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Bellary: Ready for change

With the Reddy brothers' influence on the wane and the ban on new leases lifted, this district may be in for a breath of fresh air.
Sebastian P.T. | Print Edition: May 12, 2013

A senior government official in Karnataka's Bellary district got an SMS from a colleague in another district: "Bellary Republic has indeed joined the Indian Republic." This was on March 23, after B. Sriramulu, Member of the Legislative Assembly, held a dharna protesting the eviction of roadside hawkers by the deputy commissioner. He was arrested for a few hours and released. There may be nothing unusual about politicos drawing attention to themselves when elections are around the corner.

But in Bellary, which is rich in iron ore, it was a big deal. Arresting Sriramulu would have been unthinkable a couple of years ago. He is a close aide of the Reddy brothers, mining magnatesturned-politicians, who allegedly used their political office to further illegal mining interests.

Karnataka, which boasts business stars such as Azim Premji, N.R. Narayana Murthy, Kiran Mazumdar Shaw and Vijay Mallya, also has the Reddy brothers - Gali Karunakara Reddy, Gali Somashekhara Reddy and Gali Janardhana Reddy - whose record many consider dubious. It is hardly possible to discuss Bellary without the brothers as a reference point.

With enormous money power, which intelligence sources put at thousands of crores of rupees, they had substantial clout in the BJP-led government. And with Janardhana as minister in charge of the district, rivals feared to set foot there. Many in the industry say those with mining leases had to accept whatever share of the profits they were given, and that the Reddys held such sway over the local bureaucracy and police that common people were scared to speak out against them. Janardhana even declared in the legislative assembly in 2010: "Bellary is mine." The brothers persist in this belief.

Gali Somashekhara Reddy, MLA, Bellary District
The Reddy brothers will always have a grip over Bellary: Gali Somashekhara Reddy Photo: Nilotpal Baruah
"My younger brother (Janardhana) is innocent," Somashekhara tells Business Today. "None of the allegations against him have been proved yet. The Reddy brothers will always have a grip over Bellary."

But as election fever picks up (assembly elections are scheduled for May 5), the reality seems to have changed.

When Sriramulu went to the assistant commissioner's office in Bellary city to file his nomination on April 15, along with Somashekhara, the cops gave them no special treatment and even chased away some of their supporters with lathis.

The Reddy brothers' downfall began when the Central Bureau of Investigation put Janardhana behind bars in September 2011. Today, their politics look fragmented, too. Karunakara is with the BJP, but Somashekhara supports Sriramulu's new party, the BSR Congress. Both, the new party and the BJP, were trounced in recent civic elections.

"The stranglehold of the Reddy brothers as the head of the mining mafia in Bellary has ended," says S.R. Hiremath, founder of the Samaj Parivarthana Samudaya, a nongovernment body whose petition to the Supreme Court led to a ban in July 2011 on mining in Bellary.

However, on April 18, the apex court lifted the embargo on new leases - music to the ears of steel and sponge iron manufacturers in Bellary. The court also allowed the opening of more mines.

According to M.V.S. Seshagiri Rao, Joint Managing Director of JSW Steel Ltd, this would spur investment in Karnataka's steel sector. Industry executives say the state's sponge iron and steel makers need about four million tonnes of ore a month to operate at full capacity. Availability of ore, however, depends on whether mining lease holders meet relief and rehabilitation requirements and resume mining.

As Bellary emerges from the shadow of the Reddy brothers, it faces the sobering aftermath of illegal mining. Huge demand for iron ore from China and high profit margins lured many to mining between 2004 and 2010. After a point, most people didn't care how they got their ore, as long as they made a quick buck.

The Reddy brothers took over illegal mining through two methods. One was the practice of 'raising contract', by which mining lease holders were allegedly forced into mostly informal contracts with companies owned by the Reddys or their aides, who would keep around 60 per cent of the profit and let the lease holder have the rest. Rules were flouted, and mines ravaged. The second method was the 'zero risk contract', which guaranteed that illegal ore would reach its destination.

The Reddy brothers are close to Jaganmohan Reddy, son of former Andhra Pradesh chief minister Y.S.R. Reddy. Some of the illegally mined ore was exported via AP.

Illegal or not, rampant mining spurred economic activity. As nobody was getting caught, more people got into mining. "People sold property, took loans to buy trucks, and invested with traders," says B.T. Venkatesh, a lawyer from Bellary.

"I borrowed Rs 40 lakh against my property," says a farmer who does not want to be named. He says he invested the money with a trader, who would use it to book a certain quantity of iron ore and sell it at a profit. After the ban, the trader vanished, and so did the money. "I wish I had invested in agriculture," says the farmer.

Villagers illegally extracted iron ore from their fields or government land, as they only needed to dig three to five feet. "Many made lakhs of rupees, supplying to mushrooming sponge iron makers," says a resident of Ranjitpura village, who does not want to be named.

Hundreds of trucks moved iron ore daily from mines to local factories or for export. "About 12,000 people were employed in mining, with about a third being from other states," says Bellary Deputy Commissioner Amlan Biswas. But as opportunities dried up, most outsiders left, and locals worried about the lack of new opportunities.

"Many entrepreneurs who were into agriculture-related activities had started sponge iron units. Most of them are in dire straits now," says Ravi Kumar, honorary secretary of the Bellary Chamber of Commerce.

Mining activities are now regulated by the Central Empowered Committee of the Supreme Court. E-auctions are also conducted by an apex court panel. So Bellary is unlikely to revert to the old system of looting. Still, there is a worry.

With or without the Reddys, mining magnates still dominate Bellary politics, if the initial list of election candidates is any indication. For instance, Anil Lad, Rajya Sabha member who lost to Somashekhara Reddy in the last assembly election, is the Congress Party candidate from Bellary City. His family owns V.S. Lad & Sons, an iron ore supplier. The Congress's Abdul Wahab, who owns Hothur Traders, and the BJP's Anand Singh, who owns S.B. Minerals, are the main contenders from Hospet. Others are contesting as independents or from smaller parties.

Hiremath says the mining lobby predates the Reddys - though they took it to new heights - and the old players will emerge again from the shadows. "This is very worrying," says a local industrialist who wants to remain anonymous. "If elected, these leaders will only focus on their own mining interests." Remarkably, the mines of the candidates mentioned above are in the 'C' category, which signifies poor compliance with mining norms.

When Business Today asked Wahab about him being named in the mining controversy, he refused to comment, saying it was "sub judice". Anand Singh said illegal mining was "the nature of the business".

E-auctions could be a transparent way to sell iron ore, but small companies say they favour big ones, such as JSW Steel and Kalyani Steel. "Small sponge iron firms simply cannot compete," says Srinivas Rao, who represents an association of Bellary's smaller sponge iron industries.

K.Satya Prasad, Managing Director of Supra Steel and Power, a mediumscale industry, says under the new system, bidders pay forest development tax and royalty, which miners paid earlier. Kumar of the Bellary Chamber of Commerce says small companies will not survive unless there are policy changes.

Miners who get elected may not find it a priority. The illegal system worked for the Reddys brothers as government officials allegedly connived with them. "The entire system has to be uprooted and the template for corruption destroyed," says a government official. "If not, a similar system may return."

If the Congress comes to power, its Bellary legislators would vie to become minister in charge of the district. If the BJP gets a chance to form a government in case of a hung assembly, the likes of Sriramulu could play an important role. Their style may be cramped with the apex court's eagle eye on the region, but there may be loopholes that they could exploit.

So while changes are afoot, it may be a while before the district frees itself from the clutches of the mining lobby.

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