People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)


No. 37

September 11, 2011

Karnataka’s Illegal Mining Scam Exposes BJP


Archana Prasad


THE Karnataka BJP strongman and mining don G Janardhan Reddy and his brother in law, Sreenivas Reddy were arrested by the CBI on September 5, 2011 in the illegal mining scam of Karnataka. This arrest was a result of the large scale judicial intervention into the mining sector which was particularly necessitated by the deep and emerging nexus between corporate mining interests and the leaders of major political parties, including the functionaries of the BJP state government in Karnataka. Since its first enquiry in 2008, the Karnataka Lokayukta had been pointing to the political protection that illegal mining mafias had enjoyed in the district of Bellary. On July 29, 2011 the Supreme Court banned mining and the transportation of iron ore from the Bellary district of Karnataka. The order came in the wake of the Karnataka Lokayukta report on illegal mining and an environmental impact assessment of mining companies by the Supreme Court appointed Centrally Empowered Committee (CEC). That the Reddy’s disregarded this order and continued to carry out their activities reflected the political clout and confidence of the brothers. It also exposed the corporate and business links of BJP’s politicians and shook the moral high ground that they had taken in their rhetoric against the corrupt policies and scams of the UPA II.


Rise of

Reddy Bros

The rise of the Reddy brothers was a result of the opening up of the mining sector in the early 1990s by the central and successive state governments. Janardhan Reddy first started his business venture in the late 1990s and became a director of the Obulapuram Mining Company (OMC) in 2002. At that time the company had acquired some mining leases after a long legal battle in the state of Andhra Pradesh. It also did trade in iron ore and indulged in illegal mining operations through a web of smaller mining companies like Anantapur Mining Corporation and M/s Mahabaleshwarappa and Sons. Between 2002 and 2009, the period when Janardhan Reddy was a director of the company, the profits of the company increased by almost seven hundred per cent. In 2003-04 the company had a net profit of Rs 1.05 Crores, but by 2008-2009 this profit had increased to Rs 700 crores. During this period Janardhan Reddy not only grew in economic stature but also used his stature to enjoy political clout. In 2008 when the BJP came to power he became the minister of tourism and infrastructure. But before that he had already used his economic might to extract concessions from different state governments.


The earliest political links of the Reddy brothers can be traced to the Y S Rajashekhar Reddy government in Andhra Pradesh. Investigations showed that the state government of Andhra Pradesh made repeated requests to the ministry of environment and forests to waive forest clearance and other conditions to enable the company to continue its mining. It also set up a high powered committee to assess the impact of OMC mining on forests. In 2009 it wrote to the government of India requesting it to reconsider its decision to conduct an independent investigation into the mining operations of the company. It stated that none of the leases granted to OMC encroached “any fresh Reserved Forests (RF) adjoining to their iron ore mining lease area, nor they were allowed to carry out mining operations outside their mining lease boundary limit”. The partisan attitude of the government was also commented upon by the CEC which remarked in November 2009 that “the objectivity, fairness and impartiality which is expected from a state government is shockingly lacking here and doesn’t inspire confidence”. It concluded that “their (state government) effort appears to have been to cover up the illegal mining done by M/s OMC in the un-allotted forest areas outside the approved mining leases”.


In 2009 Janardhan Reddy resigned from the directorship of OMC, but by then he had ensured that both the BJP government in Karnataka and the Congress government in Andhra Pradesh had provided a base for the continued growth of his illegal mining operations. The first report of the Karnataka Lokayukta was filed in 2008 and showed how the state government’s policy had been manipulated in favour of the mining companies. It noted that in 2003 the government had de-reserved for private mining an area of 11,620 square kilometres in the state, meant for state exploitation/ mining by the public sector. Thus while the base for the growth of mining leases was provided by neo-liberal policies, the spurt in illegal mining occurred when the BJP supported JD(S) government came to power. This trend however became more rapid with the change of government in 2008 when the BJP government came to power and Janardhan Reddy became a minister in the government. The report by Justice Hegde noted that in the period between 2006-2010 the highest quantity of exports of illicit iron ore took place in 2009-10, which is approximately 1,27,99,396 MT. Further it is equally pertinent to note that in 2010-11 the quantity of illicit iron ore that was exported was approximately 48,06,719 MT, which is higher than the exports of illicit iron ore for entire year of 2006-07, 2007-08 and almost equal to the entire year of 2008-09. The fact that the magnitude of the exports had increased considerably even while Lokayukta and other judicial investigations were going on showed that the Reddy’s had used their political influence to protect illegal mining activities. It is worth noting that in the same period, the brothers also used their muscle and money power to bail out the BJP government, which was facing a crisis because of the land scam in which B S Yeddyurappa (the then chief minister) was implicated.




The corporate might and nature of the Reddy brothers is revealed through the web of companies in which they had interests and through which they operated. The Karnataka Lokayukta report shows that Janardhan Reddy had stakes in several companies in tax havens like the Isle of Man and British Islands while he was a director of the OMC. Several metric tonnes of iron ore were also exported to a company of Singapore which had dealings with the relatives of Janardhan Reddy. No tax was paid on the income from these exports as this money was not repatriated to India but was probably invested in havens. Thus huge amounts of iron ore were thus extracted from the state without any corresponding benefit, resulting in massive loss of revenues. But apart from these tax evasions, Janardhan Reddy and his wife, Gali Lakshmi Aruna operated through a web of smaller companies that indulged in illegal mining. An example of this is given by the fact that though the Associate Mineral Company had five partners in 2006, by the year 2009 the company had effectively been taken over by the Reddy family. Apart from this Lakshmi Aruna Reddy was herself a managing partner in two smaller mineral companies that did not find it necessary to take permits to do mining. At the same time Srinivas Reddy, the managing director of the OMC and the brother in law of Janardhan Reddy also had shares in several illegal mining companies operating in the region.


The links of these illegal companies was not limited to the Reddy family alone, several political leaders and the organisations they were associated with also benefited from such operations. The most famous case is that of the Prerna Educational Trust which was run by the Yeddyurappa family. The trust sold one acre of land to the South West Mining Company, an ancillary of Jindal Steel, for an exorbitant sum of Rs 10 Crore. This money was finally traced to the account of Jindal Steel whose application for iron mining and transportation was pending with the government in 2010. Other companies like Lakshmi Narayan Mining also had links with the OMC both of which supplied unaccounted for and illegally extracted iron ore to Jindal Steel. Chief Minister B S Yeddyurappa was forced to resign in the events that followed the expose. Since then the BJP state government has been on the back foot and the new cabinet was forced to leave out Reddys. This removed the protective cover that the Reddy Brothers had enjoyed, paving the way for their arrest.




The larger political implications of this arrest also need to be noted. The roots of the development of the Reddy’s mining monopoly must be traced to the opening up of the mines to corporate interests which has been opposed by the Left parties. The illegal mining juggernaut was also propelled by the policy regulations and deliberate negligence of the state governments of Andhra Pradesh and Karnataka. From 2008 onwards the exponential growth of the Reddy brothers was also linked to their political clout in the ruling party. But the current illegal mining scam has only exposed the tip of the iceberg. The corporate interests that have penetrated the ruling dispensation in the state need an independent investigation because the growth of illegal mining has not occurred because of unintended systemic failures. They have been influenced by deliberate actions and negligence that are designed to intertwine the political and business interests. Such corporate penetration through violation of laws should form a part of the definition of ‘corruption’ in any anti-corruption law as this lethal nexus can destroy the very political fabric of our democracy. The opening up of the mining sector is a result of this nexus and has formed the basis of the rampant illegal practices and corruption. Hence any fight against corruption has to be based on policy alternatives and regulation of corporate penetration in the sector. The arrest of the Reddy’s not only shows this but also exposes the hollowness of BJP’s anti-corruption campaign.