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TAGS: EFIN EINV EAIR PTER KTFN PREL ENRG ECON IN PK IR
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SUBJECT: NEW DELHI WEEKLY ECON OFFICE HIGHLIGHTS 
 
 
NEW DELHI 00002912  001.2 OF 004 
 
 
¶1.  (U) Below is a compilation of Economic highlights from Embassy 
New Delhi for the week of June 18-22, 2007. 
 
FIRST ROUND ON INDIA/EC FTA TALKS 
TO BEGIN NEXT WEEK 
-------------- 
 
¶2.  (SBU) European Commission Trade Counselor Bermejo told us that 
the first round of negotiations for an Indian/EC FTA will begin next 
week in Brussels, following a two-month delay at the GOI's request. 
All negotiation rounds are expected to be comprehensive, and the EC 
has informed India that they will not allow negotiators from any 
specific sector pleading absences (this is apparently a favorite 
negotiating tactic used by the GOI when they wish to avoid making 
concessions in politically sensitive sectors).  The Indians have 
imposed a two year timetable for the negotiations that should end 
theoretically in November 2008, in advance of the 2009 national 
elections.  The ECN has not accepted this timetable.  Also from the 
European side, apparently both Gordon Brown and Angela Merkel 
tentatively plan visits to India in the late September/October time 
frame (separate visits), according to their embassies. 
 
INDIA TO HOST IRAN AND PAKISTAN 
AT JUNE END TO DISCUSS PIPELINE 
---------------- 
 
¶3.  (SBU) India from June 27-29 will play host to Iranian and 
Pakistani delegations hoping to finalize a framework agreement on a 
proposed $7.4 billion pipeline to bring gas from Iran to India 
through Pakistan, The Economic Times reported June 20.  Bilateral 
meetings between India and Pakistan are to take place June 27. 
Trilateral meetings are planned for June 28 and 29 in New Delhi. 
Indian Petroleum Minister Murli Deora expects a second 
ministerial-level meeting to ink a framework by mid-July.  According 
to June 18 press reports, Deora said the pipeline project will 
launch "very soon" and noted that the GOI discussed the project with 
Pakistani PM Aziz during his recent visit to India.  He said the GOI 
is in talks about pricing and logistics, adding that major issues 
have been sorted out already while pending issues like 
transportation fees and alignment will be worked out soon.  The 
proposed pipeline would carry around 60 million cubic meters of gas 
per day from Iranian gas fields, split equally between Pakistan and 
India.  [Comment: Econ does not expect the pipeline will be agreed 
to or built any time soon.  However, we believe there is a 
possibility that some sort of very preliminary and prefatory 
framework understanding could be reached this summer.  Any such 
"agreement" would be in part an exercise undertaken for different 
political reasons by each partner.  End comment.]  In an interview 
with the newspaper Mint on June 18, Planning Commission member Kirit 
Parikh forecasted that the pipeline will not happen in the immediate 
future as "people are changing the rules of the game all the time." 
Pakistan is demanding a transit fee for the pipeline portion running 
through its area that India deems too high, Parikh said.  With 
Pakistan demanding more than $1 per mBtu for transit, Parikh said it 
would be better to pay $2 more per mBtu to get LNG directly from 
Iran instead of investing in a pipeline. 
 
INDIA JOINS GLOBAL ANTI-MONEY 
LAUNDERING CLUB 
-------------- 
 
¶4.  (U) This week's press reports highlighted India's Financial 
Intelligence Unit's (FIU) achievement as the newest member of the 
Egmont Group, an international body which facilitates and enhances 
exchange of information with counterpart FIUs and FINCENs. 
Admission to the Egmont Group, which was conferred at the group's 
May plenary session, is seen as a major step forward for India in 
joining the international community to fight against terrorism 
financing.  While Egmont membership is an important consideration 
for joining the Financial Action Task Force (FATF), India must adopt 
 
NEW DELHI 00002912  002.2 OF 004 
 
 
several mandated recommendations, including passing specific 
legislation criminalizing money laundering and countering financial 
terrorism, to move beyond its current observer status in FATF. 
India's Admission into the Egmont Group was reported by several 
domestic and international newspapers, including the Economic Times, 
Daily India, and Malaysia Sun. 
 
ANTI-MONEY LAUNDERING SEMINAR 
FOR INDIAN BANKS 
------------- 
 
¶5.  (U) USAID and Financial Services Volunteer Corps (FSVC) 
sponsored a seminar on June 21, 2007 titled "Detecting, Monitoring, 
and Reporting Suspicious Activity within an Anti-Money Laundering 
(AML) Framework."  Presentations by Rosalind Lazar of Citigroup and 
Thomas Burnside of JP Morgan outlined how banks can create, develop, 
and implement an AML framework.  About 12 representatives from 
various Indian banks and government agencies, including RBI and 
Financial Intelligence Unit (FIU), participated in the seminar and 
asked presenters to focus on how to use risk models involving 
businesses with high cash deposits (such as transport operators) and 
high net worth individuals. 
 
¶6.  (U) Bank representatives expressed concerns about 
competitiveness with non-AML compliant banks which are not forced to 
ask invasive questions to their customers.  Presenters emphasized 
that Know Your Customer (KYC) policies and employee accountability 
require querying new and existing customers about fund source and 
business - which are critical to the success of any AML program.  JP 
Morgan Senior Vice President explained that despite the concerns and 
initial loss of a few customers, the real profit for banks is with 
customers who want to grow internationally.  Today, banks should be 
familiar with the global banking economy.  Indian banks also need to 
consider reputation risk as a major incentive for investing in an 
AML program since loss of reputation is ultimately the real price 
for not complying. 
 
¶7.  (U) Many Indian banks, particularly public banks, are still in 
the initial stages of implementing AML programs and would benefit 
from a technical seminar to address challenges in monitoring and 
reporting suspicious activity.  Some participants explained the 
difficulty of asking intrusive questions to customers.  Most 
importantly, the seminar stressed that a successful AML program 
requires buy-in from all the stakeholders in a bank, including front 
line personnel, management, marketing department, and especially, 
the customers. 
 
SHARP RISE IN REMITTANCES 
TO INDIA 
--------------- 
 
¶8.  (U) A study by the Migration Policy Institute estimates that of 
the $268 billion (World Bank figure) worldwide remittances in 2006, 
India accounts for nearly 10 percent.  RBI has reported that Indian 
migrants transferred $24.1 billion to India in fiscal year 2005-06. 
India continues to be the leading recipient of remittances in the 
world with World Bank estimates putting India in the lead at $23.5 
billion, followed by China at $22.4 billion and Mexico at $21.7 
billion.  Compared to RBI figures from 1990-91, when remittances 
were $2.1 billion, India's dominant position in remittance receipts 
is relatively new.  In 2005-06, remittances constituted 3.10 percent 
of India's GDP - a sharp rise from 0.7 percent in 1990-91. 
Moreover, in the same year, remittances were higher than the $23.6 
billion in revenues from India's software exports, which had 
increased 33 percent that year.  The impact of remittances is more 
pronounced in parts of the country due to higher volumes of 
emigration.  The southern state of Kerala sends many emigrants to 
the Gulf countries and remittances represent 22 percent of the 
state's domestic product. 
 
 
NEW DELHI 00002912  003.2 OF 004 
 
 
¶9.  (U) The study outlines the main factors for the growth in 
remittances - including the diminishing role of unofficial channels, 
shifting emigration patterns to high-skilled  technology jobs, 
greater competition in the money transfer market, and the strength 
of the Indian economy.  First, the incentives to employ informal 
networks like hawalas to transfer funds have diminished with the 
government establishing a market-based exchange rate and increased 
international monitoring of such networks after the September 11 
attacks.  Second, many Indian IT workers have migrated to the US, 
mostly through H-1B worker visas, and more Indian professional 
workers are going abroad.  This new class of highly-skilled workers 
has greater purchasing power and more saving potential than 
lower-skilled workers.  RBI estimates that 44% of the remittances 
come from North America while 24% come from the Gulf Countries. 
Most significantly, the Indian government has demonstrated its 
ability to attract non-resident Indian (NRI) capital through NRI 
deposit accounts and successive bond issues.  The report recommends 
the government and banking community look for strategic ways to 
offer higher rates of return on remittance receipts allocated 
towards specific assets or microfinance operations. 
 
INDIA SIGNS FLIGHT SCHOOL DEALS 
AT THE PARIS AIR SHOW 
------------------ 
 
¶10.  (U) India signed two MOUs on June 19, 2007 at the Paris Air 
Show to forge a partnership with Montreal-based Canadian Aviation 
Electronics (CAE) to enhance the capacity of GOI's existing flight 
school, Indira Gandhi Rashtriya Uran Akademi (IGRUA), and proposed 
National Flying Training Institute (NFTI).  CAE will now become the 
managing partner of IGRUA and the majority stakeholder in NFTI. 
 
¶11.  (U) The NFTI will be a joint venture between CAE and the 
Airport Authorities of India with 51 and 49 percent of the equity, 
respectively.  The Institute will provide fixed and rotary wing 
training for pilots using the Airline Transport Pilot License (ATPL) 
program which leads to the Multi-crew Pilot License (MPL) program. 
NFTI will be based in Gondia (in western Maharashtra), an electoral 
constituency of Civil Aviation Minister Praful Patel.  The institute 
will operate new aircraft using CAE's course material and training 
equipment.  The total projected investment for NFTI is expected to 
be about $25 million.  Once it is fully operational, NFTI is 
estimated to produce approximately 200 pilots a year. 
 
¶12.  (U) CAE will also manage IGRUA's existing flight school 
activities, including maintenance of aircraft, flying operations, 
air traffic control, runway maintenance, navigation aids, and fire 
fighting facilities.  IGRUA is located in Rae Bareli (district in 
Uttar Pradesh), an electoral constituency of ruling Congress Party 
President Sonia Gandhi.  The CAE-IGRUA MOU is expected to increase 
from an initial 40 cadet pilots to 110 cadet pilots per year and 
finally to 200 cadet pilots annually.  While India currently has 
about 2,500 active pilots, an estimated 5,000 pilots will be 
required over the next 5 years to cater to the exponential growth in 
domestic air traffic.  For example, the Air Passengers Association 
of India estimates that the annual air traffic growth rate in India 
has been around 26 percent over the past two years, causing the 
airline industry to order approximately 400 new aircraft for 
delivery by 2010. 
 
INDIA CREATING MORE NEW JOBS 
THAN ANY OTHER BRIC COUNTRY 
---------------- 
 
¶13.  (U) OECD's Economic Outlook 2007 reports that India is creating 
more jobs than any other BRIC (Brazil, Russia, India and China) 
country, generating 11.3 million net new jobs annually between 2000 
to 2005 in contrast to China's 7 million, Brazil's 2.7 million, and 
Russia's 0.7 million.  India alone accounted for half of the jobs 
generated by BRIC countries. Despite the good news, the report also 
 
NEW DELHI 00002912  004.2 OF 004 
 
 
cites concerns, such as the low level of employment elasticity to 
economic growth at 0.3 percent which indicates that fewer jobs are 
created as GDP rises.  Also, the report says that India has among 
the lowest employment to population ratios with 50.5 percent as 
compared to at least 66 percent in the other BRIC countries.  Rural 
unemployment continues to be a challenge in the BRIC countries, 
particularly India where there are an estimated 130 million surplus 
workers. 
 
¶14.  (U) Visit New Delhi's Classified Website: 
http://www.state.sgov/p/sa/newdelhi 
 
Mulford