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UNCLAS SECTION 01 OF 03 NEW DELHI 001292 
 
SIPDIS 
 
SENSITIVE BUT UNCLASSIFIED 
SIPDIS 
 
DEPT PASS USTR 
DEPT PASS TO TREASURY FOR OFFICE OF SOUTH ASIA - ABAUKOL 
TREASURY PASS TO FRB SAN FRANCISCO/TERESA CURRAN 
USDOC FOR 4530/ITA/MAC/OSA/LDROKER/ASTERN 
 
E.O. 12958: N/A 
 
TAGS: EAGR EFIN ECON ETRD ENRG PREL PGOV PREL IN
SUBJECT: ECON HIGHLIGHTS FROM NEW DELHI(March 12-16, 2007) 
 
 
¶1.  (U)  Below is a compilation of Economic highlights from Embassy 
New Delhi for the week of March 12-16, 2006. 
 
--------------------------------------------- - 
ECONOMIST CONFERENCE: GOI ROLLS OUT RED CARPET 
--------------------------------------------- - 
 
¶2.  (U) Prime Minister Singh addressed the Economist Round Table on 
March 13 and highlighted three drivers of India's growth that lead 
to the "air of justified optimism" about India's economy these days. 
 These drivers are 1) the significant increase in India's savings 
and investment rates to 32% and 34% of GDP respectively - barometers 
of sustained growth; 2) India's demographic dividend, if employment 
friendly policies are in place; and 3) a broad national consensus on 
economic policies, demonstrated by the past 16 years of policy 
stability.  Singh singled out a few key reforms for sustained and 
broadened growth: financial deepening; creation of a long-term debt 
market to finance infrastructure; more efficient labor markets; and 
improving the quality of governance and of public service delivery. 
On this last point, he stressed, it is not possible for India to 
simply spend its way to prosperity [through higher government 
expenditures]. 
 
¶3.  (U) At the same conference the following day, in addition to 
positive comments about India's economy, Finance Minister 
Chidambaram identified five areas of agricultural reform that are 
needed: a) redirecting the fertilizer subsidy to the farmer instead 
of the producer; b) promotion of contract farming; c) creation of a 
better link between the farmer and market; i.e. supply chains that 
deliver a higher price to the farmer and a lower price to the 
consumer through increased efficiency; d) better power supply in the 
villages, by moving to a 2-feeder system that gives the farmer 8 
hours of electricity and the villagers 24 hours; and e) doubling 
production in new seeds to increase productivity in grains and 
pulses. 
 
¶4.  (U) Commerce Minister Kamal Nath highlighted manufacturing as a 
driver of 'inclusive growth' in India going forward.  While touching 
on a number of topics including IPR, India's FTAs, and the Doha 
Round, Nath spent most of his time discussing how to include workers 
from the agrarian sector- as well as future workers from India's 
demographic bulge- in India's growth story.  In an acknowledgement 
of the country's two-tiered economic system, Nath reminded the 
audience that 300 million Indians still earned less than $1 a day. 
With the manufacturing sector presently comprising only 17% of GDP, 
Nath described a goal of taking that share to 25% in the next 
decade.  To accomplish this, the current 12% growth rate in 
manufacturing would have to be increased to 15-17%.  "Unless growth 
touches the life of the vast majority of Indians, the government 
will be shown the door," Nath said, pointing out that urban-centric 
growth was not enough.  Citing autos and auto components as areas 
that were witnessing huge investment, he largely sidestepped 
specifics on infrastructure and FDI constraints and referred to port 
facilities investment where there was "no delay" as an example of 
positive movement. 
 
¶5.  (U) In response to questions on the Doha Round, Nath was 
positive, stating that "we want to ensure a successful result in the 
next few months."  However, agriculture remained difficult because 
for many countries, this was their sole concern, asserting that "55 
countries are concerned just with bananas, coconuts, and cotton." 
Interestingly, Nath singled out Japanese rice tariffs as an example 
of where granting exceptions to general trade rules would present 
difficulties in the Doha negotiations.  "You can't create a 
 
NEW DELHI 00001292  002 OF 003 
 
 
carve-out, for example, for Japan with 900-1000% tariffs on rice" 
and expect other countries to agree. 
 
¶6.  (U) The FM also mentioned reforming consumer subsidies for 
cooking gas and kerosene by redirecting the subsidy to poor 
consumers rather than the producer.  Interestingly, when asked about 
help for the manufacturing sector, Chidambaram replied, "if it ain't 
broke, don't fix it."  Lastly, in an uncharacteristically 
impassioned comment, Chidambaram argued that the government's higher 
revenues must be largely allocated to more spending on the rural 
areas, rather than on infrastructure.  Further, he said he was going 
to note to Parliament the following day that, in the first three 
years of UPA rule, it had spent more on basic rural needs than the 
last six years of the opposition's rule - clearly a defensive move 
in light of recent state elections that have raised the volume on 
criticisms of government policies for the "common man." 
 
--------------- 
AVIATION UPDATE 
--------------- 
 
¶7.  (U) An FAA team comprising of John J. Hickey, Director Aircraft 
Certification Service, FAA South Asia Sr. Rep Randall Fiertz and 
three other officials engaged senior executives of India's 
Directorate General of Civil Aviation (DGCA) on March 12-13 in New 
Delhi to draw a roadmap for reaching a Bilateral Aviation Safety 
Agreement (BASA) with India and to put in place 'Implementation 
Procedures' to certify the airworthiness of aviation equipment, 
products and aircraft. 
 
¶8.  (U) The significance of the progress made during these talks is 
highlighted by the fact that this is the first time since 1991, when 
India indicated its interest in negotiating a BASA with United 
States, that a mutually satisfactory agreement was reached on a 
highly contentious aviation safety matter.  During the intense 
negotiations, the breakthrough came when the India's DGCA leadership 
accepted the long-standing FAA position that it would take 3-5 years 
for shadow certification for an Indian registered aircraft under FAR 
23 design code and 5-7 years for one under FAR 25 design code.  The 
Indian side also agreed to change the sequence of shadow product 
certification project by starting with a product which is in the 
initial stage of process of certification rather then a product 
which has already been certified by India's DGCA. 
 
¶9.  (U) FAA and DGCA are developing a work plan that will include 
specific steps to achieve a BASA.  The two sides agreed to strive to 
reach consensus on the plan so that an announcement could be made at 
the forthcoming April 23-25 US-India Aviation Cooperation Summit in 
New Delhi. 
 
------------------------ 
GOLDMAN-SACHS RAMPING UP 
------------------------ 
 
¶10.  (SBU) Econoff met on March 8 with the head of Goldman Sachs' 
new Global Infrastructure Fund, Joshua Feldman.  The fund was 
started just 18 months ago and has an available investment fund of 
$6.5 billion; of which only $1.5 billion has been committed so far, 
mainly in the US and UK.  Goldman Sachs is looking to invest now in 
China and India, for which it has already appointed a country head, 
to be based in Mumbai.  Goldman Sachs is interested in projects 
across the sector, including ports, roads, and power, and is open to 
different types of participation, from joint venture to sole 
concessionaire.  Feldman also said Goldman Sachs' expectation was 
 
NEW DELHI 00001292  003 OF 003 
 
 
that not every project would go well, but that overall, the 
opportunities and the returns would justify the anticipated 
difficulties - a healthy approach to big projects in India. 
 
--------- 
OCC VISIT 
--------- 
 
¶11.  (U) Visitors from the Office of the Comptroller of the Currency 
(OCC) and Econoff met with Ministry of Finance Joint Secretary 
(Capital Markets) Dr. K.P. Krishnan and Joint Secretary (Banking) 
Amitabh Verma in separate meetings on March 12.  Krishnan, often a 
thoughtful interlocutor, responded to a question about what keeps 
him up at night, by saying that he was concerned that Indian 
policymakers have not properly realized the reduced impact of 
monetary policy in India's increasingly open financial markets. 
Specifically, he pointed to the difficulty any central bank faces in 
trying to both control inflation and currency appreciation when 
there is an increase in dollar inflows, since stemming currency 
appreciation through the purchase of dollars releases more local 
currency into the economy, pushing up inflation.  Verma was not as 
reflective, mainly just reiterating the RBI's 2009 Roadmap for 
allowing more foreign presence in the banking system.  He claimed 
that a number of new foreign bank branch licenses had just been 
issued, including for Barclays and Standard Chartered, and that 
India was planning to enable more bank presence in rural areas, 
including by foreign banks.  Verma went further to say he had heard 
foreign banks were interested in rural branches.  (Note: our 
contacts in Mumbai indicate that only 12 foreign branch licenses 
were issued in 2006, none of which went to US companies. Last year, 
the RBI rebuffed Citibank's offer to establish non-metro branches 
and we have not yet seen any new signals from the RBI on approving 
foreign rural branch licenses.  End note.) Mumbai will report 
septel. 
 
¶12.  (U) Visit New Delhi's Classified Website: 
http://www.state.sgov/p/sa/newdelhi 
Pyatt