VZCZCXRO0687
PP RUEHBI RUEHCI
DE RUEHCI #0261/01 2391045
ZNR UUUUU ZZH
P 271045Z AUG 07
FM AMCONSUL KOLKATA
TO RUEHC/SECSTATE WASHDC PRIORITY 1658
INFO RUEHNE/AMEMBASSY NEW DELHI PRIORITY 1571
RUEHCG/AMCONSUL CHENNAI 0698
RUEHBI/AMCONSUL MUMBAI 0697
RUEHUL/AMEMBASSY SEOUL 0025
RUEHKA/AMEMBASSY DHAKA 0455
RUEHLM/AMEMBASSY COLOMBO 0181
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUEAIIA/CIA WASHDC
RHMFIUU/CDR USPACOM HONOLULU HI
RUEHCI/AMCONSUL KOLKATA 2038

UNCLAS SECTION 01 OF 03 KOLKATA 000261 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT PLS PASS USTR - AADLER 
 
E.O. 12958: N/A 
TAGS: ECON PGOV EIND EINV PHUM EMIN IN KS
SUBJECT: ORISSA CONTINUES TO GROW IN IT, INDUSTRY, ANDMANUFACTURING 
 
REF: KOLKATA 88 
 
¶1.      (U) Summary:  During a July 31-August 2 visit to the East 
Indian state of Orissa, ConGen met with a range of local 
politicians, bureaucrats, business people and media 
representatives to assess the present economic conditions in the 
state.  The Orissa government has been intent on developing the 
state's great mineral resources and since 2004 has signed over 
45 memorandums of understanding (MOUs) with investors in the 
mines, minerals and energy sector.  Approximately 23 agreements 
are presently operational.    However, the business community is 
closely watching the fate of two large projects in the state: 
South Korean steel manufacturer Pohang Steel Corporation's 
(POSCO) 12 million ton per year greenfield steel plant in 
Jagatsinghpur district, with an estimated investment of USD 12 
billion and Tata Steel's six million ton per year integrated 
steel plant in the Kalinganagar Industrial Complex in Jajpur 
district.  Both projects are embroiled in land acquisition 
disputes.  The state government has been slow to respond to the 
concerns of the tribal communities to be displaced by these 
projects and officials also concede that the Maoist insurgency, 
present in some of the mineral rich areas, will take advantage 
of a possible anti-industrialization backlash.  In addition to 
the manufacturing sector, Orissa is seeing significant 
development in its Information Technology (IT) and 
infrastructure sectors.  While Orissa appears to be on the edge 
of a significant economic boom fueled by its great natural 
resources, the state government still struggles to find the 
appropriate balance between industrialization and social 
development, a problem that affects India as a whole.  End 
Summary. 
 
¶2.  (U) Orissa is a state of contrasts, being one of India's 
poorest, with 46.4 percent of the population living on just 35 
cents a day; while also having huge reserves of India's key 
resources critical for the country's economic growth.  Orissa 
has 33 percent of the country's iron ore, 24 percent of its 
coal, 50 percent of its bauxite and 98 percent of its chromium. 
All these minerals will be needed to build India's new 
infrastructure and industry, which is why foreign investors such 
as the POSCO, Mittal-Acelor and others have been looking for a 
presence in the state. 
 
¶3.  (U) However, the Orissa government has been slow in 
acquiring and providing the land to the investing companies, 
following recent violent land disputes in the state and in the 
neighboring state of West Bengal (reftel).  In January 2006, in 
Orissa's Kalinganagar district police fired on protestors 
opposed to the loss of their land for Tata Steel's planned six 
million ton integrated steel factory and killed 13 people.  In 
March 2007, West Bengal police fired on and killed 14 villagers 
protesting the loss of their land to a proposed Special Economic 
Zone (SEZ).  In addition to delaying land acquisition, state 
government officials developed compensation and rehabilitation 
packages that would be more attractive to displaced villagers. 
This new Orissa Resettlement & Rehabilitation Policy was 
announced on May 14, 2006 and is currently in operation. 
 
 
The Metals and Minerals Sector 
------------------------------ 
¶4.  (U) For the business community, POSCO and Tata Steel's 
projects have become the principal barometer of the state's 
investment climate.  Tata's project requires around 2000 acres 
of land, most of which is home to thousands of tribal villagers. 
 However, Tata Steel's head of the Kalinganagar project Sanjay 
Pattnaik was confident that the problems will soon be resolved. 
According to Pattnaik, civil work for the first phase of the 
project has already started.  Tata Steel Managing Director B. 
Muthuraman also announced to the media that the company would 
place orders for blast furnace, sinter plant, and coke oven unit 
in August 2007.  "We are on course in Orissa.  We have 
identified the mines and applied for mining lease to the state 
government," he said to the press. 
 
¶5.      (U) In POSCO's case, of the total 4,004 acres of land 
required by the company, 3,566 acres belongs to the government. 
However, encroaching villagers on the government land are 
resisting leaving the land.  Home Secretary T.K. Mishra and 
Chief Secretary A.K. Tripathy both claimed that the 
 
KOLKATA 00000261  002 OF 003 
 
 
rehabilitation and resettlement (R & R) package designed by the 
state government is one of the best being offered in the 
country.  They also said that POSCO was willing to meet the 
demands of those losing their land.   POSCO has even agreed to 
offer the compensation package to the squatters on government 
land.  Many of the encroachers are betel vine cultivators and 
POSCO is willing to find alternate cultivation sites for them. 
In addition to the land issue, POSCO India Executive Director 
G.W. Sung, in Bhubaneswar for over a year, was frustrated with 
the bureaucracy he has faced in getting clearances from a 
variety of government departments both at the federal and the 
state level. 
 
¶6.  (SBU) Business leaders in the state believe that one of the 
major difficulties the `mega projects' face is that the 
government went on a MOU signing spree without the 
administrative means to implement the agreements.  They feel 
that the politicians and many of the old-school bureaucrats do 
not have the understanding to respond to the private sector's 
requirements.   The government has only recently sought to 
develop its capacity to handle large industrial projects. 
Managing Director of Orissa's Industrial Infrastructure 
Development Corporation (IDCO) Vishal Dev, a more 
business-sensitive bureaucrat, is now leading the government's 
land acquisition work.  Dev conceded that land acquisition is a 
contentious issue and that the government was going slow.  He 
felt that the best way forward was to reach out to the 
protesters and explain the details of the compensation package 
and the benefits for the local people and the local economy if 
the planned projects were allowed to proceed.   He has been 
doing this, traveling frequently to the troubled project sites 
in Jajpur and Jagatsinghpur districts to speak to villagers. 
 
The Maoist Problem 
-------------------------------------- 
 
¶7.  (SBU) Related to the concern over displaced villagers is the 
potential for Maoist insurgents in the state to capitalize on 
the popular discontent in the affected areas.  Orissa's  Maoist 
problem is not as acute as in the neighboring states of 
Chhattisgarh, Jharkhand and Andhra Pradesh although  Home 
Secretary Mishra said that 18 of the state's 30 districts were 
 
SIPDIS 
affected by Maoist activities.  The Maoists tend to take refuge 
in the state when the police in Andhra Pradesh or the other two 
bordering states crack down on the insurgents.  According to 
state officials, the Maoists intimidate tribal villagers and 
seek to incite them in areas where there are land disputes such 
as in Kalinganagar.  Business people in Bhubaneswar believed 
that the situation is presently manageable but were concerned 
that Maoist activities in the mineral rich tribal districts were 
increasing and that the police were not effective in responding. 
 
IT and other sectors 
--------------------------------------------- ---- 
 
¶8.      (U) In addition to heavy industry, Orissa has attracted 
India's top IT companies, including Infosys, Satyam and Tata 
Consultancy Services.  Software and IT exports in 2006-07 were 
approximately USD 180 million, registering a 58 per cent rise 
over the previous year.  A number of new investments are also 
planned.  Wipro will soon open offices and employ 3,000 people 
by 2009.  U.S. company Genpact will open by December 2007 and 
employ 5,000.  ICICI Bank is setting its back office eastern 
region hub in Bhubaneswar and is set to employ 12,000.  IBM will 
start operations in September 2007 with a facility employing 
around 80 people, it is said to be the precursor to a fully 
fledged development center in the near future, according to IDCO 
Managing Director Vishal Dev.  Dev says that the real estate and 
retail sector in Bhubaneswar too is experiencing a spurt in 
growth, to meet the demands of a growing number of employees in 
the IT sector. 
 
¶9.      (U) Besides the IT sector, the state government is also 
setting up infrastructure to attract bio-pharmaceutical, 
chemical and petro-chemical and automotive companies.   A 
mega-Petroleum, Chemicals & Petrochemicals Investment Region 
(PCPIR) is already under development at Paradeep and a 63 acre 
bio-pharma park is being set up in Bhubaneswar and an automotive 
hub is planned in Choudwar anticipating the growth in the steel 
 
KOLKATA 00000261  003 OF 003 
 
 
industry. 
 
Infrastructure projects 
----------------------- 
 
¶10.      (U) Orissa is a power surplus state.  According to Vishal 
Dev, 13 additional thermal power projects are under various 
stages of implementation, with total capacity of 13,500 MW. 
Major investors include Tata Power, Reliance Energy, Sterlite 
Energy, Mahanadi Aban, Monnet Ispat, Essar Power, Lanco group, 
NavBharat Power, CESC and GMR Energy.  U.S. company AES, which 
had a turbulent relationship with the state authorities, 
recently resolved its long standing disputes.  AES has been 
awarded a coal block in Jharsuguda district near its current 
generation plant.  AES plans to augment its generation capacity 
from the current 420 MW to an additional 1200 MW through the 
addition of two 600 MW thermal power plants.  With regard to 
port development, a new private port at Dhamra is being 
developed by a joint venture of Tata Steel and Larsen & Toubro 
Limited called the Dhamra Port Company Limited (DPCL). 
Managing Director of DPCL S.K. Mohapatra said that after a long 
battle with environmentalists, work on the port has started. 
The port will have a cargo handling capacity of 80 million tons. 
 In the roads sector, investment of USD 6.1 billion over the 
next 5 years is planned to upgrade state and national highways 
and improve connectivity between the mining and metal production 
belts and between the hinterland and ports.  The rail network 
too is being expanded, with an investment of USD 1.46 billion 
over the next 5 years. 
 
¶11.     (SBU) Comment:  Orissa is just now seeing the benefits of 
India's economic reforms, with development of its mineral 
resources, growth of its IT and services sector and expansion of 
its infrastructure.  However, it still suffers from a sclerotic 
state bureaucracy and persistent poverty, which slow rapid 
economic growth and foster conditions favorable to the Maoist 
insurgency.  To fulfill its economic potential, Orissa will need 
more rapid and demonstrable proof of the broader social benefits 
of its commercial policies.  Otherwise, poor communities will 
agitate against industrial plans and investors will pull the 
plug on projects.  As a positive indicator, even with the 
problems experienced by Tata Steel and POSCO, the state 
government appears to be achieving a degree of success at the 
mid-sized business level as evidenced by the projects being 
implemented and the continued expansion of many companies and in 
the IT sector.  U.S. companies are also finding opportunities in 
Orissa as in the case of AES, GenPac and others.  Orissa 
presents very real challenges but as with much of India, the 
overall commercial prospects tilt favorably toward continued 
growth. 
JARDINE