Indian Commonwealth Games Chief Arrested in Crackdown Against Corruption

Police took the former chief of Delhi’s Commonwealth Games into custody for eight days to investigate corruption charges as an event meant to portray rising economic power continues to embarrass India.

Games organizer Suresh Kalmadi appeared in a court in New Delhi after being arrested yesterday by the Central Bureau of Investigation for conspiring to influence the award of a contract for the event’s timing and results system to a Switzerland-based company. In a two-pronged strike against the political elite, the agency also charged the daughter of one of Prime Minister Manmohan Singh’s major allies for working to receive kickbacks from a 2008 sale of mobile-phone licenses.

The CBI’s actions are “good steps in the right direction that will create confidence among people that corruption will not be tolerated,” New Delhi-based Anupama Jha, executive director of the India chapter of Transparency International, said. “But they took a long time.”

Investigators in India, which is ranked 87th out of 178 countries in the 2010 Corruption Perceptions Index conducted by Transparency International, have already put Singh’s former telecommunications minister and half a dozen company executives on trial over the sale of second-generation airwaves. Rising graft has triggered nationwide street protests and paralyzed legislation in parliament.

Kalmadi denies wrongdoing. Calls to the cellphones of Kanimozhi, who uses one name, were not answered.

Investor Concern

Investors in Indian shares consider graft as much of a barrier to economic progress as inflation, JPMorgan Asset Management said in a December 2010 report. Corruption in India poses a risk to the South Asian nation’s target of lifting economic growth above 9 percent and attracting overseas investment, auditing and consulting company KPMG said in March.

India shares its Corruption Perception ranking with Albania, Liberia and Jamaica and is rated worse than Lesotho and Panama.

Kalmadi, a federal lawmaker from Singh’s Congress party, made speeches at the opening and closing ceremonies of the Commonwealth Games, sharing the stage with Britain’s Prince Charles and Indian President Pratibha Patil. Eleven other Indian officials have been detained as authorities probe contracts linked to the event’s staging.

The federal investigative agency did not name the Switzerland-based company it referred to yesterday. Swiss Timing, a unit of the Swatch Group, was responsible for timing and scoring during the Oct. 3-14 Delhi Games. Swiss Timing in December said it had not influenced the award of the contract.

‘Inflated Cost’

The CBI said it was alleged that officials of Kalmadi’s organizing committee “conspired with representatives of the private firm in Switzerland, and the contract for timing, scoring and results was awarded by wrongfully restricting and eliminating competition from other suppliers in a premeditated and planned manner.”

The committee for short-listing prospective bidders was handpicked, the CBI said. The results system contract was eventually agreed at an “inflated cost” of 1.41 billion rupees ($31.7 million), leading to a loss to the government of 950 million rupees, the agency said.

The 2010 Games, which cost the government $4.6 billion to host, attracted attention worldwide after newspaper headlines described filthy accommodation for athletes, missed construction deadlines, the collapse of the arena footbridge and inflated bills for event equipment.

Adding to pressure on Singh’s administration India’s chief auditor reported shortly after the Games ended that the mobile- phone airwaves were sold for an “unbelievably low” price when they may have been worth 10 times as much.

Minister Resigns

Telecommunications minister Andimuthu Raja resigned two days before the Comptroller and Auditor General gave his report.

The CBI yesterday charged Kanimozhi, whose father heads the Dravida Munnetra Kazhagam party of which Raja is a member. The DMK, which rules southern Tamil Nadu state, is the second- biggest partner of Singh’s Congress party in the federal coalition government, and has six ministers in the cabinet.

Raja, two ministry officials and six company executives were found by the CBI April 2 to have “entered into a conspiracy” to award the phone permits to ineligible companies. Their acts lowered government income from the sale by 220 billion rupees, the CBI said. India’s chief auditor put the potential loss at about $31 billion.

Three of the company executives on trial are employed by billionaire Anil Ambani’s Reliance ADA Group, while two others work for DB Realty Ltd. (DBRL) and one for Unitech Ltd. (UT) All those charged so far deny the allegations against them.

DMK Meeting

The Reliance ADA Group said April 2 that its three employees deny the charges and have a legal presumption of innocence pending the completion of a trial. Unitech said the same day that it complied with applicable rules in obtaining its licenses and that none of its employees have done anything “inappropriate or illegal.”

Singh’s Congress party and the DMK fought the April 13 elections in Tamil Nadu together after at first disagreeing over the number of seats each party would contest. Yesterday’s charges are likely to further strain relations between the two ahead of the announcement of results on May 13. DMK leaders will hold a meeting in Chennai tomorrow.

To contact the reporters on this story: Bibhudatta Pradhan in New Delhi at bpradhan@bloomberg.net; P.S. Patnaik in New Delhi at ppatnaik2@bloomberg.net

To contact the editor responsible for this story: Hari Govind at hgovind@bloomberg.net

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