VZCZCXRO0321
RR RUEHBI RUEHCI
DE RUEHCG #1418/01 1871008
ZNR UUUUU ZZH
R 061008Z JUL 06
FM AMCONSUL CHENNAI
TO RUEHC/SECSTATE WASHDC 8901
INFO RUEHNE/AMEMBASSY NEW DELHI 1790
RUEHBI/AMCONSUL MUMBAI 4797
RUEHCI/AMCONSUL CALCUTTA 0544
RUEHLM/AMEMBASSY COLOMBO 1230

UNCLAS SECTION 01 OF 02 CHENNAI 001418 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PGOV PINR EINV IN
SUBJECT: DIVIDED AND AMBIVALENT: KERALA'S NEW LEFTIST 
GOVERNMENT OFF TO A SLOW START 
 
REF: CHENNAI 0960 
 
¶1. (SBU) SUMMARY: A recent visit to Kerala one month into 
the new CPI(M)-led government found Chief Minister 
Achuthanandan's cabinet divided, slow off the mark and 
ambivalent about new foreign investment.  Nonetheless, the 
government enjoys a huge majority in the legislative 
assembly and is solidly in place.  Based on conversations 
with the Chief Minister, CPI(M) state secretary Pinarayi 
Vijayan, and other political and business leaders, Post 
believes that the new government will remain less than 
dynamic on the industrial front as well as hesitant to solve 
legacy issues such as Coca Cola's idle bottling plant. END 
SUMMARY 
 
------------------------------------- 
DEFICIT BUDGET AND A DEFICIT OF IDEAS 
------------------------------------- 
 
¶2. (SBU) On June 26, Consul General Hopper visited Kerala's 
capital Thiruvananthapuram for the first time after the 
CPI(M)-led Left Democratic Front (LDF) government came to 
power in May.  During the visit, the government was in the 
midst of introducing its budget for the coming year.  With 
Kerala facing a worsening budget deficit, the budget message 
included a plan to amend the Kerala Fiscal Responsibility 
Act of 2003, which it described as "imposed by the Central 
Government as part of globalization."  Rejecting the Union 
Government's insistence on reducing expenditures, the 
Finance Minister said he would instead raise revenue to see 
the state through this financial crisis.  He announced a new 
schedule of "luxury goods" to be taxed at a higher 20 
percent rate which includes refrigerators, washing machines, 
and of course, soft drinks such as Pepsi and Coca Cola.  The 
budget package also announced the formation of an 
Agricultural Debt Relief Commission, a Farmer's Commission 
to ensure farm price stability, and some tax incentives to 
the agriculture sector. 
 
¶3. (SBU) Although the budget recognized the need to have a 
"quantum leap in private investment" and welcomed "foreign 
investment which helps in creation of new technologies and 
employment opportunities," there was no indication of any 
policy initiatives in the budget package to increase 
investment in the state.  Observers told Post the budget 
lacked a clear vision and broke relatively little new 
ground.  They commented that the first one or two budgets of 
any new government offer the best opportunities for setting 
a new course and taking bold steps.  The Achuthanandan 
government will have only one more chance to do so before 
the run-up to the 2009 parliamentary election limits its 
room to maneuver. 
 
------------------------------------ 
PRIORITIES: AGRICULTURE, IT, TOURISM 
------------------------------------ 
 
¶4. (SBU) Octogenarian Achuthanandan, with little formal 
education and almost no previous administrative experience, 
came across in our meeting as being hand-held by his own 
staff, most of them political appointees.  He reiterated the 
government's intention to revive agriculture and traditional 
industry such as the labor intensive coir, cashew and beedi 
(local cigar) industries.  He did mention information 
technology and tourism as two other sectors the government 
would promote but had no definite plans for promotion of 
either.  Asked specifically whether his government would 
continue to support the previous government's project to 
facilitate Dubai Internet City's IT infrastructure project 
in Cochin, Achuthanandan expressed reservations.  According 
to his aides, the government would not part with the 
existing Cochin IT park to the Dubai company nor give any 
concessions on the market price of land.  On the higher 
education sector, while the CM's aides pointed to possible 
collaborations with U.S. universities, the Chief Minister 
said only that they can be looked into. 
 
-------------------------------- 
A TEST CASE: THE COCA COLA ISSUE 
-------------------------------- 
 
¶5. (SBU) We probed the government's attitude toward Coca 
Cola, whose bottling plant in Achuthanandan's constituency 
district of Palakkad has been closed since 2004.  While the 
Chief Minister told CG that he had no solution to offer, his 
aides explained that both on the issues of ground water 
depletion and environmental pollution, there was no way out 
 
CHENNAI 00001418  002 OF 002 
 
 
in sight.  At the Communist Party state headquarters, where 
the sparse decorations included an anachronistic line-up of 
portraits of Marx, Engels, Lenin and Stalin, State Secretary 
Pinarayi Vijayan told us that he has "no good advice" to 
give Coke because "100 percent of the local people of the 
area" are opposed to the plant.  When former CPI(M) Finance 
Minister Sivadasa Menon began to explain that the anti-Coke 
struggle was not actually initiated by the party but by 
certain groups of "environmental terrorists (extremists)," 
Vijayan intervened to point to the unanimous local 
opposition.  Separately, Coca Cola General Manager Vikas 
Kochar recently informed Post that they too met officials in 
Thiruvananthapuram recently, and in light of impressions 
gathered, Coke has decided not to push hard on the issue and 
risk provoking the new government.  According to Kochar, the 
phenomenal media attention on the issue could potentially 
affect operations in other Indian states if it were allowed 
to spill over. 
 
----------------------------------------- 
"WE WILL NOT PULL DOWN THE UPA GOVERNMENT" 
----------------------------------------- 
 
¶6. (SBU) Vijayan, who is privy to party discussions at the 
politburo level, informed us that the CPI(M) has no 
intention of pulling down the UPA government although the 
party will continue to oppose the "anti-people policies of 
the Central Government" and also its foreign policy. 
Vijayan and Menon believe that the shift of the religious 
minorities of Kerala towards the LDF was one of the major 
factors behind the massive majority the front secured in the 
May assembly elections. 
 
--------------------------------------------- - 
CONGRESS: "THEY SWAYED THE SENTIMENTAL MUSLIMS" 
--------------------------------------------- - 
 
¶7. (SBU) Former Chief Minister and Congress leader Oommen 
Chandy confirmed that the CPI(M) had made inroads into 
Muslim vote banks by highlighting the Iran and Iraq issues. 
The CPI(M) criticized Congress for supporting U.S. policies 
and for the reception given to President Bush during his 
March visit to India.  They exploited the sympathy for the 
Kerala Muslim leader Abdul Nasser Madany who has been in 
Tamil Nadu jail for seven years pending disposal of the case 
against him related to the 1998 terrorist bombings in 
Coimbatore.  According to Chandy, the CPI(M) effectively 
swayed the "sentimental" Muslims of Kerala through communal 
propaganda.  Chandy pointed out that the CPI(M) is a divided 
house, with the dominant faction remaining deeply opposed to 
the Chief Minister.  "They have not given him the freedom to 
allocate the ministers' portfolios," he said but added that 
the Congress has no intention of pulling down the government 
midterm. 
 
--------------------------------------------- --- 
IT IS A DIVIDED HOUSE, ADMITS LEFTIST LEGISLATOR 
--------------------------------------------- --- 
 
¶8. (SBU) Conversation with the LDF-supported independent 
legislator Alphonse Kannamthanam (protect) confirmed the 
continuing infighting within the Kerala CPI(M). Former IAS 
officer Kannamthanam, who quit his government post to run 
for the assembly, claimed he is part of the dominant 
"official" faction opposed to the Chief Minister.  According 
to Kannamthanam, the official faction is more liberal on 
economic policy while the Chief Minister remains a party 
hardliner.  He believes this dominant faction will possibly 
remove the Chief Minister "after one or two years". 
 
------------------------------- 
POLICY CORRECTIONS NOT IN SIGHT 
------------------------------- 
 
¶9. (SBU) COMMENT: The divided and administratively 
inexperienced new team of leftist ministers in Kerala seems 
ill-equipped to lead Kerala through the policy corrections 
needed to attract private investment.  Despite its 
impressive achievements on social and quality of life 
indicators, Kerala continues to lag behind the other three 
southern states on the industrial front.  While existing non- 
controversial businesses have little to fear, new investors 
might wait for the cabinet to sort out its industrial policy 
and shed its ambivalence before considering major new 
investments in the state. END COMMENT 
 
HOPPER