VZCZCXRO5994
PP RUEHBI RUEHCI
DE RUEHCI #0423/01 2611248
ZNR UUUUU ZZH
P 181248Z SEP 06
FM AMCONSUL CALCUTTA
TO RUEHC/SECSTATE WASHDC PRIORITY 1163
INFO RUEHNE/AMEMBASSY NEW DELHI PRIORITY 1042
RUEHBI/AMCONSUL MUMBAI 0408
RUEHCG/AMCONSUL CHENNAI 0408
RUEHKA/AMEMBASSY DHAKA 0247
RUEHKT/AMEMBASSY KATHMANDU 0247
RUEHIL/AMEMBASSY ISLAMABAD 0190
RUEAIIA/CIA WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE USD FAS WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHCI/AMCONSUL CALCUTTA 1424

UNCLAS SECTION 01 OF 03 CALCUTTA 000423 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PGOV ECON EINV ETRD IN
SUBJECT: CPM POLITBURO PLANS MORE OPPOSITION TO ECONOMIC REFORMS 
 
 
¶1.  (SBU) Summary:  September 12-13, the Communist Party of 
India-Marxist (CPM) Politburo met in Calcutta to discuss its 
progress since the party`s 18th Congress in 2005 and aspects of 
the GOI`s economic reforms that the CPM intends to oppose.  The 
CPM Politburo plans to force a change in the Special Economic 
Zones (SEZ) act, believing the present law permits too much land 
being given to the private SEZ developers for property 
speculation.  The CPM will also contest the GOI's decision to 
allow importation of wheat and other essential commodities.  The 
CPM drafted a policy paper opposing lifting the cap on Foreign 
Direct Investment (FDI) in the insurance sector.  Still 
confident from its successes earlier this year in the Kerala and 
West Bengal state assembly elections, the Politburo outlined 
plans to expand its influence other states.  The effort to 
rollback or block economic reforms, ostensibly based on 
ideological commitment, also protects Indian domestic corporate 
interests.  End Summary. 
 
 
 
¶2.  (SBU) CPM contacts provided post with a read-out on the 
initiatives and policy positions discussed by the CPM leadership 
at the recent Politburo meeting in Calcutta.  A few notable 
points included:  the CPM would lobby the GOI to support 
Venezuela's candidacy for a rotating seat in the U.N. Security 
Council; India's differences with Pakistan should be resolved 
through dialogue; recent terrorist attacks in Mumbai and 
Malegaon should be investigated; the party would send 
representatives to express solidarity with the victims in those 
areas; however, anti-terrorism efforts should not follow the 
USG's lead.  In addition, the CPM's Uttar Pradesh state 
committee will meet mid-October to discuss the party's strategy 
for that state's upcoming legislative assembly elections and 
provide suggestions to a subsequent Politburo meeting. Finally, 
the CPM identified states such as Maharashtra, Tamil Nadu, 
Andhra Pradesh and Jharkhand where the party can expand outside 
its traditional strongholds of West Bengal, Kerala and Tripura. 
 
 
 
 
 
¶3.  (U) On September 14, CPM General Secretary Prakash Karat 
spoke at the Federation of Indian Chambers of Commerce and 
Industries (FICCI) - Eastern Regional Council on the subject of 
an "Agenda for Inclusive Growth" and further elaborated details 
of the Politburo's positions.  Karat agreed that while India 
needed a high rate of economic growth, the emphasis should be on 
more inclusive growth, which involved four elements: 
agriculture development, employment generation, enhanced social 
justice and bridging the regional divide.  On agriculture, Karat 
argued that India is facing an agrarian crisis as evidenced by 
reportedly 100,000 farmer suicides between 1993-2003.  To 
alleviate this crisis, public investment in agriculture should 
be increased to counterbalance the perceived decade-long neglect 
of the agricultural sector.  The CPM opposes the importation of 
wheat and other grains as undermining the domestic farmers.  On 
increasing employment, Karat's solution was to link agriculture 
to industry and gave the example of West Bengal which is the 
highest vegetable producer in India but which has no food 
processing industry.  With regard to social justice, Karat felt 
that the commercialization of higher education was making 
exclusive "enclaves" for the rich and there was a need to 
regulate fees being charged by private institutions as well as 
to refocus on primary education. 
 
 
 
¶4.  (SBU) Karat called for policy measures to counter the 
increasing regional divide between more rapidly developing and 
stagnating states.  He felt that the GOI Special Economic Zone 
(SEZ) policy would further accentuate the divide.  He observed 
that many of the planned SEZs were concentrated in five western 
and southern states where much of India's economic development 
was already occurring.  Karat also questioned the reported 
structuring of the SEZs with 25 percent of the SEZ land being 
used for actual industry and the remaining 75 percent for the 
private investor to use for property development to help finance 
the SEZ infrastructure.  He argued that the proposed SEZs looked 
like speculative real estate scams.  He suggested the adoption 
of the "Bengal" model of SEZs which would permit use of 25 
percent of the land for infrastructure, 50 percent for industry 
and processing, and the remaining 25 percent for property 
 
CALCUTTA 00000423  002 OF 003 
 
 
development. Speaking with ConGen after his remarks, Karat said 
that the CPM would ask the GOI to review its SEZ policy before 
approving additional SEZs. (Comment:  In an apparent double 
standard, West Bengal's SEZs, being already approved, would go 
forward as planned. End Comment.) 
 
 
 
¶5.  (SBU) The CPM and its left allies have also submitted a note 
to the ruling United Progress Alliance (UPA) opposing the 
raising of the FDI cap in insurance from 26 to 49 percent.  The 
CPM claims that foreign insurance companies have not been 
profitable in India, reflecting a lack of efficiency and 
service.  It also questioned the reputation of some of the 
insurance companies, noting that Prudential Financial Services 
is being investigated in the U.S. for falsifying documents.  In 
addition, the CPM disagrees that the insurance sector will help 
channel investment into infrastructure. 
 
 
 
¶6. (SBU) ConGen asked Karat whether West Bengal's economic 
reforms and efforts to seek private investment were consistent 
with the national CPM's position.  Karat responded that the 
state government's economic policies were compatible with the 
views of the CPM.  He said the CPM supports private investments 
in new airports, and agreed on privatization of loss-making 
public sector units.  Karat claimed that his party accepts that 
a mix of private and public sector is required for economic 
growth, adding that the party reacts to prevailing conditions 
set at the national and international levels.  On the issue of 
foreign investment in education, Karat said the subject was 
being discussed at the level of the World Trade Organization 
(WTO) and within the framework of the General Agreement on Trade 
in Services (GATS) and that the CPM does not have an articulated 
position. 
 
 
 
¶7.  (SBU) Ostensibly the Politburo's agenda, Karat's remarks to 
FICCI and comments to ConGen reflect anti-reform positions based 
purely on leftist ideology.  However, the CPM is also influenced 
by domestic corporate concerns.  The CPM's anti-reform positions 
protect the interests of key business supporters and 
corporations.  Karat's conversation with ConGen at the FICCI 
event was interrupted by local real estate developer Harsh 
Neotia who objected that the SEZ policy allowed SEZ developers 
to build houses, schools and other facilities and to sell the 
properties tax free.  Neotia said people working in the SEZs 
could simply purchase properties on the local economy.  Left 
unsaid was the fact that Neotia earlier made his fortune 
developing housing on free land he received from former West 
Bengal Chief Minister Jyoti Basu.  In turn, Neotia is widely 
considered to be a significant financial backer of the state 
CPM. 
 
 
 
¶8.  (SBU) The CPM's objections to lifting the 26 percent cap to 
FDI in the insurance sector, are similar to earlier objections 
raised by ITC CEO Y.C. Deveshwar to Treasury Undersecretary 
Timothy Adams during Adams' May visit  to Calcutta.  Deveshwar 
is the only member of the CEO Forum in East India and ITC is the 
only large Indian corporation with headquarters in Calcutta. 
While not discussed at the Politburo meeting, the CPM has 
opposed FDI in large-scale retail as well, supposedly out of 
concern for potential job losses in the unorganized, small-scale 
retail sector.  However, the GOWB is permitting Reliance 
Industries Limited (RIL) and the RPG Group to establish large 
retail operations modeled on foreign retail companies. 
 
 
 
¶9. (SBU) Comment:  Ideology aside, the CPM's agenda is designed 
to expand the influence of the party at the state and national 
level.  Its opposition to economic reform measures appeals to 
Indian corporate supporters and its call for "public investment" 
in the agricultural sector cultivates votes in CPM's rural base 
(with more unsustainable giveaways to poor farmers, and without 
fundamental restructuring of the economic conditions that create 
rural poverty.)  Pressuring the Congress and UPA to implement 
"inclusive" growth policies also serves to accentuate divisions 
within the coalition between the Nehruvian old guard that 
 
CALCUTTA 00000423  003 OF 003 
 
 
retains a fondness for Socialism and the reformers seeking 
market-oriented policies.  In this calculus, the CPM's old 
ideologies offer new opportunities for promoting party growth 
and influence. 
JARDINE