Global Iron Ore Rush Upends Indian Politics

Sept. 6, 2010 - PRLog -- By David Caploe PhD, Chief Political Economist, EconomyWatch.com

In the global rush to industrialize, and above all, make steel, the imperative element in manufacturing,

iron ore has suddenly become a key element of global economics.

As noted below, the price per metric ton has soared from about $17 to about $130 today.

In so doing, it has also transformed politics all over the world.

The most prominent example of iron ore’s new international significance

is the rollicking relationship between China, the world’s number one steelmaker,

and Rio Tinto, the Anglo-Australian mining giant,

which is simultaneously China’s top supplier of iron ore, and its own largest customer,

creating a dynamic relationship that has had both significant downs and some relatively recent ups,

both of which we have noted in some detail.

But the rush for iron ore is not limited to China –

it is also a key factor for its fellow Asian economic powerhouse India.

And unlike China, which must import most of its iron ore,

there is a great deal of it in India,

so much, in fact, that it has also become an exporter of the key global commodity.

India’s opening up of iron ore mining –

which was closely controlled by the long-time ruling Congress Party –

has, literally, upended the internal political situation in that country.

So while iron ore has become a vital factor in China’s foreign relations,

it has become an equally crucial aspect of India’s domestic politics.

And as is often the case whenever it comes to commodity politics,

the sight is not a pretty one, drawing into visibility

people who, just a few years ago, were barely known to the Indian public,

but are now among the most well-known in the country.

Janardhana Reddy, for example, insists he is not a king.

No, no, no, he protested, as a servant trotted across the courtyard to deliver a cup of cooled water.

Men with machine guns stood outside.

An architect waited to discuss the new mansion, while another man hovered nearby, sitting in the grass.

“He’s the state minister of health,” Mr. Reddy said of the man in the grass, who stood up, made a little bow and hurried away.

Mr. Reddy may not be a king, but he does represent a new phenomenon in the political economy of India:

He and his brothers are the country’s most powerful mining bosses

at a time when illegal mining has become a national scandal,

amid accusations that billions of dollars of publicly owned minerals have been stolen,

often by people holding public office.

For decades, moneyed interests have bankrolled India’s political parties,

but nouveaux mining magnates like the Reddy brothers have conflated money and politics in far more naked fashion,

as the thirst for iron ore in India, and more so in China, has created huge fortunes.

Mining scandals have emerged in at least five Indian states,

with more than 20,000 complaints of illegal mining filed nationally in the past three months.

Politicians in several states are accused of enriching themselves or their friends,

including a former chief minister of the state of Jharkhand,

who is charged with extorting huge bribes in exchange for granting mining leases.

In August, the Indian media reported that the central government
would form an inquiry to investigate illegal mining across the country,

a move regarded as a first step in reversing past failings in regulation.

Here in the southern state of Karnataka, the controversy surrounding the Reddy brothers has become a national political melodrama,

threatening at different times to bring down the state government
,

while also throwing global markets for iron ore into turmoil.

The Reddys, who say they are innocent of claims of illegal mining,

have transformed themselves in less than a decade

from obscure activists for the Hindu nationalist Bharatiya Janata Party, or B.J.P.,

into political bosses who directly or indirectly control three state ministries

and dominate local government in the Bellary district,

which holds the state’s richest iron ore deposits.

“You’ve never had mining dons entering politics and controlling government,”

said Ramachandra Guha, a historian who lives in the state capital of Bangalore.

“They are more or less uncrowned kings in their district.

There is a level of brazenness that even by the standards of Indian politics is new.”

What prompted the change, and the rush by political figures into mining,

was the steady rise in iron ore prices during the past decade.

India relaxed its export restrictions at roughly the same time

that China was in the throes of the biggest construction boom in history,

culminating with the 2008 Olympics in Beijing.

Technical advances allowed more types of ore to be exported, and the price per metric ton soared.

Where once it had brought about $17, today the price is about $130.

“It encouraged practically everybody who was somebody to come into this business,”

said N. Santosh Hegde, a former justice on India’s Supreme Court

who is leading an official corruption investigation into illegal mining in Karnataka.

“People who had no knowledge of mining

but who had money power or muscle power — either would work —

they came into mining.

It really became sort of a rat race.”

Mr. Hegde’s investigation has discovered that

at least 10 members of the Indian Parliament or the Karnataka state assembly control leases in the Bellary region ...

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