VZCZCXRO5388
RR RUEHAST RUEHBI RUEHCI RUEHDBU RUEHLH RUEHPW
DE RUEHNE #3983/01 2431021
ZNR UUUUU ZZH
R 311021Z AUG 07
FM AMEMBASSY NEW DELHI
TO RUEHC/SECSTATE WASHDC 7946
INFO RUEHCG/AMCONSUL CHENNAI 1341
RUEHCI/AMCONSUL KOLKATA 0755
RUEHLH/AMCONSUL LAHORE 4111
RUEHBI/AMCONSUL MUMBAI 0458
RUEHPW/AMCONSUL PESHAWAR 4633
RUEHIL/AMEMBASSY ISLAMABAD 3872
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
RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE

UNCLAS SECTION 01 OF 03 NEW DELHI 003983 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
USDOC FOR ITA/MAC/OSA/LDROKER/ASTERN/KRUDD 
DEPT OF ENERGY FOR A/S KHARBERT, TCUTLER, CZAMUDA, RLUHAR 
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 AND EB/TRA JEFFREY HORWITZ AND TOM ENGLE 
 
E.O. 12958: N/A 
TAGS: EAGR EFIN EINV ETRD ENRG SENV IN
SUBJECT: NEW DELHI WEEKLY ECON OFFICE HIGHLIGHTS AUGUST 27-31, 2007 
 
 
NEW DELHI 00003983  001.2 OF 003 
 
 
¶1.  (U) Below is a compilation of Economic highlights from Embassy 
New Delhi for the week of August 27-31, 2007. 
 
FINANCE MINISTRY FINDING 
WAYS AROUND FDI CAP 
---------------- 
 
¶2.  (U) Local press reported this week that the Ministry of Finance 
(MoF) has approved a request by India's largest private bank, ICICI, 
to create a holding company for its insurance division to spin off 
as a new company.  Since existing caps on insurance require 74 
percent local ownership, ICICI will still hold a large share of the 
new insurance company.  However, foreign institutional investors own 
roughly 70 percent of ICICI.  Thus, ICICI's equity in the new 
company, combined with the sector-permitted 26 percent foreign 
equity, essentially means total foreign equity in the new insurance 
company can exceed the 26 percent cap.  An example of "opportunistic 
reform," the holding company model supported by the MoF provides an 
alternative to the Left-stalled legislative changes needed to raise 
the FDI cap in the insurance sector.  The MoF not only approved 
ICICI's request and persuaded the Foreign Investment Promotion Board 
(FIBP) to approve it, but sought out the Law Ministry's approval as 
well, to overcome hesitations from the central bank, the RBI, on the 
request.  The RBI, as of August 31, was still concerned about the 
holding company model, and had issued a "discussion paper" for 
public comment on the issue.  Other financial service companies will 
be watching developments closely, as others are considering a 
similar step, including India's largest public sector bank, the 
State Bank of India. 
 
US PRIVATE EQUITY CONTINUES 
TO FLOW INTO INFRASTRUCTURE 
---------------------------- 
 
¶3.  (SBU) Blackstone announced on August 29 that it would buy a 14.5 
percent stake in India's third largest construction firm, Nagarjuna 
Construction for $150 million.  Blackstone's move highlights the 
rising trend of private equity flows coming into India, and more 
recently, finding attractive equity opportunities in the 
infrastructure sector, a theme echoed by the Planning Commission and 
local private equity analysts. (Note: Private equity into India, 
$3.8 billion in the first half of the year, is the largest in Asia 
this year, exceeding China.  Some estimate it may reach $10 billion 
by yearend.  End note.) 
 
PARLIAMENT PASSES SBI (AMENDMENT) 
BILL, 20074 
------------------------- 
 
¶4.  (U) Parliament passed The State Bank of India (SBI) (Amendment) 
Bill, which legalizes the recent transfer of the central bank, the 
RBI's, 59.73% equity stake in India's largest state-owned bank, 
State Bank of India (SBI) to the central government for Rs.355 
billion ($9 billion), which took place this summer by ordinance. 
The new law strengthens the banking system by separating the 
ownership and regulatory functions of the RBI The bill will now be 
sent to President Patil for her approval, which is expected. 
¶5.  (SBU) The new legislation is only a modest portion of an earlier 
bill that the Ministry of Finance chose to break down, in order to 
help facilitate passage. The sister legislation proposes that SBI be 
allowed to dilute the government's equity further to 51% from 
59.73%, by opening the shares to private, including foreign, 
investors. This has been blocked by the Left parties, resisting the 
dilution of government control.  The related legislation was 
endorsed on August 30 by the Parliament's Standing Committee on 
Finance, where controversial bills are sent for consensus building. 
Members of Left Parties gave a dissent note to the Standing 
Committee's decision. They raised objections on allowing SBI to 
raise resources from the market as they opine this would limit SBI's 
ability to carry out its social obligations and reduce its 
competitiveness compared to private banks. They perceive - rightly - 
that reducing government equity to 51% from 59.73% is a move towards 
privatization of the bank. (Left parties may vote against the bill 
 
NEW DELHI 00003983  002.2 OF 003 
 
 
when the"Finance Minister re-introduces it in Parliament for a vote. 
 
PHARMA PATENT ISSUES AMPLIFIED 
----------------------------- 
 
¶6.  (U) On August 27, Swiss pharmaceutical giant Novartis announced 
that it will move hundreds of millions of planned investment dollars 
from India to China, citing insufficient protection in India for 
intellectual property.  This announcement stems from Novartis's 
recent legal disappointment in Chennai, where the High Court upheld 
the rejection of Novartis's patent application for its leukemia drug 
Glivec. 
 
¶7.  (U) Then on August 28, the Kolkata patent office rejected Eli 
Lilly's patent application for Forteo, a drug used to treat 
osteoporosis, on grounds of incremental innovation, prior knowledge, 
and failure to demonstrate improved efficacy.  Forteo is the only 
biotechnology-based osteoporosis drug available in India, and Eli 
Lilly had already released the product, anticipating approval of 
their patent request. 
 
INDIA LEADS THE WAY IN 
IMPROVING REGIONAL CONNECTIVITY 
-------------------------------- 
 
¶8.  (U) Following up on the April 2007 SAARC Summit's commitment to 
having better regional connectivity, India (current chair of SAARC) 
hosted the first-ever SAARC transport ministers conference in New 
Delhi from August 29-31.  This is a significant meeting where member 
states were likely to make concrete proposals on improving physical 
connectivity in South Asia, with India leading the way to promote 
regional transport agreements.  The deliberations concluded today; 
Embassy will follow-up with GOI for a full readout of the meeting 
and report.  According to today's Times of India, ministers were to 
discuss a roadmap for regional connectivity including 10 ports, two 
inland waterways running 2,757 km, and 16 airports.  India is also 
expected to announce two inter-regional road corridors along the 
Nepal-India and Bangladesh circuit, rail corridor, and aviation 
corridors connecting New Delhi with two other SAARC countries, 
according to media reports.  India prepared a draft of the SAARC 
Regional Motor Vehicle Agreement (RMVA) recommending a common 
transport policy for all member states and ways to remove 
infrastructure barriers to facilitate movement of goods.  If 
ratified, the RMVA will permit truck movement across borders and 
reduce cases of unloading and re-loading into another vehicle. 
 
¶9.  (U) Prior to the ministerial meetings, SAARC representatives at 
the Secretary and Joint Secretary levels discussed recommendations 
from the SAARC Regional Multi-Modal Transport Study to integrate 
critical transport and transit links.  These proposals can help 
boost trade in South Asia, which fares among the lowest in 
intra-regional trade.  According to the study, the region has a 4 
million-km-long road network which is only 10 percent of the 
potential road links that could be established in South Asia. 
 
COAL BENEFICIATION KEY FOR 
POWER DEVELOPMENT AND ENVIRONMENT 
-------------------- 
 
¶10.  (SBU) Department of Energy, State/OES, and Econoff attended a 
Coal Beneficiation conference in the "coal capital" of Ranchi, 
Jharkhand August 22-24 under the auspices of the US-India Energy 
Dialogue's Coal Working Group and the Asia Pacific Partnership 
(APP-6) Coal Task Force.  Although coal fired power accounts for 54% 
of India's electricity generating capacity and about 68% of its 
actual electricity production, coal washing, preparation, and 
beneficiation has be neglected with most boilers built to handle the 
poorer quality high ask coal.  Only in the last year has the Coal 
Ministry recognized the importance and proclaimed responsibility for 
beneficiating its coal.  We have identified a series of 
bureaucratic, legal, regulatory, and incentive obstacles to 
realizing the substantial economic and huge environmental benefits 
of coal beneficiation. 
 
NEW DELHI 00003983  003.2 OF 003 
 
 
 
¶11.  (U) Visit New Delhi's Classified Website: 
http://www.state.sgov/p/sa/newdelhi 
 
WHITE