Probe implicates Yediyurappa in $3.6 bln mining scandal

NEW DELHI Wed Jul 27, 2011 7:07pm IST

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NEW DELHI (Reuters) - A Lokayukta inquiry implicated Karnataka Chief Minister B.S. Yediyurappa in a $3.6 billion illegal iron ore mining scandal on Wednesday, underscoring a need to overhaul and better regulate the country’s booming but graft-ridden mining sector.

The extensive report into mining graft in Karnataka accused Yediyurappa, and other key officials of causing at least 160 billion rupees ($3.6 billion) in lost state revenues between 2006 and 2010 from illegal mining and a litany of abuses.

"This inquiry found that there's a large scale involvement of officials, powerful people, both in administration as well as in the government," Justice Santosh Hegde, who spearheaded the report, told reporters.

Several other senior officials with the Bharatiya Janata Party (BJP) including the state tourism minister Janardhana Reddy, were also named in the report.

"I have not done any mistake. I don't think I need to worry about anything," Yediyurappa told reporters. He has rejected calls for his resignation.

Other BJP officials were not immediately available for comment.

While the report is not legally binding the political implications are far reaching and analysts, as well as several members of the BJP, predicted several resignations would follow.

With the UPA government reeling from a spate of graft cases including a multi-billion dollar telecoms scandal, the spotlight on the BJP could give the stricken government of Prime Minister Manmohan Singh some respite.

Hegde said 400 firms and 787 people had been implicated in a

web of corruption involving mining, transport, customs and shipping officials, leading to hundreds of thousands of tonnes of iron ore going missing from mines across the state.

Illegal mining is a major problem across India, as powerful businessmen, often in cahoots with officials, plunder the country's mineral wealth to meet surging demand for commodities like iron ore in places such as China.

India is the world's No. 3 iron ore supplier after Australia and Brazil. Karnataka is India's second largest iron ore producing state but deep-rooted graft and conflicts led authorities to once even impose an export ban that spiked global iron ore prices.

OVERHAUL

Lax oversight and patchy laws are prompting parliament to propose a new national mining bill that will open up the sector to foreign investment, create an independent regulator and impose profit sharing arrangements with villagers.

"This is a transitionary phase for the industry," said Basant Poddar, with the Federation of Indian Mineral Industries for Southern India. "Business and politics should be kept out as many of businessmen are simply caught in the line of crossfire."

The mining scandal again underscores the need for India -- Asia's third largest economy after China and Japan -- to overhaul strategic sectors including retail, property, and mining to raise growth and lure fresh investment.

Fearing a public backlash could bruise its chances in polls and erode a key southern voter base, analysts say the BJP will almost certainly force the populist Yediyurappa to resign.

Corruption pervades almost all levels of society in India despite a thriving democracy and a relatively independent judiciary. It has long been accepted as a fact of life.

Over the past year, however, public anger has risen sharply over particularly blatant abuses, stoked by activists and aggressive media and TV campaigns pushing for the creation of an independent ombudsman to step up the anti-corruption fight.

(Additional reporting by Annie Banerji and C.J. Kuncheria in New Delhi; Siddesh Mayenkar in Mumbai; Editing by Paul de Bendern)

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