VZCZCXRO5698
RR RUEHBI RUEHCI RUEHLH RUEHPW
DE RUEHNE #2149/01 1241249
ZNR UUUUU ZZH
R 041249Z MAY 07
FM AMEMBASSY NEW DELHI
TO RUEHC/SECSTATE WASHDC 5382
INFO RUEHCG/AMCONSUL CHENNAI 0216
RUEHCI/AMCONSUL KOLKATA 9810
RUEHLH/AMCONSUL LAHORE 3929
RUEHBI/AMCONSUL MUMBAI 9400
RUEHPW/AMCONSUL PESHAWAR 4517
RUEHIL/AMEMBASSY ISLAMABAD 3101
RHEBAAA/DEPT OF ENERGY WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RULSDMK/DEPT OF TRANSPORTATION WASHDC
RHMFIUU/FAA NATIONAL HQ WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE WASHDC

UNCLAS SECTION 01 OF 04 NEW DELHI 002149 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
USDOC FOR ITA/MAC/OSA/LDROKER/ASTERN/KRUDD 
DEPT PASS TO USTR DHARTWICK/CLILIENFELD/AADLER 
DEPT PASS TO TREASURY FOR OFFICE OF SOUTH ASIA ABAUKOL 
TREASURY PASS TO FRB SAN FRANCISCO/TERESA CURRAN 
STATE FOR SCA/INS MICHAEL NEWBILL AND EB/TRA JEFFREY HORWITZ AND TOM 
ENGLE 
PASS TO FAA THOMAS NASKOVIAK 
PASS TO DOT DAVID MODESSIT 
 
E.O. 12958: N/A 
TAGS: CVIS EAGR EAIR ECPS EFIN EINV PTER ETRD IN
SUBJECT: NEW DELHI WEEKLY ECON OFFICE HIGHLIGHTS 
 
REF:  New Delhi 02038 
 
¶1.  (U) Below is a compilation of Economic highlights from Embassy 
New Delhi for the week of April 30 - May 4, 2007. 
 
PAKISTAN CUTS INTO INDIAN WHEAT MARKET 
-------------- 
 
¶2.  (SBU) For the first time in history, India is importing wheat 
from Pakistan as of April-May 2007.  Taking advantage of the 
relatively lower prices of Pakistani wheat vis-`-vis domestic prices 
and the rising Indian rupee, some private flour millers and traders 
in southern Indian states have started importing small quantities of 
wheat from Pakistan private dealers in containers on a trial basis. 
Pakistan, an importer of wheat in most years, reportedly has an 
exportable surplus of around 1 million tons of wheat this year and 
has allocated 800,000 tons for exports.  In the past, when India had 
surplus wheat and Pakistan was an importer, Pakistan refused to buy 
Indian wheat due to political reasons. 
 
¶3.  (U) The total quantity of Pakistani wheat contracted by Indian 
millers/traders so far is reportedly about 1,200 containers (26,000 
tons, valued at about USD 5.7 million) - of which 200 containers 
have already arrived at southern ports.  Higher freight costs limit 
Indian imports in bulk or by truck.  Pakistani wheat from south 
Indian ports will be priced around $220 to $235 per ton plus an 
additional $10 to $15 per ton for mill delivery.  In contrast, wheat 
from northern India costs south Indian flour millers around $275 per 
ton (plus additional transport costs).  Thus, there is a definite 
price advantage to import wheat from Pakistan.  In terms of quality, 
Pakistani wheat is reported to be more or less the same as Indian 
wheat or even better.  Compared to Pakistan, India has higher 
domestic wheat prices due to several factors - (1) significant hike 
in government mandated price, which combined with state taxes, 
levies, and commissions adds up to around 11.5 percent of the 
purchase price; (2) bagging cost; and (3) cost of inter-intra state 
transportation.  This information does not constitute official USDA 
data but is based on news reports, market visits, and trade 
sources. 
 
¶4.  (SBU) COMMENT:  With businesspersons on both sides providing 
compelling reasons and lobbying directly with industry groups for 
greater Pakistani-Indian trade, observers are more optimistic about 
the potential of increased trade, lifting of trade restrictions, and 
reduction of non-trade barriers (NTBs).  In the last year, there has 
been greater political will on both sides to support the peace 
process.  If this trend continues, industry groups and the private 
sector will press further on areas of mutual economic benefits - 
especially increasing bilateral trade from the present low-level of 
USD 0.5 billion (according to a World Bank study).  END COMMENT. 
 
GOI WAIVES CUSTOMS DUTY ON IMPORT OF 
GENERAL AVIATION AIRCRAFT 
--------------- 
 
¶5. (SBU) As alluded to by Finance Joint Secretary Gautham Ray during 
a meeting with Commerce Acting Assistant Secretary Jaime Estrada on 
April 24, the Ministry of Finance has exempted non-scheduled 
operators ( i.e. general  aviation) and flight training schools from 
the three percent import duty on private aircraft and helicopters 
which amounts to a total 23-24 percent customs duty.  This import 
duty exemption is a big relief for U.S. companies like Bell 
Helicopters whose general aviation business had been drastically 
impacted with the earlier tax announcement. 
 
¶6.  (U) Civil Aviation Minister Praful Patel welcomed the 
announcement of the customs duty relief.  The Minister commented 
that the exemption will help promote flight training schools, 
helicopter services by non-scheduled operators, and combat the 
severe shortage of pilots. 
 
INDIA ESTABLISHES AN INDEPENDENT 
 
NEW DELHI 00002149  002 OF 004 
 
 
REGULATOR FOR AIRPORTS 
----------------- 
 
¶7.  (U) On May 3, the Indian Cabinet introduced legislation in 
Parliament to establish a long-rumored Airport Economic Regulatory 
Authority (AERA).  The Bill must now be considered by Parliament. 
The prime objective of the AERA will be to create a level playing 
field and foster healthy competition among all major airports 
(whether state owned, privately owned, or a public-private 
partnership (PPP)).  The AERA's role will be to encourage investment 
in airport facilities, regulate tariffs on aeronautical services, 
protect reasonable interest of users, ensure notified airports are 
operated on sound economic principles, and help to enhance airport 
efficiency and economic viability. 
 
WAL-MART CREATING A MARKET-ENTRY BUZZ 
------------------ 
 
¶8.  (U) Raj Jain, Wal-Mart president for emerging markets, gave the 
first public outlines of the company's 50-50 joint venture with 
Bharti Enterprises in the Indian market.  The first wholesale 
stores, he said, would open in 2008, with the aim of reaching 75 
cities in the next five to seven years.  Jain also claimed that the 
joint venture would source 90% of goods within a 100km radius of 
each establishment, while still reducing prices in the Indian market 
by 5 to 25 percent. 
 
¶9.  (U) The announcement that Wal-Mart would be the official sponsor 
of the 2007 "Bollywood Awards" added to the big press week for the 
retail chain.  Bollywood (India's film industry) has significant 
pop-culture influence not only in India, but in many other parts of 
the world, including Asia and the Middle East, and the sponsorship 
could fuel brand recognition.  However, local press speculates that 
political sensitivities have caused a Congress Party objection to 
the possibility of using the Wal-Mart brand name for Bharti's retail 
ventures.  Reports suggest that Congress is concerned that they 
would appear to have folded to international pressure should the 
Wal-Mart name appear too prominently in the Indian market. 
 
PROPOSED HIGHER DUTY RESCINDED FOR 
MOBILE PHONES WITH MULTI-FUNCTIONS 
------------- 
 
¶10. (U) India's Central Board of Excise Customs (CBEC) has gone back 
on a January 2007 circular that had proposed classifying GPRS 
(Global Packet Radio Service with wireless data service) phones as a 
GPS receiver or radio navigational apparatus -- know as "satellite 
phones" -- for tax purposes.  As a result, GPRS-enabled phones will 
face a 4% customs duty rather than the 34% applicable on satellite 
phones.  The move is seen as a major relief to mobile phone and PDA 
manufacturers such as Motorola, Blackberry, HP, Nokia, Samsung, 
PalmOne, and i-mate.  The mobile handset market in India is now 
estimated at over 30,000 crore rupees (over US$7.5 billion) 
annually, with high-end (GPRS, MP3, camera) phones accounting for 
nearly 40% of the market.  Mobile phones tend to come with newer 
features every six months, and so GOI customs officials face 
difficulty in classifying products with a combination of functions 
due to an absence of guidelines. 
 
BUDGET PASSES MAINLY AS PROPOSED 
-------------- 
 
¶11. (U) The lower house of Parliament, the Lok Sabbha, passed the 
Union Budget for 2007-08 on May 3, which included a few changes the 
Finance Minister made to the draft budget he introduced on February 
¶28.  Most of the changes reflected strong industry input -- as in 
vociferous protest -- against certain tax changes that Chidambaram 
had proposed.  These changes include removing a dual-structure duty 
rate on cement that Chidambaram thought would induce cement 
producers to lower their prices as an anti-inflationary effort. 
Instead, the cartel-like cement companies raised their rates on 
March 1 in clear defiance.  The compromise budget provision passed 
 
NEW DELHI 00002149  003 OF 004 
 
 
on May 3 places a single excise duty on cement.  Another change is a 
reduction in the export duty on some kinds of iron ore, since the 
newly imposed export duty discouraged foreign investors in the 
mining sector.  The Finance Minister's proposed expansion of the 
fringe benefit tax to employee stock options (ESOPs) was changed to 
lower the tax burden.  Taxes affecting the fledgling processed foods 
industry were also reduced.  One last key change -- the new tax on 
private aircraft -- also was moderated, as discussed above. 
 
SIGNS OF GROWTH IN RURAL INDIA 
--------------- 
 
¶12. (SBU) New data released this week from the 2004-2005 National 
Sample Survey, which is conducted every five years, focuses on rural 
and urban patterns of consumer durables consumption since 1993-94. 
The survey indicates that rural penetration of household goods such 
as cars, bicycles, TV sets, and fans has grown faster (at least 
partly because it is growing from a small base) than urban 
penetration of these goods.  The data does suggest that more rural 
residents than just the already-rich landowners are benefiting from 
India's reforms and recent economic growth.  During the 11 year 
period, TV set penetration increased from 7 to 25 percent of 
households, while ownership of electric fans increased from 16 
percent of households to 38 percent and rural motorcycle or scooter 
ownership tripled. 
 
¶13. (SBU) The data simultaneously highlights and introduces 
challenges as well.  The urban-rural gap may be narrowing as a 
result, but given the deep pockets of poverty in some parts of the 
country, the data suggests that intra-rural disparities may be 
increasing.  Further, while fast growing, the numbers are still 
small -- for example, only four percent of rural households have a 
refrigerator -- underscoring the huge numbers of rural Indians still 
left out of modern India. Finally, policy support for needed 
infrastructure, while on the rise, still lags far behind the 
increasing demand for roads and electricity that this growing rural 
consumerism compels. 
 
STARBUCKS TRIES AGAIN TO ENTER INDIAN MARKET 
------------------ 
 
¶14.  (U) On April 13, Starbucks filed a revised application with the 
Foreign Investment Promotion Board (FIPB) following its previous 
application which was rejected by the board about three months ago. 
Starbucks' new proposal seeks to enter India through the franchise 
route instead of the joint venture model.  Econ section is in touch 
with Starbucks' representative in the region to monitor its entry 
into the Indian market. 
 
CPI-M SEES LITTLE MOVEMENT IN POSTAL BILL 
--------------- 
 
¶15.  (SBU) Emboffs met with CPI-M Deputy Leader Mohammad Salim on 
May 4 to discuss the Department of Post's proposed postal bill 
amendments (reftel A).  Post was interested to hear from Salim what 
stakes the Left might have in the bill, given the large trade union 
presence in the Department and the proposed rollback in foreign 
investment.  Salim, however, indicated that the bill was not a 
priority for the CPI-M, and that he fully anticipated that the 
suggested reduction in the foreign investment cap from 100 percent 
to 49 percent would be removed by Finance Minister Chidambaram and 
Planning Commission Deputy Chairman Montek Singh Ahluwalia. Salim 
assessed that the recent signs of activity were generated by an 
activist minister of state within the Ministry of Post, who often 
did not reflect the priorities of the Minister, much less of the 
rest of the government. 
 
¶16.  (SBU) Overall, Salim did not expect the bill to go further than 
the "request for comment" stage that requires all senior ministries 
to provide input.  Salim believed there was no consensus, and little 
support, in the rest of the government, for most elements of the 
Department of Post's proposed bill, and as such, would remain at the 
 
NEW DELHI 00002149  004 OF 004 
 
 
pre-Parliamentary stage indefinitely.  Salim acknowledged that the 
express and courier industry had created significant numbers of jobs 
even`in remote areas through franchises that would be harmed if the 
bill passed as currently proposed. Those jobs are a significant 
constituency, he noted, that will make it politically difficult to 
impose most of the proposed limitations and rollbacks on the 
industry.  However, Salim asserted that the Department of Posts 
needed funding to keep post offices open and serve all the rural 
areas that are not natural markets of the fast growing express and 
courier industry.  (Note: This may be a sign that the Left favors 
the proposed universal service obligation tax, although Salim did 
not say that explicitly.)  Overall, Salim's responses suggested the 
Left is sitting out the reawakened postal bill, expecting much of it 
to be stripped away in the inter-ministerial process, but having 
bottomlined their concerns that the rural areas need additional 
funding. 
 
¶17. (U) Visit New Delhi's Classified Website: 
http://www.state.sgov/p/sa/newdelhi 
 
Pyatt