US embassy cable - 04CHENNAI1490

UNCLAS SECTION 01 OF 03 CHENNAI 001490 
 
SIPDIS 
 
SENSITIVE BUT UNCLASSIFIED 
 
E.O. 12958: N/A 
TAGS: PGOV, PINR, IN, Indian Domestic Politics 
SUBJECT: KARNATAKA GOVERNMENT IN LIMBO 
 
1. (SBU) SUMMARY: Bangalore, India's leading 
technopolis and the capital of Karnataka, is burdened 
with a tardy and incomplete state government led by 
contending coalition partners.  Local business leaders 
complain that the new Singh government has overshot 
the mark in shifting focus from urban to rural 
development and they have even threatened to move out 
expansion projects, but the Congress-JDS coalition 
government has not responded convincingly.  Chief 
Minister Dharam Singh's pliable politics, however, 
might permit the coalition to limp along longer than 
Bangalore business leaders would like.  END SUMMARY. 
 
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Karnataka Government in Limbo 
----------------------------- 
 
2. (SBU) Nothing better epitomizes the current state 
of the Karnataka Government than its inability to 
build a full cabinet team.  Five months have passed 
since the Congress-Janata Dal-S (JDS) coalition 
government, the first of its kind in the state, came 
to power.  Chief Minister Dharam Singh has established 
and missed several deadlines for expanding the cabinet 
from its present strength of 12 ministers to the full 
strength of 34.  According to Bangalore journalists, 
the conflicts between Congress and JDS leaders as well 
as the infighting within the JDS have prevented Singh 
from accomplishing the task.  Important portfolios 
such as primary education, health, and IT have no 
political heads of their own.  "Dharam Singh has to 
look after 24 portfolios, apart from coalition 
politics; how can you expect anything better?" asked 
Ranganath, Editor of Bangalore's prominent daily, the 
Kannada Prabha. 
 
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JDS - Congress Tension Delays Projects 
-------------------------------------- 
 
3. (SBU) Deep divisions in the coalition have also 
thrown a monkey wrench into the works of several 
projects.  Business houses had expected the much- 
delayed Bangalore airport project at Devanahally to 
proceed faster than it has, given that the same party 
is in power at the Center and in the state.  "We have 
a coalition government in the state, you know," Chief 
Executive Officer Albert Brunner of Bangalore 
International Airport explained to Post, "The present 
Deputy Chief Minister (who belongs to the JDS) wants 
to reexamine the state support agreement the previous 
Congress government had finalized, and it takes much 
longer than we expected."  Brunner, however, was 
hopeful that the issue would be sorted out eventually, 
perhaps within a few days.  India Today correspondent 
Steven David was more pessimistic about the airport, 
citing whimsical, politically driven changes to the 
plan that carried significant additional financial 
costs. 
 
4. (SBU) The Bangalore-Mysore Infrastructure Corridor 
project of the previous government is also stuck, 
after JDS leader Deve Gowda charged the previous 
Congress Government with corruption.  Former Chief 
Minister SM Krishna reacted angrily with a letter to 
the Chief Minister asking him to scrap the project and 
return the acquired land to the farmers.  Krishna's 
pet private-public partnership to facilitate 
Bangalore's infrastructure development - the Bangalore 
Agenda Task Force - is another casualty of the change 
of government.  The project, though still alive on 
paper, remains completely non-functional. 
 
--------------------------------------------- ------- 
Industry Captains Complain of Misplaced Priorities 
--------------------------------------------- ------- 
 
5. (SBU) During recent meetings in Bangalore conducted 
by visiting New Delhi PolCouns, politicians, 
journalists, and business leaders complained that the 
Singh government had overshot in shifting its focus 
from urban to rural development.  Several, including 
Infosys Chairman N.R. Narayana Murthy, assailed Chief 
Minister Singh for his lack of any vision for 
Karnataka's future.  As evidence of his misplaced 
priorities, several IT leaders cited the Chief 
Minister's failure to meet even once with the 
technology community.  The director of a top-tier US 
technology company remarked that unlike the past (when 
the office of Chief Minister Krishna was a stop on the 
itinerary of every visiting US executive) his CEO 
wouldn't even ask to call on Chief Minister Singh, 
preferring to go straight to the source in New Delhi, 
where the government is viewed as more responsive to 
industry concerns.  Releasing company results on July 
23, Azim Premji, Chairman of Wipro and India's richest 
man according to Forbes, threatened to relocate all 
expansion projects elsewhere if the city's 
infrastructure is not improved. 
 
----------------------------------------- 
Dharam Singh Promises; Industry Skeptical 
----------------------------------------- 
 
6. (U) Many Post contacts have expressed doubt that 
the Karnataka Chief Minister has the focus or dynamism 
to deliver on his promises.  Pressured by industry 
leaders, Chief Minister Dharam Singh has made some 
attempts to publicly recognize the importance of 
Bangalore's infrastructure, announcing on November 15, 
for instance, that the government would repair 900 km 
of road surface in Bangalore.  Consul General Haynes 
asked the Chief Minister on November 18 if the project 
had started and the Chief Minister said only "We will 
assuredly do it."  On November 1, inaugurating 
Bangalore IT.Com, Dharam Singh announced a $90 million 
Hi-Tech City Project in Bangalore spread over 1070 
acres and said: "We will leave no stone unturned to 
ensure that Bangalore maintains its pre-eminent 
position as an IT destination in India and the world." 
Karnataka IT Secretary Shankarlinge Gowda informed 
Post, however, that apart from an increase in the tax 
on computer hardware from 5% to 12%, nothing has 
changed in the new government's IT policy.  Industry 
remains skeptical of Dharam Singh's ability to deliver 
responsive administration. 
 
--------------------------------------------- -- 
Delhi: Yes to Bangalore, but Farmers Come First 
--------------------------------------------- -- 
 
7. (U) On October 19, the Deccan Herald reported that 
Prime Minister Singh called Chief Minister Dharam 
Singh to urge him to repair the Bangalore city roads 
in response to complaints from the IT czars.  The 
Times of India reported on October 21 that several 
Bangalore industrialists raised the matter also with 
Rahul Gandhi, Sonia's son and an MP in his own right, 
when he toured the city. "No new industries are coming 
to Bangalore...If investors drop Bangalore from their 
list, it will be India's loss," they reportedly told 
him, reminding him that the competition was not with 
any other Indian city but with China.  According to 
the newspaper, Rahul Gandhi's reply was: "Indian 
politics is narrowly focused on issues and short-term 
gains.  Here, in Bangalore you are working on the 
latest of technologies while in my constituency 
(Amethi in UP) and other villages there are people who 
are living without water and electricity too.  I feel 
sad about this and have been grappling with this 
situation day in and day out." 
 
--------------------------------------------- --- 
Congress' Partner Competing for Farmer Vote Bank 
--------------------------------------------- --- 
 
8. (SBU) The JDS is even more focused on the 
agriculture sector, a priority area the Congress would 
not like to leave exclusively to their coalition 
partner.  Talking to Consul General Haynes, Bangalore 
Deputy Chief Minister and JDS leader Siddaramaiah, who 
also handles the Finance portfolio said that one of 
the most important things the new government has done 
is to make available subsidized loans from cooperative 
societies to farmers at 6% interest in place of the 
12.5-13.5% interest charged previously.  He has also 
doubled the annual budgetary allocation for 
agriculture from its previous $100 million. 
Industries Minister and JDS leader P.G.R. Sindhia 
acknowledged to PolCouns that the state government has 
been slow to address Bangalore's yawning 
infrastructure gap and was "still finding its feet." 
But he was unapologetic about the JDS focus on rural 
constituencies, arguing that this was an overdue 
corrective to former Chief Minister Krisna's urban 
preoccupation. 
 
--------------------------------------------- ------- 
Villagers Don't Care for IT, But Bangalore Helps All 
--------------------------------------------- ------- 
 
9. (SBU) According to Ranganath, Karnataka citizens in 
general, particularly the ones outside Bangalore, are 
not excessively concerned over Bangalore's IT sector's 
concerns.  "If they were a manufacturing industry, 
there would have been a little more support from the 
people," he observed.  However, he added that over a 
period of time, the government's incompetence on all 
fronts would affect the popularity of the government." 
Business sources, meanwhile, continue to point out 
that Bangalore provides about 60% of the state's GDP, 
and any shortfall in Bangalore would affect the entire 
state. 
 
--------------------------------------------- ---- 
Pro-Farmer Policy Fig Leaf Can't Hide Inefficiency 
--------------------------------------------- ---- 
 
10. (U) COMMENT: Interpreting the 2004 election 
results as a mandate to change from a pro-urban, IT 
driven development strategy, the present government 
seems to have found an excuse for being less active on 
the IT front despite loud protests from business 
leaders.  On paper, the new government's priorities 
are rural development and farmers' welfare, areas that 
no government can ignore.  In reality, however, the 
leaders spend more time and energy on coalition 
politics, warring over spoils and settling old scores. 
To the new generation of Bangalore businessmen, at 
least, it is back to the old Congress politics of 
muddled thinking, lip service to the poor, and an 
increasingly irrelevant government.  But Dharam 
Singh's flexible politics may help to keep his 
government in power much longer than Bangalore's 
business community would like.  END COMMENT 
 
Haynes