by John Elliott
YSR answered the EPW article with an extraordinary letter that spent more time paraphrasing the accusations than rebutting them. It started by saying that the article had depicted him as ‘a man who created terror and involved in bloodshed for the narrowest possible cause for rising in public life and gaining prominence and political power’, and ‘as one person who is up to any crooked enactment in gaining political benefits with an ultimate goal of gaining power in the state and as one of the pioneers of creating a nexus between politics, crime and money.’37 He wrote that ‘all the allegations and imputations made against me are totally false.’
Father, Son and Cronies
While he was chief minister, YSR moved on from the usual pattern of corruption – politicians and bureaucrats taking bribes in return for favours – and secured the loyalty of his supporters by providing business opportunities for contractors in unregulated, over-priced and scam-ridden irrigation, highways and other projects. The contractors and developers showed their gratitude by taking stakes in companies run by Jagan, mainly in a media business called Sakshi, and politicians and others cronies invested in the development and real estate schemes. Instead of just taking kickbacks, YSR’s family and political associates became joint investors and stakeholders with their business contacts.
‘He converted his key supporters into businessmen, industrialists, contractors and realtors,’ wrote Bharat Bhushan, then the editor of India’s Mail Today, in an article titled ‘Money backs “Son-rise” in Andhra’38 in September 2009. Their loyalty to the party or the leader was based on pure economic interest, and the loyalty of a majority of the 156 Congress MLAs who had just been elected was secured through similar largesse. Others benefited through smooth approvals of business ventures.
To expedite such deals, a chief minister would staff his office with selected bureaucrats, who would do his bidding and were skilful at writing carefully worded tenders and other official documents that favoured certain businesses. They would also steer project approvals through government departments and, local sources allege, ensure that owners of land wanted by YSR and Jagan did not succeed if they complained to the police and other authorities.39
Naidu’s Deals
These activities escalated a style of operating that had been used to a far lesser degree in some other states, and by YSR’s predecessor as chief minister, Chandrababu Naidu, whose friends and relatives benefited from projects. ‘Bureaucrats and their business friends explained to politicians the potential of this sort of public-private partnership (PPP) that led to a flurry of investment projects,’ says a local journalist. Projects in Naidu’s tenure included the internationally famous Hi-Tec City. Well-known companies such as Microsoft, Infosys and Wipro were given generous terms to build facilities, and local real estate companies were encouraged to make parallel investments on the basis of advance inside information. Another project initiated by Naidu was the Hyderabad international airport, developed by a consortium led by GMR. The deal was completed during YSR’s time and the consortium was given a large land allocation of 5,400 acres that triggered a property bubble in the nearby area of Shamshabad.
Relatively few formal allegations of corrupt deals came to light during Naidu’s time as chief minister, despite his real estate links. Observers were surprised that the YSR government did not build up formal inquires and court cases against his predecessor, as often happens when state governments change. Only in two cases was any action initiated. One involved suggestions that the state government took bribes on alcohol sales from 1999 to 2003 (after a period of prohibition from 1995 to 1997), with AP Beverages Corporation, the government-run (and sole) liquor agency in the state, buying from distilleries at a large premium. A Congress supporter went to court with the allegations, but investigations were stopped on an appeal from Naidu, then the chief minister. When YSR came to power, there was talk of reviving the case, but nothing was done.
The other case arose in 2004 when Naidu, who was acting as caretaker chief minister in the run-up to elections, approved the allocation of 850 acres in two locations at a throwaway price of Rs 50,000 per acre to IMG Bharata for a sporting academy, along with other sports management activities. In preparation, Naidu created a sporting image for the state by hosting India’s National Games in 2002 and the Afro-Asian Games in 2003. It was alleged that P. Ahobala ‘Billy’ Rao, who ran the company in an arrangement with IMG, a US-based international sports and events management agency, was acting in a benami role for Naidu. In 2005, the YSR government stopped the deal and cancelled the allocation of a 400acre site.40 It asked the CBI to investigate, but the agency did not do so, claiming a lack of available personnel. The case was later reopened on the basis of two private petitions and remains a subject of political controversy.41
Looking back, it may seem surprising that there was not more opposition to what YSR and Jagan were doing, and that Chandrababu Naidu’s Telugu Desam Party (TDP) did not pro-actively do more to build up a political campaign against them. One of the reasons may be Naidu’s poor political standing following his massive defeat in 2004. He had lost his credibility and was widely criticized by farmers who had suffered four years of devastating droughts. He was probably also constrained by the fact that his regime had run its own corrupt deals, so he did not want to provoke the government into ordering tit-for-tat police inquiries. Also, politicians and officials did not think it was in their interest to rock the boat and challenge such a determined minister as YSR, and most of the media played its accustomed pliant role. YSR built a climate of euphoria among the people about welfare projects that Naidu could not challenge. ‘See, I brought you rain,’ YSR said, when his election was followed by good monsoon rains, building an image that helped him five years later in the 2009 election.
YSR’s 15–20 per cent Corruption
The level of corruption under YSR was described in 2007 as ‘an open secret’ and ‘beyond the pale’ even for India by David Hopper, then the US consul general for southern India. ‘We thought Naidu was bad, but that was child’s play compared with what is happening now,’ he wrote in a cable to the US State Department that was published by WikiLeaks in September 2011.42 ‘Typically, five to seven per cent is lost to corruption, but in Reddy’s irrigation programme that figure is more than 15 to 20 per cent,’ said the cable. ‘The sheer size of Reddy’s signature programmes, with literally billions of dollars at play every year, leaves much room for “leakage” to Congress party officials and their allies.’ The cable also pointed out that the chief minister and his party took a bigger cut from promoters wanting to put up multi-crore projects in the state.
YSR linked politicians, businessmen and bureaucrats by selling government-owned land around key centres such as Hyderabad, the industrial and port city of Vizag, and the temple town of Tirupati to raise money for infrastructure projects, notably a mega-irrigation scheme called Jalayagnam. He gave government funds as ‘mobilization advances’ to private sector contractors for the projects, many of which made little progress. ‘Many of the contractors were cronies and they parked the money in real estate, and YSR added to the hype to it by announcing the new projects, many of which were located at places where the cronies had already bought land,’ says a local journalist.
Politicians whose real-estate businesses thrived during the YSR years included Lagadapati Rajagopal and his Lanco group, whose family businesses include power projects, real estate, infrastructure and one of the country’s biggest real estate mixed-development projects costing $1.5bn and covering 108 acres.43 Congress politicians who were reported to have been awarded irrigation contracts during the YSR regime included three more MPs – T. Subbarami Reddy, Kavuri Sambasiva Rao and Rayapati Sambasiva Rao. Irrigation projects of various sizes and associated road works contracts also went to state ministers and other MLAs. Andhra Congress MLAs’ real estate business also thrived. Other Congress leaders benefited from a Rs 3,000 crore Hyderabad outer ring road project and won other contracts for roads and building wor
ks.
State-owned sites were auctioned at extraordinarily high prices, triggering a real estate frenzy and enabling what one source calls ‘influential people’, who had already bought nearby land at low prices from mostly poor private owners, to sell at massive prices. In July 2006, for example, an auction of undeveloped land at the Golden Mile project in Kokapet, near Hyderabad’s financial district, yielded Rs 14 crore per acre, which matched prices in the city’s long-established prime central district of Jubilee Hills.44 Many of these land deals are now in litigation. The government started an astronomically high number of 103 special economic zones that drove up real estate values.45 A project called Fab City in Maheshwaram near Hyderabad was given a high-profile launch in 2005 as a centre for international semi-conductor companies, which led to land being bought at inflated prices. The lead company in this project, SemIndia, was to have brought in $3bn to make this a hub of microchip manufacturing, but after all the hype, the project was gradually watered down.
A month after he came to power, YSR flagged off his regime with a project called Jalayagnam (jal meaning water, and yagnam being an offering to the gods), which was exceptionally large-scale and ambitious with an estimated cost of some Rs 46,000 crore.46 It included constructing dams, canals, water supply systems, power plants and lift irrigation schemes to pump river water from the Krishna and Godavari rivers up gradients and irrigate seven million acres of dry land in the state, mostly in the Rayalaseema and Telangana areas.
YSR, in effect, had planned Jalayagnam both to boost his populist image as a chief minister who cared for the rural poor by building long-delayed irrigation schemes promised in his election manifesto, and as a sop to contractors who were part of broader schemes with his son Jagan. Many of the projects had not received environmental clearances, and some were subject to disputes with neighbouring states over sharing river waters. Tens of thousands of people were to be displaced. Financing was helped by allocations from the central government, plus state funds from real estate auctions around big cities.
The leaked US cable said that an economist who had been studying the effectiveness of the state government’s programmes had reported that ‘with only four to five companies executing the projects through numerous subcontractors and little oversight, there are many opportunities for graft in the irrigation schemes’. India’s Comptroller and Auditor-General criticized cost and time over-runs in a report, which was submitted to the government early in February 2013.47 None of the contractors had met project completion dates, and only 16 out of the 86 projects had been finished. In a draft report submitted in July 2012, the CAG said that the state had neither enough funds nor water to implement the plans.48 Jalayagnam appeared to consist of a large number of contracts that were awarded without any assurance on the completion of works within specificed time periods and budgets, said the report. On one project, four firms obtained 16 contracts worth Rs 22,885 crore by forming joint ventures in 16 different combinations.
Jagan’s Companies
Jagan Reddy entered business in 2001, taking over the Bengalurubased Sandur Power Company, which handled small-scale power generation and distribution projects. By 2008, four years after YSR became chief minister, Sandur had spun off an investment company and expanded into real estate and other ventures including Jagan’s Jagati Publications.49Working with his father, Jagan built up a media, cement and mining (the family’s original business area) empire, including Sakshi TV, Bharathi Cement and Raghuram Cement in addition to Sandur and Jagati.
Along with other key companies that he controlled with investments totalling Rs 797 crore, Jagati Publications became a focal point in 2012 and 2013 for investigations into money laundering by India’s Enforcement Directorate, and for separate corruption inquiries by the CBI into Jagan’s alleged ‘disproportionate assets’. Companies caught up in the assets case included Tamil Nadu-based India Cements, run by N. Srinivasan, who has been a dominant figure in the politics of Indian cricket as the chairman of the Board of Control for Cricket in India (BCCI) from 2011. He was also involved in the IPL championship controversies as chairman of Chennai Superkings, one of the teams. The CBI alleged that India Cements had invested Rs 100 crore in Raghuram Cements and Rs 40 crore in other Jagan companies and, in return, was allowed by the Andhra Pradesh government to draw additional river water for cement manufacturing plants and also received a favourable limestone mining lease in YSR family’s base of Kadapa.50
The allegations were published by Chandrababu Naidu’s TDP. on the party’s website51 with companies such as Matrix Group, Penna Cements, Ramky Group, Aurobindo Pharma, Hetero Group and Mantri Developers listed as allegedly providing funds for Bharathi Cement, Jagati Publications, Carmel Asia Holdings and other businesses run by Jagan, and receiving favours in return.52 The documents allege that Jagan and his father created 49 dummy companies around the country to launder the money they received in bribes. ‘The modus operandi was very simple: investors favoured with land allocations in exchange for their buying shares of the dummy companies at exorbitant premiums fixed by Jagan and Co,’ says the TDP website,53 quoting a First Information Report (FIR) filed by the CBI.
The CAG said in its annual report in March 2011 that a total of 88,500 acres of land was allotted on an ad hoc and arbitrary manner to private parties, ‘depriving the state revenue of nearly Rs 1 lakh crore (Rs 1bn)’. Among the companies named were Vanpic, Obulapuram Mining and Aurobindo Pharma, all of which were already being investigated in Jagan’s cases. ‘Alienation and allotment of land by the state government during 2006–11 was characterized by grave irregularities, involving allotment on an ad hoc, arbitrary and discretionary manner to private persons/entities at very low rates, without safeguarding the financial and socio-economic interests of the state,’ said the CAG. ‘The rates proposed at different established levels of the government hierarchy were disregarded and substantial benefits were unduly granted to private parties. Audit scrutiny revealed that in the test-checked cases, undue benefit of Rs 1,784 crore was given to various entities and persons due to the difference in the rates at which land was allotted and the market value as recommended by the district collector and empowered committee. In many cases of land allotment, the state government ignored the prescribed procedures and disregarded canons of financial propriety.’
In 2012, a 28,000-acre ports and industrial zone development in the state’s Guntur and Prakasam districts called Vanpic (Vadarevu and Nizampatnam ports) became the main focus of inquiries by the CBI, which said it was ‘nothing but a criminal conspiracy to loot the public assets in order to help private parties’.54 Vanpic was promoted by Nimmagadda Prasad, a businessman, through one of his group companies, Matrix Enport. Prasad’s original business was Matrix Labs, a prominent pharmaceutical company that was acquired by Mylan Labs of the US in 2006–07. Known locally as ‘Matrix Prasad’, he has interests in media and is chairman of Maa Television.
In addition to generous tax concessions, the government committed in 2008 to give Vanpic an excessive amount of land totalling some 18,000 acres, according to the CAG,55 allegedly in return for Prasad investing $300–400m in Jagan’s businesses including Sakshi. Investors in Vanpic, besides the Andhra government and Matrix Enport, included Ras Al Khaimah (RAK), one of the United Arab Emirates. (RAK also obtained controversial rights along with the state’s mining corporation and a branch of the Jindal family business group, one of India’s largest steel producers, to mine for bauxite in a protected tribal area, the Araku Valley, where only state agencies are allowed to work56). Prasad was jailed in 2012 while inquiries continued. In March 2013, CBI counsel alleged in court that, between 2006 and 2009, the government had provided assets worth Rs 17,000 crore for Vanpic ports, an industrial corridor, a greenfield airport project and a shipyard and put the total land awarded at 28,000 acres. In return, said the counsel, Prasad invested heavily in Jagan’s companies.57 In November 2013, the state government cancelled the project,58 claiming it was doing so because it had not been
properly cleared with the central government, which sounded like a neat excuse.
Big Names
A clutch of Andhra companies that thrived during the years when Chandrababu Naidu and YSR were chief ministers went on to run big projects in the rest of India and then abroad. They include names such as Satyam in software, and GMR, GVK and Lanco in infrastructure. GMR and GVK each run two of India’s main airports and were responsible along with 13 other companies, at their peak, for a third of the power projects and half the highway concessions.59
They were using the skills and resources that had been built up in Andhra Pradesh over previous decades. These included the close connections with politicians in Hyderabad, Delhi and elsewhere that seemed to encourage risky expansion rather than business caution. Many of the politicians involved are believed to have invested in the projects, channelling accumulated bribe money through sources such as off-shore equity funds. They have all hit problems. Satyam collapsed in a fraud scandal. The others have suffered from over-rapid expansion in the boom years that led to heavy indebtedness, plus India’s general problems of project delays caused by slow land approvals, environmental blockages and shortages of coal for power projects. Today, GMR, GVK and Lanco are among the country’s most heavily indebted companies.60
Satyam and Maytas
The biggest collapse came in January 2009 when Satyam, India’s third biggest software company with 53,000 employees and customers and operations in 66 countries, imploded. This was a rare case of the lid being lifted on India’s rocky corporate governance. It was especially worrying for the country’s international image because it happened in the new software information technology industry. Until the Satyam case, it had been assumed that these companies had better standards than many of India’s old family-controlled groups that habitually switched funds between businesses and into personal accounts. It can now be seen, however, with the subsequent exposure of widespread corruption, to be a prime example of what was wrong.
