but "we are getting our
act together" and he expects the CPM to hold onto 12 or 13 of the
seats. Journalist contacts agreed with Isaac's assessment, saying
Congress and its allies are likely to win 8 seats (leaving the CPM
and its LDF allies with 12 seats). Congress Opposition Leader Oomen
Chandy and Kerala Congress President Ramesh Chennithala were more
optimistic about their prospects: both said they expect to win 12-
15 seats.

CPM to use civ-nuke to sway Muslims; all eyes on Iran
--------------


7. (SBU) Referring to Kerala's strong anti-American streak,
Opposition Leader Chandy glumly said "we are the victims" of the
United Progressive Alliance's victory in the July 22 trust vote (ref
C). He said the CPM is already tapping into local anger --
especially among Kerala's substantial Muslim population -- over
Congress's pursuit of U.S.-India civil nuclear cooperation. The
journalists agreed that the distrust of closer ties with the U.S.
will figure prominently in the upcoming elections: "Iraq and
Afghanistan are still potent issues in Kerala. The CPM will use the
vote on the deal to get Muslim support." Our interlocutors all
raised the subject of U.S. intentions towards Iran and the
possibility of U.S. confrontation with Tehran. Congress President
Chennithala urged the United States to "find a peaceful way" to
address Iran's nuclear program, adding that U.S. military action
against Iran would further complicate his party's electoral
prospects.

Migration to Gulf States: Terrorist Finance and Trafficking
--------------


8. (U) Academics with the Center for Development Studies (CDS)
described Kerala's history of extensive external migration. They
explained that 1.8 million Keralites live abroad and another 900,000
in other states in India; the combined figure of 2.7 million
accounts for almost 10% of the state's population. These 2.7
million Keralite migrants, in turn, support 9 million people left
behind in Kerala (almost one third of the state's population) by
sending back remittances that amount to 20% of the state's GDP. CDS
scholars said that unmarried women constitute an increasing share of
migration. A large number of these unmarried female migrants take
"a huge risk" by going to work as domestic laborers. When Political
Counselor asked whether many of these women are victims of
trafficking in persons, a CDS scholar who focuses on gender issues
said "a small segment" of the population fall victim to trafficking.
She emphasized that while the vast majority of the female domestic
workers are not trafficked, they still face serious sexual
harassment from their employers.


9. (SBU) Finance Minister Isaac raised the subject of the informal
money transfer system known as "hawala," saying that it is
"impossible" to stop the movement of funds from the Gulf states to
Kerala. Isaac told Political Counselor that money from the Gulf is
"definitely funding Indian terrorist groups," including the Students
Islamic Movement of India (SIMI) and the group that claimed
responsibility for the recent bombings in Bangalore and Ahmedabad,
the Indian Mujahideen (ref A and B). Isaac said it is likely that
Keralites help get the money to the Indian terror groups, but that
the funds come from "wealthy Gulf Arabs." (Note: In an August 11
presentation on terrorist finance Arabinda Acharya, an academic from
the Rajaratnam School of International Studies in Singapore, said
much the same in a discussion of the use of hawala by Gulf Arabs to
fund Indian terrorist groups. Acharya said wealthy Gulf Arabs,
especially Saudis, have their Kerala migrant employees send money to
Indian terrorist groups through hawala channels. Acharya "firmly
believes" that funding for attacks in Bangalore and Hyderabad came
through this method. End note.)

Comment: CPM reformists confident;
Civ-Nuke will help left retain seats
--------------


10. (SBU) Comment: The Kerala CPM, which is generally understood
to be more dogmatic than its West Bengal counterpart, is clearly
undergoing a major economic policy shift. The openness with which
Vijayan, Isaac, and Baby expressed their desire for U.S. investment
to American diplomats was startling and demonstrated confidence that
their reformist faction has the upper hand over the more dogmatic
wing of the Kerala CPM led by Chief Minister Achuthanandan. By

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encouraging private investment, especially overseas and American
investment, Vijayan is leading the Kerala CPM is towards the
pragmatism exemplified by the West Bengal CPM. The volte-face
reflects a growing concern that the state is being left out of the
Indian growth story, especially when compared to its neighbors, the
shining stars of South India.


11. (SBU) Comment continued: The Kerala CPM and its allies are in
the difficult position of defending the 19 of 20 parliamentary seats
from Kerala they won in 2004, which is exacerbated by the fissures
within the normally disciplined CPM. But the peculiar political
geography of Kerala is in the leftists' favor. The CPM will be able
to tap into the state's long-running anti-Americanism by bludgeoning
its Congress rivals about U.S.-India civil nuclear cooperation.
Moreover, with Muslims making up almost a quarter of the state's
population, the CPM can drum support by playing to this
constituency's anger at U.S. policy in Iraq, Afghanistan, and Iran.
These factors will likely keep the CPM's losses in the range of 7-8
seats rather than the 12-15 that the Congress's leaders dream of
capturing. End comment.

KAPLAN