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O 061220Z NOV 09
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UNCLAS SECTION 01 OF 03 NEW DELHI 002245 
 
SENSITIVE 
SIPDIS 
 
USDOC FOR ITA/MAC/OSA/LDROKER/ASTERN/KRUDD 
DEPT OF ENERGY FOR A/S KHARBERT, TCUTLER, CZAMUDA, RLUHAR 
DEPT PASS TO USTR MDELANEY/CLILIENFELD/AADLER 
TREASURY FOR OFFICE OF SOUTH ASIA MNUGENT 
TREASURY PASS TO FRB SAN FRANCISCO/TERESA CURRAN 
USDA PASS FAS/OCRA/RADLER/BEAN/FERUS 
EEB/CIP FSAEED, KDUNNE, AGIBBS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV ENRG ETRD ECPS BEXP PHUM PINR TSPA
IN 
SUBJECT: New Delhi Weekly Econ Office Highlights for the Week of 
November 2-6, 2009 
 
¶1. (U) Below is a compilation of economic highlights from Embassy 
New Delhi for the week of November 2-6, 2009, including the 
following: 
 
-- No Major Changes Yet to Monetary Policy 
-- Insurance Sector Growing 
-- Alok Nigam: New Joint Secretary of Financial Services 
-- Tarun Das Retires 
 
No Major Changes Yet to Monetary Policy 
--------------------------------------- 
 
¶2. (U) In its quarterly review, the Reserve Bank of India (RBI) 
maintained key policy rates, leaving the repo rate at 4.75 percent, 
the reverse repo rate at 3.25 percent, and the cash reserve ratio at 
five percent.  The RBI increased the statutory liquidity ratio (SLR 
-- percentage of deposits that banks must use to buy government 
securities) by one percent to 25 percent but this should have little 
effect on liquidity as banks already are above the 25 percent 
minimum.  In various economic reports, analysts maintained that the 
increase in the SLR is an indicator of future tightening of interest 
rates and the cash reserve ratio. 
 
¶3. (U) The RBI also raised the cost to banks for real estate lending 
in an effort to prevent an asset bubble in the real estate sector. 
The RBI raised provisions for commercial real estate to one percent 
from 0.4 percent.  Developers feel the cost of provisioning will be 
passed along to borrowers through higher interest rates, making 
affordable housing more expensive, and reducing the demand for 
mortgage loans.  The RBI also required banks to raise their 
provision against non-performing assets to 70 percent by September 
¶2010. 
 
¶4. (U) The RBI discontinued some special liquidity support measures 
that it had introduced in late 2008 to boost liquidity such as a 
special refinance facility for banks, and a special term repo 
facility for banks to provide funding to non-bank finance companies, 
mutual funds, and housing finance companies.  Vivek Kudva of 
Franklin Templeton told U.S. Treasury Attache that he feels nervous 
about the removal of support for mutual funds, since $85 billion sit 
in liquid funds that could be redeemed in 24 hours, but total daily 
market turnover is less than $500 million.  The RBI also reduced 
export credit financing from 50 percent of eligible outstanding 
export credit back to its pre-crisis level of 15 percent. 
 
¶5. (U) RBI Governor Subbrao indicated these measures constitute the 
first phase of exit from the special liquidity support measures 
taken earlier to cushion the Indian economy from the impact of last 
year's global downturn.  Despite few changes to monetary policy 
rates, the RBI indicated its first priority is to monitor inflation 
and to respond swiftly to stabilize inflation expectations.  With 
inflation expected to rise in the near term, analysts expect the RBI 
to be more hawkish on inflation in the future although the RBI's 
biggest challenge will be to support India's desire to return to 
nine percent growth without compromising on price stability. 
 
Insurance Sector Growing 
------------------------ 
 
¶6. (U) The Insurance Regulatory and Development Authority (IRDA) 
reported that the insurance industry grew 11.4 percent in the first 
six months (April - September) of fiscal year 2009-10 (FY10), with 
new life insurance premiums up 13 percent and new non-life insurance 
premiums up eight percent. 
 
¶7. (SBU) The increase in life insurance, however, was primarily due 
to state-owned Life Insurance Corporation of India (LIC), whose new 
premiums rose by 35 percent, while new premiums for the 21 private 
life insurance firms declined by 15 percent during this period. 
Saibal Choudhury of MetLife told Econoff that private life insurance 
firms have positioned themselves primarily to promote Unit-Linked 
Insurance Products (ULIPs), which act like a mutual fund with a term 
life component.  The apparent preference of new insurance customers 
 
NEW DELHI 00002245  002 OF 003 
 
 
for the more traditional products offered mostly by LIC indicates 
that retail investors are still not returning to the newly hot 
Indian equity markets.  Public sector companies in the non-life 
insurance sector also did better than their private sector 
competitors.  The four public sector companies (Oriental Insurance, 
New India Insurance, National Insurance, and New India Insurance) 
grew 10 percent during the first six months of FY10 but the 13 
non-life private sector players grew just five percent during this 
period. 
 
¶8. (U) A McKinsey report painted a rosy picture for the insurance 
industry, forecasting the insurance sector to grow 17 percent 
annually and reach a size of $73-87 billion by 2012.  Key to such 
predictions is India's young population who will need insurance, 
more people entering the workforce, and rising income levels. 
Foreign investors, however, are still waiting for the government to 
introduce to Parliament the Insurance Laws (Amendment) Bill in 
parliament, which would allow foreign companies to raise their 
foreign direct investment to 49 percent from the current 26 
percent. 
 
Alok Nigam:  New Joint Secretary of Financial Services 
--------------------------------------------- --------- 
 
¶9. (U) Alok Nigam has replaced Amitabh Verma as the Joint Secretary 
of the Department of Financial Services (dealing with banking 
operations) in the Ministry of Finance as of October 29.  This will 
be Nigam's first assignment at the central level as he has spent his 
career in the state of Haryana.  Since becoming an Indian 
Administrative Services officer in 1986, Nigam has held various 
positions including Joint Secretary to the Governor of Haryana, 
Special Secretary in the Haryana Finance Department, and Director of 
the Haryana Urban Development Authority.  He has also worked as 
Chief Administrator with the Haryana State Agricultural Marketing 
Board.  Nigam holds a post graduate degree in mathematics. 
 
¶10. (SBU) Comment:  Nigam has fairly big shoes to fill as Verma was 
highly versed in the issues affecting the banking sector and was 
well aware of the Indo-U.S. financial sector issues.  He will have 
to tackle several challenges such as passing legislative initiatives 
to consolidate and recapitalize public sector banks, boosting 
lending to SMEs, and reviving the roadmap for foreign bank 
participation.  All of these must be done in conjunction with the 
Reserve Bank of India, which will present an unfamiliar partner with 
a strong and unique organizational culture.  End comment. 
 
Tarun Das Retires 
----------------- 
 
¶11. (U) The Confederation of Indian Industry (CII) announced the 
retirement of their well-known Chief Mentor Tarun Das.  Das, 70 
years old, held the post of Chief Mentor since 2004 after acting as 
CII's Director-General for three decades.  He helped CII to rise 
from being a small engineering association to a world class 
institution and high-profile lobbying group.  Under his leadership, 
CII has been instrumental in managing and initiating changes that 
have shaped India's socio-economic environment. 
 
¶12. (U) In addition to his involvement in business, Das contributed 
to issues like track-II diplomacy and social sector reforms.  He has 
been an advisor to the government on several controversial issues 
and has built a formidable network of friends and contacts across 
political parties, government, industry, and across the world. 
 
¶13. (U) Das told the media he would not be joining the government or 
any corporation in an advisory role but would concentrate on broader 
issues of foreign policy and international strategic dialogue, 
specifically with the United States, Japan, Singapore, and Israel. 
He also plans to be involved in a leadership and personal 
development program for the young that is part of the Aspen 
Institute India. 
 
¶14. (SBU) Comment:  Despite his retirement, Das will most likely 
 
NEW DELHI 00002245  003 OF 003 
 
 
still be actively involved in policy issues and will remain an 
influential mediator with the GOI and continue to be a useful 
contact for Post.  End comment. 
 
¶15. (U) Visit New Delhi's Classified Website: 
http://www.state.sgov/p/sa/newdelhi. 
 
 
ROEMER