Posted by: John Elliott | November 9, 2009

Massive state-level corruption defies Manmohan Singh’s call for better governance

Twice in the past week or so Manmohan Singh, India’s prime minister, has alluded to the poor state of governance in India’s states. In between those speeches, events in Karnataka, Jharkhand and Andhra Pradesh have graphically demonstrated how massive corruption and links between regional politicians and businessmen are turning state governments into gravy trains fuelled by extortion and fraud.

Coincidentally, they mostly have connections with iron ore and other mining licences and contracts that involve some of the most widespread corruption in the country. This is happening in areas where Naxalite rebels are gaining ground as the livelihoods of local tribals and other poor communities are disrupted. This points to the way that state government corruption is exacerbating India’s most threatening social issue and its most serious internal security problem.

“Sitting here in Delhi we can endlessly debate the qualities of national leadership,” the prime minister told the Hindustan Times Leadership Summit ten days ago. “But real change in India will come when we get the right kind of state level and local leadership – a forward-looking, modern and compassionate leadership that strengthens the foundations of our great Republic. The focus of the debate on leadership for building a new India should, therefore, shift to the States.”

Yesterday, at a World Economic Forum conference in Delhi, he repeated that there was “inadequate appreciation of the need to reform (governance) processes at state and local level”.

Just look at what has been happening in various states to see how far leadership is from what the prime minister rightly says India needs. There is of course widespread corruption in India’s national government, but it is not so pervasive as in some states.


In Karnataka, where India’s showcase IT city of Bangalore is the capital, two businessmen known as the “Bellary mining brothers” have caused a political crisis, now temporarily patched up, by undermining the power of the Bharatiya Janata Party-led state government’s chief minister. They have been trying to install ministers and top bureaucrats who favour their businesses.

In the past few years, Janardhan Reddy and Karunakar Reddy have become politically active and rich from businesses in and around the state’s Bellary mining town. They have direct links with national BJP politicians, especially Sushma Swaraj, who is a candidate to lead the party and become a potential prime minister in the future. Their riches are illustrated by a report that they have presented a Rs45 crore ($9m) diamond encrusted gold crown to a temple.  

Andhra Pradesh

The brothers have also had business links with Jaganmohan Reddy, son of Y.S.Rajasekhara Reddy (YSR), the chief minister of the neighbouring state of Andhra Pradesh, who was killed in a helicopter crash two months ago. The two families are not directly related (one is Hindu and the other Christian), but they come from a clan that dominates politics and business in the region. The joint businesses are reported to include large tracts of land and a steelworks. 

Since YSR’s death, his son has been trying to become chief minister of the state’s Congress-led government. Jaganmohan has had heavy backing from local businessmen who struck deals with his father and want to maintain their power over the state government. This is being resisted by the Congress’s national leadership, but the pressure has been relentless.


In Jharkhand, one of India’s poorest and worst-governed states (hived off from Bihar in 2000), Madhu Korda, a former chief minister, has been arrested for alleged corruption ranging between $400m and $800m. This story illustrates the scale of money available in the states, especially from mining.

Born in a remote village, Korda was working as a labourer in iron ore mines and the metal trade till 15 years ago when he entered state politics. He became a state assembly member and minister in 2000, and in 2006 engineered a political crisis that brought down the state government and made him chief minister of a coalition for the next two years. Earlier this year he became an MP.

Assets that Korda amassed along with associates in those 15 years are reported to total some $375m and include mines in Liberia, South Africa and Thailand as well as India, plus bullion companies in Mumbai, a planned special economic zone near Delhi, many properties around India, and large-scale money laundering through Dubai and elsewhere abroad.

Much of his wealth came when he was mines minister from 2000, which opened the way for widespread extortion and bribes in what is one of the world’s most mineral-rich areas. One controversial project on which he is believed to have been paid well involved the Chiria mines that four private sector companies – Arcelor Mittal, Jindal Steel, Essar Steel and Tata Steel – wanted to wean away from government owned SAIL.

One report said he charged up to $400,000 to $4m (Rs2-20 crore) for signing a mining memorandum of understanding between the Jharkhand government and companies, and $6m-$16m (Rs30-80 crore) for recommending mining leases. Also similar amounts as “speed money”. 

That is in addition to daily collections through the region’s well known coal mafia on all loads travelling out of the area’s public sector mines that are reported to feed $3m (Rs14 crore) a month to the state’s chief minister.

When Korda became chief minister, Aditi Phadnis, a political reporter, wrote in India’s Business Standard newspaper that the state was “sitting on a volcano of left wing (Naxalite) extremism, pluralistic politics and enormous riches on account of natural resources”. She added that “efforts are now on to rig up an architecture that will restrain him from further damaging Jharkhand’s institutional structure”.

Whatever that “architecture” was, it didn’t work. The Naxalite threat has escalated, crime and lawlessness has increased, and Korda built on the riches he had gained while mines minister.

Tamil Nadu

My final example concerns the continuing story that I first reported in a post a year ago headed “India’s telecom minister ‘should be fired’ for a company’s 700% profits”. The minister is A. Raja, from Tamil Nadu, who last year allotted lucrative telecom licences to real estate companies that had befriended him when he was earlier environment minister – without tenders and at low prices valid four to seven years earlier. He belongs to the regional DMK party which is an important ally in India’s Congress-led government and he bluntly rejected appeals last year from Manmohan Singh to correct his ways.

In recent weeks the story has resurfaced, with calls for Raja to be dismissed as telecom minister – a job that Manmohan Singh reluctantly gave him for a second term after May’s general election.

When Pranab Mukherjee, India’s veteran finance minister, was asked about the case at the Hindustan Times conference, he obfuscated and said that “allegation of corruption does not mean that it is a proof of corruption” – which led to quiet sniggers in the conference hall.

What hope does Manmohan Singh have of getting his “the right kind of state level and local leadership” !


  1. These comments were sent to the Asia Sentinel website where this post also appeared – je :

    Saving the elephant,
    written by Gandhi , November 21, 2009
    Only hope for India to prevent the rots at the bottom now is to install a Mediaval theocracy of Dalai Lama who are experienced hands in controlling lowly castes for hundreds of years.

    Regional Leaders are reducing India to a Banana Republic
    written by Sanjay Uvach , November 14, 2009
    This is a mind boggling saga of Corruption. Regional Leaders are reducing India to a Banana Republic. They are making a mockery of the regulatory infrastructure we have. We need a separate regulatory department simply to deal with these regional politicians and their wealth aggregation machinery.

    The Crab Story
    written by Akhbar the Great , November 13, 2009
    There is a story about Crabs in a basket. When one climbs up to do some good, the others will pull him down.That keeps the status quo.In India there should be “transparency”. Every Minister must have his acconts audited by an International auditor and by some one like an Ombudsman and all figures shown on the web. If the Public Official lies-Caning in public for the bugger! Also all his monies and that of his families to be confiscated and paid into an account-which will eventually be given to the poor.
    But caning and whipping in publ;ic is a good thing! In China they will put some chilli in the arse! In China they do it with Chillis and that is mild.They may even excuted you and sell the kidneys-so whipping is not an inhumane treatment.

    written by Singh , November 12, 2009
    Once they gain control of a certain area or region, the Naxalites are likely clean up the cronies who oppress the poors and hungry. That is why the Indian army are being sent to combat the insurgents.

    written by hotaruSTAR16 , November 12, 2009
    India will need to make reforms – both internal and external – if it is to become a world power in the future. Corruption is not uncommon, especially in rapidly growing economies. Have you read Asia Chronicle? The site contains some in-depth analyses on the issues facing India. Worth a read I think.

  2. This is a mind boggling saga of Corruption. Regional Leaders are reducing India to a Banana Republic. They are making a mockery of the regulatory infrastructure we have. We need a separate regulatory department simply to deal with these regional politicians and their wealth aggregation machinery.

    Sanjay Uvach
    Corruption Free India

  3. @Balu – better Indians invest in African development then in the West!

  4. John,

    A bold choice for a blog. What I am wondering is while almost everybody is able to diagnose the symptoms, what we (as a nation) are lacking is

    #1. The ability to actually find a solution to this problem.. seemingly for every bad root weeded out, a couple more seem to sprout.

    #2. and the political will to implement the solution.

    That, in my opinion, seems to be the true bane of coalition politics. Dr. Singh resisted to the hilt to keep Mr. A Raja away from the cabinet, but had to bow down to pressure.

    Considering the UPA, has allied with many regional parties, this spate of corruption, is only what has been dug out. What no one realises, is that the portion still buried could well be the UPA’s achilees heel. Can they keep it burried and save their skins.. we’ll have to wait n see…

  5. If we include the black money being pumped in by Indians in Africa, India might have more investment than China =/

  6. You have only mentioned the tip of the iceberg in corruption.
    All your examples are corruptions at national level.

    There will be loads of examples for corruption at state level. Maybe, you should start with Tamilnadu first.

  7. Repetition of the diagnosis does not cure an illness. Mr Man Mohan Singh has been doing this ad nauseam. There is an under current of complaint in the Prime Minister’s remarks. Who is he compaining against? Himself? In the earlier phase of his premiership, there was an obstacle in the decision-making– the leftists. Now, there is no such excuse. The second major obstacle is the understanding and implementation of the liberalisation process. There is a serious doubt if all the States subscribe to what the PM wants to do,whether out conviction or inability grasp what does it mean in terms of action needed by the State and local authorities.

  8. Corruption in India has a tacit support from the society as the society lacks social safety net and everyone is for himself. People start imagining their requirements and its not uncommon to find people talking of saving for three generations.

    Unless atleast a minimal dignified social safety net is provided as in Western countries (that people will not end up on the street) the tacit approval of society will continue and corrupt people will continue to be respectable as they are right now. The law of the land in paper is mostly subservient to the social customs. .

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