New York Times: Despite Scandals Indian Mining Bosses Thrive

BELLARY, India — Janardhana Reddy insists he is not a king. No, no, no, he protested, as a servant trotted across the courtyard to deliver a cup of cooled water. Men with machine guns stood outside. An architect waited to discuss the new mansion, while another man hovered nearby, sitting in the grass.

He’s the state minister of health,” Mr. Reddy said of the man in the grass, who stood up, made a little bow and hurried away.  Mr. Reddy may not be a king, but he does represent a new phenomenon in the political economy of India: He and his brothers are the country’s most powerful mining bosses at a time when illegal mining has become a national scandal, amid accusations that billions of dollars of publicly owned minerals have been stolen, often by people holding public office.

For decades, moneyed interests have bankrolled India’s political parties, but nouveaux mining magnates like the Reddy brothers have conflated money and politics in far more naked fashion, as the thirst for iron ore in India, and more so in China, has created huge fortunes.

Mining scandals have emerged in at least five Indian states, with more than 20,000 complaints of illegal mining filed nationally in the past three months. Politicians in several states are accused of enriching themselves or their friends, including a former chief minister of the state of Jharkhand, who is charged with extorting huge bribes in exchange for granting mining leases.

This week, the Indian media reported that the central government would form an inquiry to investigate illegal mining across the country, a move regarded as a first step in reversing past failings in regulation. Here in the southern state of Karnataka, the controversy surrounding the Reddy brothers has become a national political melodrama, threatening at different times to bring down the state government, while also throwing global markets for iron ore into turmoil.

“You’ve never had mining dons entering politics and controlling government,” said Ramachandra Guha, a historian who lives in the state capital of Bangalore. “They are more or less uncrowned kings in their district. There is a level of brazenness that even by the standards of Indian politics is new.”

What prompted the change, and the rush by political figures into mining, was the steady rise in iron ore prices during the past decade. India relaxed its export restrictions at roughly the same time that China was in the throes of the biggest construction boom in history, culminating with the 2008 Olympics in Beijing. Technical advances allowed more types of ore to be exported, and the price per metric ton soared. Where once it had brought about $17, today the price is about $130.

“It encouraged practically everybody who was somebody to come into this business,” said N. Santosh Hegde, a former justice on India’s Supreme Court who is leading an official corruption investigation into illegal mining in Karnataka. “People who had no knowledge of mining but who had money power or muscle power — either would work — they came into mining. It really became sort of a rat race.”

Mr. Hegde’s investigation has discovered that at least 10 members of the Indian Parliament or the Karnataka state assembly control leases in the Bellary region. By 2004, when the Reddys got their first lease, they had emerged as political players. The sons of a police constable, Janardhana Reddy and his two brothers had been key supporters of a B.J.P. candidate, Sushma Swaraj, in a local parliamentary race in 1999 that became a national showdown against Sonia Gandhi, the scion of the governing Indian National Congress Party.

Ms. Gandhi won the race, but the Reddys would steadily turn the Congress Party stronghold toward the B.J.P. Ms. Swaraj, now the leader of the opposition in Parliament, became their patron. To get rich, however, the Reddys transcended partisanship and allied themselves with the Congress Party’s Y.S.R. Reddy (who is no relation), the powerful chief minister in the neighboring state of Andhra Pradesh. Iron ore deposits straddle the border of the two states, and the Reddys obtained leases on the Andhra Pradesh side.

The Reddys got richer, bought a helicopter and are believed to have bankrolled numerous political campaigns. In 2008, they financed B.J.P. victories that helped the party to take over the Karnataka state government. As his reward, Janardhana Reddy became the state’s minister of tourism; his brother Karunakar became minister of revenue; his brother Somashekhar became president of the state’s powerful milk federation; and their close ally, B. Sriramulu, became the health minister.

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