VZCZCXRO6632
RR RUEHBI RUEHCI
DE RUEHCG #0518/01 2340658
ZNR UUUUU ZZH
R 220658Z AUG 07
FM AMCONSUL CHENNAI
TO RUEHC/SECSTATE WASHDC 1136
INFO RUEHNE/AMEMBASSY NEW DELHI 2710
RUEHCI/AMCONSUL KOLKATA 0829
RUEHBI/AMCONSUL MUMBAI 5099
RUEHLM/AMEMBASSY COLOMBO 1354
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SECTION 01 OF 02 CHENNAI 000518 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: OVIP ECON EINV PGOV PREL SCUL CVIS IN
SUBJECT: CODEL ENSIGN EXPERIENCES SOUTH INDIA'S HIGH-TECH SECTOR 
 
REF: New Delhi 3664 
 
¶1. (SBU) SUMMARY:  Senator John Ensign (R-NV) made his first visit 
to Bangalore August 5-8 to see South India's info-tech boomtown 
firsthand.  He met with top executives from several companies, 
including Tata Consultancy Services (TCS), Infosys, General Electric 
(GE), Brickwork, Texas Instruments (TI), Intel, and Wipro, and 
toured several of their campuses.  He also discussed investment 
climate issues with the American Chamber of Commerce (AmCham) and 
NASSCOM (National Association of Software and Service Companies) and 
met officials from the government of Karnataka, including the Chief 
Secretary, at a reception.  He also discussed the state of India's 
 
SIPDIS 
educational system with the Director of Bangalore's International 
Institute of Information Technology (IIIT-B).  END SUMMARY. 
 
If the World is Flat, Why Not Visit? 
------------------------------------ 
 
¶2. (SBU) Inspired by Thomas Friedman's writings on India and a 
personal charitable interest in a South Indian orphanage, Senator 
Ensign, the ranking minority member of the Senate's Science, 
Technology, and Innovation Sub-Committee, visited Bangalore to see 
India's high-tech heartland for himself.  While functioning mainly 
in watch-and-listen mode, the Senator nonetheless repeatedly 
emphasized throughout his visit the importance of U.S.-Indian trade 
and the enormous economic promise of the U.S.-Indian relationship. 
 
Common Themes:  Labor, Infrastructure 
------------------------------------- 
 
¶3. (SBU) Senator Ensign heard several common themes throughout his 
visit.  One of the most common was that high-tech companies continue 
to scale up their operations in India not because of the low cost of 
engineers (although this helps), but because India is one of the few 
places in the world that is producing engineers in the numbers 
needed.  Intel, TI, and GE all touted their Indian subsidiaries' or 
divisions' technological contributions to products and services 
marketed worldwide and emphasized the key role that these divisions 
played in the company's overall strategy. 
 
¶4. (SBU) Another key theme the Senator heard from U.S. and Indian 
company executives, AmCham members, and NASSCOM officials was the 
sorry state of Bangalore's infrastructure, in particular its roads. 
The Senator experienced several hours of Bangalore's traffic 
first-hand, and saw some signs of tentative improvement, including a 
new elevated interchange, construction work on an elevated road, and 
a billboard announcing a new metro system whose inception is 
apparently still years (if not decades) away. 
 
¶5. (SBU) The Senator also heard from NASSCOM and AmCham members 
repeatedly about how India's democratic freedoms often make 
improving infrastructure difficult.  Building a new road (or 
expanding an existing one), for example, generally requires the 
acquisition of land, which inevitably results in lawsuits launched 
by those who do not wish to sell their land or who argue that they 
have not been offered a high enough price.  These lawsuits often 
stretch on for years in India's sclerotic legal system, resulting in 
delays for almost every major infrastructure project.  One member of 
a committee working on Bangalore's new international airport said 
that the airport would be ready well before it had a proper road to 
it because of a lawsuit involving a piece of land at a key junction. 
 Several of the Senator's interlocutors noted that "China wouldn't 
have such problems," but all seemed to accept these hindrances as a 
necessary cost for the maintenance of India's democracy. 
 
Transfer Pricing:  Uncle Sam's Problem 
-------------------------------------- 
 
¶6. (SBU) Frank Jones, Intel India's president, warned Senator Ensign 
about the Indian government's plans to increase the taxes it charges 
multi-national companies.  He said that Indian tax authorities are 
planning to increase by two to three times the prices they estimate 
the subsidiaries of multi-national companies pay for goods and 
services from their parent companies.  This increase, he said, will 
raise significantly the taxes these subsidiaries pay in India. 
Calling this decision "very surprising and very arbitrary," Jones 
said that his company is challenging this case in India's courts. 
He emphasized, however, that India's decision would not affect his 
company's overall bottom line because it would deduct its increased 
taxes in India from the taxes the company paid in the United States 
-- a shift that would hurt the U.S. tax base. 
 
Complaining About Visas, in a New Way 
------------------------------------- 
 
¶7. (SBU) While the Senator did hear a few complaints about the U.S. 
visa-issuing process (B. V. Naidu, Managing Director of SemIndia 
 
CHENNAI 00000518  002 OF 002 
 
 
Systems Private Ltd., said it was "galling" that he had to go to 
Chennai to apply for a visa), Jones complained about the visa 
process for Americans coming to India, especially for business 
visas.  He said that the Indian system is slow and restrictive, 
making it impossible for his company to send quickly an American to 
India to solve problems that his Indian staff were unfamiliar with. 
He also said that renewing a residence permit in person -- an annual 
requirement -- is a notoriously laborious, old-fashioned, and 
paper-and-rubber-stamp intensive process that could be held up by a 
single bureaucrat.  He urged the USG to advocate for India to adopt 
a more modern approach that made better use of the country's IT 
skills. 
 
Concerns About High-Tech Export Controls 
---------------------------------------- 
 
¶8. (SBU) Jones also told the Senator that U.S. export rules will 
create a major problem for his company within a year or two.  He 
said that U.S. export restrictions on high-powered computers have 
not been updated recently and have not kept pace with the realities 
of technological developments.  These restrictions, intended to 
prevent the export of the most cutting-edge technology, will soon 
prevent his engineers in India from collaborating with their 
American colleagues working on products important to his company. 
What is cutting-edge processing power today, he said, is far more 
powerful than the kinds of products that he wants his Indian 
engineers to work on, but the failure of export regulations to adapt 
to technological developments will hamper his company's ability to 
develop innovative products. 
 
India's Top Students Feeling "Unwanted" in America 
--------------------------------------------- ----- 
 
¶9. (SBU) The Director of the IIIT-B told the Senator that many 
Indian students still hope to study in the United States and that 
increasing numbers of well-heeled but academically mediocre students 
will continue to ensure that the overall number of Indian students 
at U.S. universities will continue to rise.  He added, however, that 
perceptions in India of an increasingly restrictive visa regime and 
complaints in the United States about "outsourcing American jobs to 
India" have made many of India's most talented students "feel 
unwanted," causing them increasingly to choose to study elsewhere. 
(COMMENT:  With student visa issuances running at record levels, we 
do not agree that there is an increasingly restrictive student visa 
regime yet the Director's comments show that perceptions may not 
match reality.  END COMMENT.) 
 
¶10. (SBU) The Director also pointed out some of the limitations of 
the Indian educational system, noting that there are -- at most -- a 
million slots at Indian universities, with nine million high school 
graduates trying to cram their way in every year.  He also said that 
India churns out some 250,000 engineering graduates annually, but 
that only about 2000 or so go on to advanced degrees and only about 
100,000 of the engineering graduates are properly "absorbed" into 
the economy.  Many engineering graduates, he said, are incapable of 
doing the sorts of work increasingly demanded by companies operating 
in India -- an observation echoed by executives from all of the 
companies the Senator visited, who uniformly claimed that they were 
facing increasing difficulties in finding qualified workers. 
 
¶11. (U) Senator Ensign was accompanied by legislative aide David 
Quinalty, military aide Colonel Gregg Olson and Consulate General 
Chennai staff.  Charge d'Affaires Steven White and Embassy New Delhi 
Political Counselor Ted Osius joined Senator Ensign for his August 6 
meetings in Bangalore. 
 
¶12. (U) CODEL Ensign did not have the opportunity to clear on this 
cable.  This message was coordinated with Embassy New Delhi. 
 
HOPPER