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PP RUEHAST RUEHBI RUEHDBU RUEHLH RUEHPW
DE RUEHCI #0289/01 2610434
ZNR UUUUU ZZH
P R 180434Z SEP 07
FM AMCONSUL KOLKATA
TO RUEHC/SECSTATE WASHDC PRIORITY 1690
INFO RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUEHNE/AMEMBASSY NEW DELHI 1599
RUEHBI/AMCONSUL MUMBAI 0713
RUEHCG/AMCONSUL CHENNAI 0710
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEAIIA/CIA WASHINGTON DC
RUEHCI/AMCONSUL KOLKATA 2073

UNCLAS SECTION 01 OF 03 KOLKATA 000289 
 
SIPDIS 
 
SIPDIS 
 
DEPT PLS PASS USTR, FAS 
 
E.O. 12958: N/A 
TAGS: BTIO EAGR ECON EINV PGOV IN
SUBJECT: INDIAN CONGLOMERATE RELIANCE SUSPENDS ITS WEST BENGAL RETAIL 
PROJECT 
 
REF: NEW DELHI 4076, KOLKATA 91 
 
KOLKATA 00000289  001.2 OF 003 
 
 
¶1.  (U) SUMMARY.  Faced with violence against its facilities and 
growing political opposition to expansion of retail in India, 
the Reliance Group on September 13 suspended its billion-dollar 
agricultural retail project in West Bengal.  The ruling 
Communist Party of India-Marxist (CPM) and the W. Bengal Chief 
Minister are in favor of allowing big retailers to operate, but 
the opposition parties and some of the CPM's Left allies have 
taken a hard-line against large investment in the agricultural 
market that would disrupt the current inefficient and corrupt 
system, which enriches the local politicians and the numerous 
middlemen involved.  As is often the case in India, the issue is 
not really about the ideology or the policy, but about who 
stands to benefit.  In this case, the biggest loser may be W. 
Bengal, as negative signals discourage investment, but the 
"retail problem" is affecting many other states as well.  END 
SUMMARY. 
 
--------------------------------- 
Reliance throws up its hands 
--------------------------------- 
 
¶2.  (U)  The inauguration of Mukesh Ambani's Reliance Industry's 
USD 1 billion retail project in West Bengal has been suspended 
after a series of violent protests organized by Leftist 
political parties (except the ruling Communist Party of 
India-Marxist (CPM)) and opposition parties.  These protests 
started in mid-August in front of Reliance's department stores 
around Kolkata.  Reliance has now removed products from the 
shelves of its stores.  On September 13, a Reliance contact told 
Post that although the company faced similar protests in other 
states, a "lack of enthusiasm" in the W. Bengal government to 
support Reliance contributed significantly to the company's 
decision to put on hold its operations in the state. 
 
¶3.  (U) On September 14, at an event organized by the Federation 
of Indian Chambers of Commerce (FICCI), W. Bengal Chief Minister 
Buddhadeb Bhattacharjee explained his government's decision to 
back off despite its earlier enthusiasm.  He said, "We should 
not and cannot stop big retailers.  It is my opinion, but 
unfortunately I am running a coalition government.  And that is 
my problem," placing the blame on his Left Front coalition 
partners. 
 
--------------------------------------------- -------------- 
--------------- 
CPM Wants Retail with Conditions, Smaller Parties Don't Want 
Retail at All 
--------------------------------------------- -------------- 
--------------- 
 
¶4.  (U) Although Bhattacharjee is generally in favor of large 
investment in retail, even his CPM party has specified certain 
conditions for setting up retail department stores.  The CPM 
would like larger retailers to set up stores outside Kolkata's 
city limits so as not to take away business from corner shops. 
The party also does not want large retailers to sell grains, and 
foreign investment in retail is still a no-go.  The position 
taken by Left Front member Forward Bloc, and the opposition 
Trinamul Congress and the Bharatiya Janata Party (BJP) is more 
strident.  Senior Forward Bloc leaders told Post that their 
party was opposed to organized retail per se (not just against 
Reliance) as "it would destroy the traditional system of 
marketing." 
 
¶5.  (U) The violence employed by the anti-retail elements has 
been continual and significant.  On August 18, activists of the 
Forward Bloc ransacked a Reliance retail shop in Kolkata.  BJP 
activists ransacked the same shop again on August 26.  On August 
28, demonstrators "temporarily occupied" a Reliance store at a 
North Kolkata suburb.  On September 6, the students' wing of the 
Forward Bloc blocked a road in Kolkata, protesting against the 
company's retail venture.  Forward Bloc leader Ashok Ghosh said 
his party would not allow Reliance to jeopardize the interests 
of small retailers.  Ghosh also wrote a letter to Trinamul 
Congress president Mamata Banerjee, seeking her support for a 
joint action against Reliance. 
 
¶6.  (U) The West Bengal government's response to these violent 
protests has been low key.  Chief Secretary Amit Kiran Deb said 
his government would provide protection to the retail chain and 
complaints lodged in various cases would be "pursued." 
 
KOLKATA 00000289  002.2 OF 003 
 
 
Reliance's decision to stop its retail operations is an 
indication that the company did not put much faith in these 
assurances. 
 
-------------------------------------------- 
The Real Issue is the Agricultural Model... 
-------------------------------------------- 
 
¶7.   (U) While Reliance's stores were coming under attack, it 
was business as usual for other large retailers operating in 
West Bengal.  No demonstrations were staged in front of stores 
such as Spencers, Westside, Big Bazaar and C3.  Even Metro - a 
German chain setting up its cash-and-carry operation in Kolkata 
-- faced no problem.  While Reliance is a new entrant in West 
Bengal, all the other large retail shops are owned by industrial 
conglomerates that have previously invested in the state. 
 
¶8.  (U) There are two factors driving the opposition against the 
Reliance venture:  First, the Forward Bloc does not want 
Reliance to buy fruits and vegetables directly from farmers. 
Moreover, they do not want the company to open retail outlets 
that would compete with smaller businesses.  Significantly, the 
protests are directed against Reliance because its project 
involves mostly agriculture retail and will have a direct impact 
on West Bengal's existing farm marketing practices.  The 
Reliance business model, the Forward Bloc alleges, will 
introduce a monopoly across the entire supply chain of 
agricultural produce, disrupting the livelihood of at least 10 
million people in their estimates.  These people are employed in 
vegetable wholesale and retail trade, including participants in 
the approximately 4,500 weekly rural markets in the state. 
 
¶9.  (U) West Bengal's existing large retailers have a marginal 
impact on agricultural trade as vegetables make up only 1-2 
percent of their operations.  Moreover, these retailers buy 
their agricultural produce from existing wholesalers in bulk. 
This model does not disrupt the existing agricultural supply 
chain and means more business for wholesalers and intermediaries. 
 
------------------------ 
...and Who Benefits 
------------------------ 
 
¶10.  (U) The current farm-to-plate supply chain of fresh 
vegetables in West Bengal operates through a web of state 
regulated rural markets that legally and illegally enrich a host 
of participants in the system.  Farmers sell their produce to 
wholesalers in these markets at prices determined by local 
Marketing Committees.  To buy from farmers, the wholesalers must 
have a license from the local Agricultural Produce Marketing 
Committee (APMC).  This license is mandated under the 
Agricultural Marketing (Regulation) Act, 1972.  The Marketing 
Committees - with representatives from farmers, wholesalers and 
the state agricultural department -- form an oversight mechanism 
to protect the farmers and intermediaries from price and 
quantity speculations.  The Forward Bloc runs West Bengal's 
agriculture ministry and has oversight of the entire 
agricultural market network.  Corruption and payoffs are rampant 
and common within this system. 
 
¶11.  (U) The Reliance project would have set up a parallel 
procurement network, bypassing the existing one.  Reliance 
planned six agri-distribution and procurement hubs across West 
Bengal.  These hubs were to be housed in 100-acre plots each. 
Also on the Reliance supply chain were 80 Rural Business Hubs 
(RBH) and 40 Reliance Town Centers (RTC), each set up on 10-acre 
plots.  The state government, keen to amend the Agricultural 
Marketing Act to make the mandatory APMC license requirements a 
mere formality,  hoped that easier licenses would encourage 
private investment in agricultural marketing, dismantle the 
existing cartels, and reduce the number of intermediaries, 
thereby releasing value for farmers and consumers.  On August 
30, around 400 farmers blocked a road near Ukhra (about 100 
miles North of Kolkata) in Nadia district to protest against 
attacks on Reliance shops.  The farmers claimed that Reliance 
paid them more for their produce than the middlemen. 
 
¶12.  (U) COMMENT:  West Bengal prides itself on its agricultural 
sector, which remains one of the most productive in India, 
although nearly 40 percent of produce is wasted due to a lack of 
adequate cold storage and infrastructure.  Historically, the 
Left parties have found their vote banks among small and local 
 
KOLKATA 00000289  003.2 OF 003 
 
 
farmers and among the various middlemen in the agricultural 
market chain.  Reliance's venture, however, would fracture the 
Left coalition and its corresponding supporters because a large 
investment in agricultural retail would result in a situation 
where farmers (the CPM's constituents) stand to gain at the cost 
of marketing intermediaries (the constituents of CPM's ally 
Forward Bloc).  Compounding the problem is the policy divergence 
within the Left Front itself, with smaller parties opposing 
retail outright.  Ultimately, this dispute works against new 
investment, encourages the status quo, and favors existing 
interest groups in West Bengal.  The "retail problem" is fast 
becoming a national issue faced by many other states, including 
Uttar Pradesh, Kerala, Punjab, Madhya Pradesh, and Gujarat. 
JARDINE