VZCZCXRO7609
RR RUEHAST RUEHBI RUEHCI RUEHDBU RUEHLH RUEHPW
DE RUEHNE #4212/01 2571013
ZNR UUUUU ZZH
R 141013Z SEP 07
FM AMEMBASSY NEW DELHI
TO RUEHC/SECSTATE WASHDC 8224
INFO RUEHCG/AMCONSUL CHENNAI 1464
RUEHCI/AMCONSUL KOLKATA 0837
RUEHLH/AMCONSUL LAHORE 4119
RUEHBI/AMCONSUL MUMBAI 0563
RUEHPW/AMCONSUL PESHAWAR 4641
RUEHIL/AMEMBASSY ISLAMABAD 3916
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 05 NEW DELHI 004212 
 
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: EFIN EINV EPET ETRD SENV IN
SUBJECT: NEW DELHI WEEKLY ECON OFFICE HIGHLIGHTS FOR SEPTEMBER 
10-14, 2007 
 
NEW DELHI 00004212  001.2 OF 005 
 
 
¶1.  (U) Below is a compilation of Economic highlights from Embassy 
New Delhi for the week of September 10-14, 2007. 
 
NEW MORE LIBERAL AND 
RATIONAL FDI POLICY 
IN OCTOBER 
------------------------- 
 
¶2.  (U) Director Gauri Singh in the Department of Industrial Policy 
and Promotion at Ministry of Commerce and Industry told Econoff on 
September 13 that the GOI will release a new FDI policy this October 
¶2007.  Singh said the new policy will allow for "greater 
liberalization and rationalization" in core sectors and essential 
services.  In reviewing some of the important measures under 
consideration, the meeting highlighted following reforms under 
consideration: 
 
-- Petroleum sector - removal of condition that company will have to 
divest 26 percent of the equity in favor of Indian partner/public 
within five years of commencing actual trading and marketing 
petroleum products.  Singh highlighted that the new policy is likely 
to ease the FDI limit for PSU refineries. 
 
-- Civil aviation sector - creating new supervisory body for air 
traffic services and formulating separate guidelines to regulate 
foreign investment in air traffic services, in close consultation 
with Ministry of Civil Aviation.  There is also a proposal to allow 
FDI in maintenance and repair operations (MRO) and up to 100 percent 
investment in aviation-related services like charter flights, ground 
handling, and helicopter services (which are currently subject to a 
49 percent FDI cap). 
 
-- Retail sector - increasing FDI limit in companies trading 
single-brand products and permitting foreign investment in companies 
trading multi-brand products.  Singh noted  that before the GOI 
makes any decisions on opening up the retail sector to further 
investment, they will wait for an ICRIER study (commissioned by GOI) 
to look at gains and losses from relaxing foreign investment limits 
in retail trading. 
 
¶3.  (U) Singh was careful not to give many details or lengthy 
responses to questions to avoid revealing specific details about the 
policy.  As FDI equity inflows in India continue to increase in 
comparison to past years, the new FDI policy is expected to go 
further in streamlining the process for foreign investment to help 
India sustain capital flows in critical sectors.  During the first 
quarter of 2007-08, FDI inflows totaled USD 4.9 billion as against 
USD 1.7 billion in the corresponding quarter of 2006-07, an increase 
of 185 percent.  Commerce Minister Nath has also emphasized the new 
policy will be aimed at job creation, new investment, and "if there 
are any inefficiencies, will be ironed out." 
 
SHAPING THE GLOBAL 
INNOVATION ECONOMY 
------------------ 
 
¶4.  (U) FICCI and the Los Angeles-based Pacific Council on 
International Policy gathered in Delhi on September 10-11 for the 
first meeting of a task force of prominent buriness leaders on 
"Shaping the Global Innovation Economy:  Enhancing Cooperation in 
India-US relations."  The bi-national task force will look at issues 
to shape the global innovation economy - particularly in new 
technology and aerospace sectors - and identify areas of cooperation 
between India and US.  The discussions focused on how India is no 
longer just a manufacturer of technology products but is becoming a 
promising market for technology innovation.  Also, U.S. business 
leaders highlighted the strong cooperation in IT and with 
Indian-Americans, particularly on the West Coast.  The task force is 
co-chaired by Habil Khorakiwala, President of FICCI, and Richard 
Celeste, former US Ambassador to India, and is expected to release 
their study on policy recommendation for increasing U.S.-India 
innovation economy trade and investment in 2008. 
 
NEW DELHI 00004212  002.2 OF 005 
 
 
 
MUST MOVE BEYOND A 
DENIAL REGIME 
-------------- 
 
¶5.   (U) Minister Kapil Sibal of Science & Technology and Earth 
Sciences opened the Task Force meetings on September 10 and focused 
his remarks on the "lively debate on the civil nuclear deal," which 
he commented is expected in any democracy.  Sibal emphasized that 
both governments need to move away from a "denial regime" and take 
into consideration actual concerns, referring to dual use 
technologies.  Today, he said, nearly all technologies can be put to 
dual use.  Minister Sibal said that at the "heart of the nuclear 
deal is that it creates a gateway of opportunity ... and will help 
realize India's potential as a market for nuclear power."  He 
further commented that India is a "one stop" country - "democratic 
and with a process to move away from denial to regulatory phase." 
In linking the ongoing 123 Agreement debate in India to the Task 
Force's broader mission of promoting global innovation, the Minister 
said the concept of dual use in the 21st century is a "non-starter." 
 He also remarked on how the 123 Agreement is helping to change 
India's relationship with global players and noted that as soon as 
the 123 Agreement is signed, "India will be happy to see the U.S. 
and other countries stepping forward and willing to work with Indian 
nuclear power."  The Minister also emphasized that by giving India 
access to nuclear fuel, the global community is increasing the 
potential for huge strides in the Indian economy.  He tasked FICCI 
with drafting an Innovation Act in the next three months for the 
ministry's consideration to promote greater global innovation 
collaboration and sharing of technology make-up and research. 
 
CREATING A KNOWLEDGE ECONOMY 
WITH PPPs IN EDUCATION 
-------------------- 
 
¶6.  (U) Deputy Planning Commission Chairman Montek Singh Ahluwalia 
addressed the Task Force on September 11 and focused on how the 
government is considering a policy to facilitate greater private 
sector participation in the education sector.  (Note:  In a separate 
meeting with Commercial Counselor and Econoffs in late August 2007, 
Finance Joint Secretary for Infrastructure Arvind Mayaram also 
mentioned how the GOI is looking at public-private partnerships 
(PPPs) in education.)  According to news reports, these policy 
changes are being opposed by the nodal ministry of education, the 
Human Resources Development (HRD) ministry, but strongly endorsed by 
the Planning Commission representatives who believe these change are 
critical in helping India evolve into a knowledge economy. 
Ahluwalia also confirmed that the policy would encourage foreign 
universities and institutions to set up collaborative institutions 
in India through both public and private partnerships as well as 
offer degrees and diplomas of same quality and standards of 
education as in their own countries.  He said the aim is to increase 
India's gross enrollment ratio in higher education from the current 
10 percent to 15 percent by 2014 and 21 percent by 2020, which will 
require a significant increase in the capacity of colleges and 
universities to accommodate 6 million additional students. 
 
LETS MOVE FULL STEAM 
AHEAD WITH SEZ DEVELOPMENT 
-------------------------- 
 
¶7.  (U) On September 13, 2007 at the fourth annual general meeting 
of the Export Promotion Council for Export Operation Units and 
Special Economic Zones (SEZs) units, Commerce Minister Kamal Nath 
appealed to the state governments to efficiently implement the SEZ 
policy by providing single window facilities and all other promised 
benefits to promoters.  According to Nath, all government 
departments should realize that SEZs will be crucial to the Indian 
economy as it becomes more open, especially after a number of free 
trade agreements (FTAs) come into force.  The Minister painted an 
optimistic picture of the SEZs' potential role in  creating world 
class manufacturing facilities, increasing exports, attracting FDI, 
 
NEW DELHI 00004212  003.2 OF 005 
 
 
and expanding jobs in India.  According to the latest GOI data, at 
present SEZs - new and converted - are already providing direct 
employment to over 230,000 people, with over 100,000 additional jobs 
projected by December 2007.  Nath also noted that after all the 366 
formally approved SEZs become operational, 4 million additional jobs 
are likely to be created, and the manufacturing sector will get a 
big boost.  Thus far, most of the employment provided through SEZs 
has been to the rural youth - considered by Nath and others to be 
the greatest contribution of SEZs to the Indian economy. 
 
LINES DRAWN ON 
ORGANIZED RETAIL 
---------------- 
 
¶8.  (U) The Indian Farmers Association (IFA) and the Bhartiya Udyog 
Vyapar Mandal (BUVM), respectively India's largest organization of 
farmers and largest organization of traders, announced Tuesday that 
they will form a pair of cooperatives to compete with organized 
retail if they are unable to accomplish their primary aim of keeping 
large retailers out of the food and grocery sector.  Under this 
model, a cooperative of 2.5 million farmers in Uttar Pradesh, Bihar, 
Madhya Pradesh, Punjab, and Haryana would sell to the traders' 
cooperative rather than to organized retailers.  Mahendra Singh 
Tikait, leader of the IFA, said that organized retailers might offer 
good prices at first to preclude competition, but eventually farmers 
would become dependent and organized retailers could lower prices 
whenever they liked.  BUVM president Shyam Bihari Mishra claimed 
that by sourcing on this model, the trader cooperative could offer 
prices to compete with those offered by organized retailers. 
Dharmendra Kumar of India FDI Watch supported Mishra's claim. 
(Comment:  India FDI Watch is affiliated with an anti-globalization 
American NGO and also orchestrated the widespread "Quit Retail" 
protests in India on August 9.  It is possible that they suggested 
forming these cooperatives.  End comment.) 
 
¶9.  (U) Meanwhile, in Kerala, where the communist government is 
pushing a modification of the Essential Commodities Act that would 
severely restrict the entry of organized retail, a local 
consumer-protection committee organized a rally of 2,000 people in 
support of big retailers.  The Economic Times quoted committee 
president Abdulla Koya as saying, "The traders are warning us to be 
wary of the big retailers, telling us that they will sell at low 
prices for five years and then hike prices.  We think it is not a 
bad idea to get things at low prices for five years."  A farmers' 
union in Lucknow also gathered to demand the reopening of organized 
retail outlets in Uttar Pradesh that Chief Minister Mayawati ordered 
closed on August 23. 
 
¶10.  (U) The Left parties in the central government's ruling 
coalition have put forward a plan to reduce the political fallout 
that the growth of organized retail might cause.  They suggested 
putting a tax on each item sold by organized retailers, the proceeds 
from which would go into a fund used to provide affordable credit to 
small retailers and help them compete.  The BUVM's Mishra, however, 
said that credit is a small piece of the problem and that the only 
course of action that would protect traders would be the  complete 
ban on corporate retail. 
 
¶11.  (U) The Indian Council for Research on International Economic 
Relations (ICRIER), which the central government tasked with 
analyzing the potential impact of organized retail on small vendors, 
has announced that it will not endorse such a taxation policy in its 
upcoming report.  ICRIER's preliminary findings, to be released next 
month, are expected to indicate (according to press reports) that 
organized retail does not threaten smaller stores.  The report is 
expected to state, inter alia, that in southern India, where 
organized retailers have been operating for some time, small 
vendors' revenues have not suffered. 
 
POWER EXPANSION HIGHLIGHTS 
COAL-FIRED THERMAL 
-------------------- 
 
NEW DELHI 00004212  004.2 OF 005 
 
 
 
¶12.  (SBU) At India Energy Forum's 10th Annual Power Forum, top GOI 
energy officials and heads of public and private energy companies 
underscored the commitment to sustain India's rapid GDP growth by 
expanding India's power generating capacity from its current 132,110 
megawatts (April 2007) by 78,530 MW during the 11th Five-Year Plan 
(FYP) to over 210,000 MW by March 2012, despite India adding only 
21,180 MW of its targeted 41,110 MW of capacity during the 10th 
Five-Year Plan of 2002-2007.  With 56% of India's households still 
lacking access electricity, the GOI is ambitiously aiming to provide 
connection to all villages by 2009 and to every household by 2012. 
India's per capita electricity consumption is about 40% that of 
China, 4% that of the USA, and 22% of world average.  The current 
gap between demand and supply is 9.9% overall and 13.5% at peak 
periods. 
 
¶13.  (SBU) While coal-fired thermal now makes up 53.5% (70,682 MW) 
of total capacity, it accounts for over 68% of electricity 
production due to higher plant load factors, and it will make up 
52,905 MW or 67% of the total targeted incremental increase in 
capacity in the 11th FYP.  Although the Coal Ministry has changed 
policies and committed to expanding coal washing and beneficiation, 
incentive obstacles remain to realizing the economic and 
environmental benefits of washing.  For the several proposed 
coal-fired, super-critical-reactor, Ultra-Mega Power Projects of 
4,000-MW, two have been awarded, a third will soon be bid, and more 
states are applying to the GOI to have a UMPP in their jurisdiction. 
 
 
¶14.  (SBU) Hydroelectric capacity is now 26% (34,654 MW) of total 
capacity out an estimated potential of 150,000 MW, but yields only 
17% of power output due to seasonal rain fluctuations, especially on 
run-of-river plants, compared to dam/reservoir plants.  Planned 
expansion of 16,553 MW during the 11th FYP will be 21% of total 
incremental capacity increase.  Moreover, peak demand for power in 
the northern Indian plains, just south of the hydro capacity in the 
Himalayas, for pumping irrigation water occurs during the dry months 
(April-July) just before the monsoon, when river flow is lowest. 
Whereas, peak hydro production is during and after the monsoon, when 
power demanded by irrigation is lowest.  The Ministry of Power has 
expanded relocation and compensation packages for people displaced 
by reservoir/dam hydropower projects. 
 
¶15.  (U) Natural gas fired thermal plants, based on domestic 
production and imported liquefied natural gas, now provide about 10% 
(13,692 MW) of capacity and about 10% of output, but will make up 
only 4,242 MW or 5.4% of new incremental capacity in the 11th FYP. 
A large share of current natural gas fired power capacity is idle 
due to natural gas shortages.  Expected new offshore gas output from 
the Krishna Godavari basin is expected in the market by early 2009, 
but domestic and foreign producers remain concerned about getting 
common carrier access at transparent prices to natural gas pipelines 
and about future government control over gas allocation prices to 
final consumers. 
 
¶16.  (SBU) Nuclear power is now about 3% (4,120 MW) of capacity and 
about 3% of total output, with 3,380 MW planned for the 11th FYP or 
4.3% of the incremental increase.  Prospects for nuclear energy's 
growing share have improved with the progress on the U.S.-India 
Civil Nuclear Agreement. 
 
¶17.  (SBU) Wind power continues to have regional prospects, but is 
constrained by low load factors and the lack of substation 
facilities for evacuation of power. India now has the fourth largest 
installed wind power capacity in the world after Germany, United 
States, and Denmark.  Out of the total installed capacity of 
approximately 9,000 MW of grid interactive renewable power in India, 
wind power accounts for a major share - 7,028 MW (March 2007) or 
about 5.4% of total power capacity.  Estimates put India's wind 
power potential at 45,000 MW.  However, low load factors or capacity 
utilization factors averaging about 22% mean wind power contributes 
only about 2% of total power output. 
 
NEW DELHI 00004212  005.2 OF 005 
 
 
Load factors of 35% are being achieved in a few isolated cases with 
the use of high efficiency low speed wind machines, sub-transmission 
facilities and better synchronization with the typically unstable 
Indian grids. 
 
¶18.  (U) Visit New Delhi's Classified Website: 
http://www.state.sgov/p/sa/newdelhi 
 
MULFORD