Indian Politician, Businessman Arrested in Illegal Mining Case

Karnataka state lawmaker and former minister G. Janardhan Reddy, center, is brought to the Central Bureau of Investigation (CBI) office after he was arrested in Hyderabad, India, Monday, Sept. 5, 2011

A powerful politician and a businessman have been arrested in connection with illegal iron ore mining in India’s southern Karnataka state. Illegal mining is one of the areas under investigation as the country is hit by a series of corruption scandals.

Federal investigators arrested former minister in Karnataka state G. Janardhana Reddy and his cousin Srinavasan Reddy on charges of conspiracy, cheating and violation of India's mining laws.

Janardhana Reddy and his family owns a mining company Obulapuram. He rose from working as a minor functionary in the Bharatiya Janata Party in Karnataka to become a rich businessman in the iron ore mining industry in less than a decade.

He was among those implicated in a recent probe into the country’s mining industry by an independent ombudsman. Investigators say illegal mining cost the government $3-billion in lost revenue between 2006 and 2010. Karnataka state is the second-largest producer of iron ore in India.

The ombudsman’s report found a connection between owners of mining companies and politicians. It said businessmen involved in mining became powerful by paying bribes to politicians and then joining politics themselves.

Union Corporate Affairs Minister, Veerappa Moily, has slammed top politicians in Karnataka for their alleged involvement in illegal mining.

“Gross abuse of the office of a minister and the total abuse of authority by the then chief minister and also many of the ministers, it went on uninhibited," said Moily. "Dealing with a national asset, like iron ore mining, which has been totally abused. No rule of law applied to them.”

The state’s chief minister, B.S. Yeddyurappa resigned in July following the probe into illegal mining. The Reddys have denied charges of illegal mining.

During the past two decades, India opened mining to private companies, but critics say lack of adequate regulation and inadequate policing has led to rampant illegal mining. As a result, while the government earns small royalties, businessmen earn massive profits.

The opposition Bharatiya Janata Party, which controls the government in Karnataka, has accused the ruling Congress Party of vindictive action in arresting Reddy and his cousin.

Official corruption and its collusion with private business is a major area under scrutiny in India, where there is huge public pressure to crack down on graft following a series of multi-billion-dollar scandals.