VZCZCXRO3052
RR RUEHAST RUEHBI RUEHLH RUEHNEH RUEHPW
DE RUEHCI #0007/01 0091002
ZNR UUUUU ZZH
R 091002Z JAN 09
FM AMCONSUL KOLKATA
TO RUEHC/SECSTATE WASHDC 2237
INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUEAIIA/CIA WASHDC
RUEIDN/DNI WASHINGTON DC
RUEHCI/AMCONSUL KOLKATA 2736

UNCLAS SECTION 01 OF 02 KOLKATA 000007 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR SA/INS (ASHWORTH) 
DOC FOR FCS 
 
E.O. 12958: N/A 
TAGS: ECON EIND PGOV IN
SUBJECT: WEST BENGAL AFTER THE NANO: INVESTMENT CLIMATE IS BLEAK 
 
REF: A. A. 08 KOLKATA 275 
     ¶B. B. 08 KOLKATA 148 
 
KOLKATA 00000007  001.2 OF 002 
 
 
¶1. (SBU) Summary: Three months after Tata withdrew its Nano 
project from West Bengal in the face of violent opposition 
against land acquisition, the investment climate in West Bengal 
is bleak.  The Government of West Bengal (GOWB) has not 
developed a strategy to repair the state's damaged image and 
does not appear to be addressing the underlying problem of 
acquiring agricultural land for industrial development.  In the 
absence of government initiative, a leading business daily 
produced a blueprint business plan entitled "Kolkata 2010" that 
has gotten the business community talking about improving West 
Bengal's post-Nano investment climate.  However, it is unlikely 
the GOWB will be able to implement this or any plan before state 
assembly elections in 2011 if it is unable to effectively 
counter and address a political opposition that is set on 
challenging the ruling party's control of the state government. 
End Summary. 
 
West Bengal's Chief Minister Loses His Positive Image 
 
¶2. (U) On October 3, Ratan Tata cancelled his company's plans to 
manufacture its new small car, the `Nano', in a factory in 
Singur, West Bengal.  Despite having almost completed 
construction of a new factory and being on the verge of 
producing its first Nano, Tata closed the factory and shifted 
the project to Gujarat as a result of local protests over land 
acquired for the factory and ancillary units (Reftel A).  Even 
worse than losing a potential USD 300 million investment, West 
Bengal appears to have lost the investor friendly image that 
Chief Minister (CM) Buddhadeb Bhattacharjee had painstakingly 
built up over the past decade.  The ruling Left Front government 
and particularly the Communist Party of India Marxist (CPM) 
appears to have lost its absolute political hold on the state, 
with leading opposition party, All India Trinamool Congress 
(TMC), challenging the state at every turn, particularly over 
land acquisition for industrial projects.  While CPM has ruled 
the state for 31 years and dominates the legislative assembly 
with 176 members compared with TMC's 29 members, the recent 
Panchayat elections held in May-June 2008 indicate that its hold 
is weakening (Reftel B).  The Left Front's share of village 
council seats declined from 71 percent in 2003 to 50 percent in 
¶2008.  Whereas in 2003 the TMC failed to win a single district 
council, in 2008, they won two of the 18 on the strength of 
their pro-farmer stance against CPM's `land-grabber' image. 
 
¶3. (SBU) West Bengal's image problems have been compounded by 
the worldwide financial crisis and an increase in violent 
protests throughout the state.  On November 2, JSW Bengal Steel 
Limited broke ground on a USD 7 billion integrated steel factory 
in Salboni, West Midnapore district of West Bengal.  The 
company's managing Director, Biswadip Gupta, told ConGen that 
due to low international steel prices and weak demand 
conditions, JSW would scale back its initial launch from ten to 
three million tons per annum of steel production.  The GOWB's 
attempt to rebuild its public image at the steel plant 
groundbreaking ceremony failed when the CM's motorcade, which 
included two Union Ministers, was targeted by an improvised 
explosive device on the return to Kolkata.  In their search for 
the alleged Maoist perpetrators (the Maoists had claimed 
responsibility for the attack), the police detained tribals from 
the surrounding villages of Lalgarh.  This led to a further 
backlash as villagers blockaded the area and refused to allow 
the administration to enter or function.  The TMC jumped on the 
opportunity to further mobilize public opinion against the state 
government in this traditionally Left stronghold. 
 
Politics Prevail Over Economics 
 
¶4. (SBU) Most contacts believe that TMC will use every 
opportunity available to challenge the GOWB, hoping to gain more 
seats in the Parliamentary elections scheduled for April or May 
this year as a step towards ending three decades of CPM rules in 
West Bengal in state assembly elections in 2011.  Partha 
Chatterjee, the leader of West Bengal's opposition and a senior 
TMC leader told ConGen that they oppose "land grabbing" for 
special economic zones and are against the entry of large 
private concerns in agro-business.  He also suggested that 
future investors should clear their project plans with TMC in 
order to avoid problems in implementation.  In private 
discussions, GOWB officials acknowledge that TMC is taking 
advantage of cracks in Left Front leadership and they expect TMC 
will continue to agitate against land acquisition as a way to 
gain votes.  One senior CPM official told ConGen that he does 
not expect anything will happen in the state until after the 
2011 state assembly elections.  The CM and Nirupam Sen, Minister 
 
KOLKATA 00000007  002.3 OF 002 
 
 
of Industry, both normally easily accessible to ConGen, have 
declined the ConGen's request to meet to discuss the GOWB's 
strategy for improving West Bengal's investment image. 
 
Media Initiates Business Dialogue 
 
¶5. (U) While a number of business associations and chambers of 
commerce in Kolkata discussed the financial repercussions of the 
Tata pullout, they failed to produce any concrete action 
proposals for the GOWB to improve the investment climate.  One 
of the leading business publications, the Economic Times, has 
partially filled this void and instigated a discussion amongst 
private and public companies, foreign investors and private 
citizens in a series of articles entitled Kolkata Inc. 2010: The 
Business Blueprint.  On December 12, the paper presented its key 
findings to the CM.  The plan focuses on the problem of land 
acquisition and suggests the creation of a government owned land 
bank that potential investors can use for projects, outright 
private company land ownership and improved compensation 
packages to include employment and training opportunities.  In 
an interactive session with the business community to review the 
Economic Times proposal, the CM endorsed the idea of a land bank 
for industrial projects, but limited it to non-fertile 
agricultural land, a scarce resource in this rich agricultural 
state. 
 
Comment 
 
¶6. (SBU) The CPM is clearly shaken by Tata's withdraw from 
Singur and appears unable to internalize the lessons of Singur 
and develop a new strategy for industrialization and private 
sector investment in the state.  With TMC taking advantage of 
CPM's current weakness every new land acquisition for private 
industry is a potential powder keg.  While efforts by the 
Economic Times and others to initiate a dialogue between the 
government and industry are positive steps, it is unlikely they 
will convince CPM or TMC to set aside politics in order to 
promote economic growth in the state.  As a result, it is 
unlikely that West Bengal will win many new large-scale 
investments until the CPM is able to effectively counter the 
challenge from the now legislatively insignificant, but more 
importantly, vocal and agitating TMC aspirant. 
PAYNE