VZCZCXRO9461
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHNE #3034/01 1801142
ZNR UUUUU ZZH
R 291142Z JUN 07
FM AMEMBASSY NEW DELHI
TO RUEHC/SECSTATE WASHDC 6612
INFO RUEHCG/AMCONSUL CHENNAI 0748
RUEHCI/AMCONSUL KOLKATA 0293
RUEHLH/AMCONSUL LAHORE 4022
RUEHBI/AMCONSUL MUMBAI 9932
RUEHPW/AMCONSUL PESHAWAR 4581
RUEHIL/AMEMBASSY ISLAMABAD 3510
RHEBAAA/DEPT OF ENERGY WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RULSDMK/DEPT OF TRANSPORTATION WASHDC
RMHCSUU/FAA NATIONAL HQ WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE WASHDC
RUCNMEM/EU MEMBER STATES COLLECTIVE

UNCLAS SECTION 01 OF 03 NEW DELHI 003034 
 
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: EFIN EINV EAIR PTER KTFN PREL ENRG ECON IN PK IR
GM, UK 
SUBJECT: NEW DELHI WEEKLY ECON OFFICE HIGHLIGHTS 
 
 
NEW DELHI 00003034  001.2 OF 003 
 
 
¶1.  (U) Below is a compilation of Economic highlights from Embassy 
New Delhi for the week of June 25-29, 2007. 
 
COMING SOON - EFFORTS TO AMEND THE MONEY LAUNDERING ACT 
--------------------------------------------- --- 
 
¶2.  (SBU) During a meeting with Econoff on June 29, Joint Secretary 
of Revenue Mukul Singhal at the Ministry of Finance (who is charged 
with handling money laundering issues and represents India at the 
Asia Pacific Group (APG) on Money Laundering) confirmed that his 
ministry hopes to introduce amendments to the Prevention of Money 
Laundering Act (PMLA) during the next session of Parliament 
(expected to begin in mid-July to early August 2007).  The 
amendments are under final review by the legal department and 
undergoing deliberations between Finance and other ministries.  When 
Econoff asked if the amendments will be in line with FATF 
recommendations, Singhal replied that FATF is a universal agreement 
and India is being "guided" by its principles/recommendations.  When 
asked about the likelihood of passing the amendments through 
Parliament, Singhal said to keep in mind that that the PMLA is 
"produced by administrators, in the interest of administrators ... 
and without review by the judiciary."  He and his colleagues at the 
Ministry of Finance are hopeful the legislation will be reviewed by 
Parliament and not referred to a standing committee, which can add 
months to legislative passage.  When asked about GOI's participation 
at the upcoming APG Assessment training in Singapore, Singhal 
confirmed that GOI will send two participants.  Econoff encouraged 
active participation by GOI officials at the APG (through 
presentations, volunteering to participate in assessment teams, 
etc.).  Post will follow up with Finance contacts for the latest 
readout on India's participation at the ongoing FATF plenary in 
Paris. 
 
 
INDIA'S OUTWARD INVESTMENT SET TO EXCEED INBOUND FDI 
--------------------------------------------- ------- 
¶3.  (U) Two recent studies highlight the noticeable growth in 
India's outbound investment, an emerging significant source of FDI 
in the world.  A recent joint report prepared by the Federation of 
Chambers of Commerce and Industry (FICCI) and Ernst & Young on 
"Direct Investments in the US by Indian Enterprises" notes that 
India's total outbound equity investments exceeded $15 billion in 
2006 and are expected to cross $35 billion in 2007.  The outbound 
forecast in 2007-08 exceeds the inbound FDI equity target of $30 
billion that India has set for the year.  Another study 'Global 
Outbound FDI Potential of Indian Companies 2007' conducted by Oxford 
Intelligence points out that India's share of global outward 
investment has trebled over the last four years and outbound 
activity increased by 26% alone in 2006.  While Tata's large 
acquisitions took the headlines, Indian overseas investments were 
rather broad-based, with small and medium firms in the $20-60 
million range making acquisitions in pharma and healthcare, 
irrigation, electronics, automotives, textiles, telecom, paint, 
paper and gems and jewelry sectors. 
¶4.  (U) The FICCI Report also highlighted India and the US' surging 
bilateral investment flows.  US equity investments in India doubled 
from the year before to hit $856 million in 2006-07; even more 
striking, Indian companies invested over $2 billion in the US in 
2006-07. The information technology (IT) and IT-enabled services 
sectors accounted for nearly half of India's deals in the US in 
2006-07. The study also found that in the business process 
outsourcing space, Indian companies are now increasingly opening up 
units in the US, providing opportunities of large-scale employment 
there, and giving rise to a "reverse outsourcing" trend.  FICCI 
Secretary General Amit Mitra expects that India's cash-rich and 
 
SIPDIS 
highly profitable companies could invest roughly $10 billion in the 
US by 2010. 
PLANS TO DEVELOP NEW GREENFIELD AND SMALL AIRPORTS 
--------------------------------------------- ----- 
 
 
NEW DELHI 00003034  002.2 OF 003 
 
 
¶5.  (U) The Associated Chambers of Commerce and Industry of India 
(ASSOCHAM) held a National Summit on Aviation Industry Issues on 
June 27, bringing together 75 participants from industry, NGOs, 
government, diplomatic missions, and media.  Civil Aviation Joint 
Secretary K N Srivastava stated that given the interest in 
 
SIPDIS 
developing smaller airports, the Airport Authority of India (AAI) 
and private industry were planning to develop at least six 
greenfield airports and 50 smaller airports within the next five 
years in Maharashtra, Gujarat, Karnataka, and Bihar, among others. 
Plans to build rail links to/from airports for ten major cities, 
including Delhi, Mumbai, Hyderabad, and Pune, were also highlighted. 
 Other panelists emphasized the need to address consumer concerns, 
the inadequacy of aviation regulations, the shortage of properly 
trained ground and cabin personnel, and the industry's need to meet 
the demands of international clients. 
 
CHALLENGES FACING SOUTH ASIA REGIONAL INTEGRATION 
--------------------------------------------- ---- 
 
¶6.  (U) Ejaz Ghani, Economic Adviser at the World Bank, on June 27 
chaired a multi-country video panel from Washington on the World 
Bank report "South Asia: Growth and Regional Integration". 
Participants from India, Pakistan, Afghanistan, Bhutan, and Sri 
Lanka provided their suggestions and critiques to Ghani on the 
report.  The event emphasized The South Asian Association for 
Regional Cooperation (SAARC) member countries' overall desire to 
cooperate economically, although the majority of member countries 
present at the video conference highlighted political differences, 
primarily between Indian and Pakistan, as a barrier to growth. 
 
¶7.  (U) Ghani stressed the need for regional collaboration in three 
primary areas - energy, transportation, and water.  On energy, he 
said there is an abundance of clean energy in the region and 
energy-surplus countries can gain from exporting their supplies.  On 
transportation, he said the cost and difficulty of border crossing 
and border transfers are among the largest impediments to growth. 
Ghani highlighted geography and infrastructure as underutilized 
resources and added that intricate non-tariff barriers, such as 
indirect supply chains requirements, hinder growth.  On water, he 
said flood control is essential to prevent constant infrastructure 
damage, which in turn could improve water availability and power 
generation.  One of the greatest advantages of regional cooperation, 
he emphasized, would be poverty reduction - particularly for 
states/districts in the outlying areas of a country (among the 
poorest in India).  Ghani noted the political climate for regional 
integration has improved in recent years and that there is a demand 
for sub-regional and regional cooperation despite political 
differences.  He also mentioned that the private sector sees 
regional cooperation as a new opportunity for growth. 
 
¶8.  (U) South Asian participants raised a number of issues, mostly 
political in nature.  Pakistani speakers expressed concern that 
South Asian countries produce many of the same products, which 
results in more competition than collaboration on both high-value 
and low-value products.  Both Indian and Pakistani members stressed 
political differences between their countries as barriers to 
collaboration.  The Afghans questioned the potential for regional 
integration when more than 90 percent of the subcontinent's GDP is 
constituted by Pakistan and India, resulting in "no real cooperation 
and no real integration."  In addition to overcoming political 
differences with border countries, they stressed concerns about 
security and political stability in Afghanistan. 
 
¶9.  (U) The Bhutanese recommended multilateral organizations like 
the World Bank and Asian Development Bank coordinate regional 
efforts to avoid duplication and accelerate practical regional 
solutions.  They also commented that SAFTA has been a slow process 
and much more needs to be done on customs procedure, transportation 
infrastructure, etc.  The Sri Lankan delegation worried that 
economic integration between China and India, which the report 
 
NEW DELHI 00003034  003.2 OF 003 
 
 
promotes, might benefit SAARC member countries in the short run with 
lower consumer prices, but harm India and its neighbors' competing 
industries in the long run.  The Bangladeshi representative 
recommended establishing regional authorities for water, energy, and 
transportation.  He was pleased with India's newfound will (as the 
current SAARC chair) to increase regional and sub-regional 
cooperation. 
 
LALU CONTINUES TO PROMOTE 
TRANSFORMATION OF THE INDIAN RAILWAYS 
--------------------------------- 
 
¶10.  (U) Railway Minister Lalu Prasad has become a regular featured 
speaker for student groups.  On Thursday, June 28, he addressed a 
graduating class from the Indian Foreign Service Institute as well 
as guest diplomats and media about transforming the enormous Indian 
railway system into a profit making organization.  Citing his rural 
and modest background as an inspiration to making the railways 
affordable to the "common man," he highlighted the importance of 
rooting out corruption in an effort to further reduce passenger 
fares.  Fiercely affirming that India has a social responsibility to 
provide affordable transportation to the masses, he maintained 
privatization is not the answer (though he invites private sector 
participation in modernizing the railway system).  Unlike many of 
the European railways which Minister Prasad recently visited, he 
noted that India's railways are often overcrowded and lack many of 
the same amenities.  Though it will take time, Prasad said, his 
vision for the railways requires an Indian version and not simply an 
adoption of Western systems, which will include world class 
stations, facilities for farmers at stations, and a dedicated 
freight corridor. 
 
¶11.  (U) Visit New Delhi's Classified Website: 
http://www.state.sgov/p/sa/newdelhi. 
 
Mulford