VZCZCXRO4235
RR RUEHAST RUEHBI RUEHCI RUEHDBU RUEHLH RUEHPW
DE RUEHNE #4336/01 2641223
ZNR UUUUU ZZH
R 211223Z SEP 07
FM AMEMBASSY NEW DELHI
TO RUEHC/SECSTATE WASHDC 8403
INFO RUEHCG/AMCONSUL CHENNAI 1523
RUEHCI/AMCONSUL KOLKATA 0872
RUEHLH/AMCONSUL LAHORE 4128
RUEHBI/AMCONSUL MUMBAI 0609
RUEHPW/AMCONSUL PESHAWAR 4647
RUEHIL/AMEMBASSY ISLAMABAD 3940
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 004336 
 
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 
17-21, 2007 
 
NEW DELHI 00004336  001.2 OF 005 
 
 
¶1.  (U) Below is a compilation of Economic highlights from Embassy 
New Delhi for the week of September 17-21, 2007. 
 
GOI ANNOUNCES REFUND OF 
SPECIAL ADDITIONAL DUTY 
FOR IMPORTS THAT PAY STATE VAT 
----------------- 
 
¶2.  (U) The Indian government on September 14 notified a refund 
facility with respect to the 4 percent special additional duty, also 
known as an "additional countervailing duty" (CVD), on VAT-paid 
imported items.  However, the responsibility to provide proof of 
state level VAT/sales tax payment lies with the importer.  US 
exporters of consumer goods, computers, video cameras and mobile 
phones may benefit from this measure.  The measure will put import 
traders on a par with domestic manufacturers who pay excise taxes 
and can set off the special CVD on imported products against the VAT 
on the final product.  Earlier, traders ended up paying tax twice -- 
Special CVD at 4 percent to the Federal govt., and again as VAT to 
the state government at the time of actual sales in the domestic 
market.  While this is a move in the right direction, the refund 
procedure involves some degree of bureaucratic discretionary power 
that in practice is likely to result in delays, documentation 
requirements, and expense for the importer.  Traders are also 
concerned that use of the term "sales tax" in the notice could 
result in alternative interpretations and disputes. 
 
RELIANCE IN THE MIDDLE 
OF RETAIL DEBATE 
-------------- 
 
¶3.  (U) Reliance Retail remains the central topic of discussion on 
the issue of organized retail, with even the company's first-year 
operating losses of USD 2.7 million receiving prominent coverage, 
though the early losses were predictable and are unlikely to affect 
further roll-out.  The press is also speculating as to Reliance's 
plans for Uttar Pradesh (UP) and West Bengal (WB), two states where 
Reliance has met particular opposition.  On Wednesday, the Business 
Standard reported that Reliance and other big retailers are forging 
ahead in both states.  Then on Thursday, an article in The Asian Age 
indicated that Reliance was likely to pull out of UP.  Interest in 
Reliance as the symbol of organized retail has peaked to a point 
that a news feature involving one small produce vendor, who says his 
daily turnover has shrunk from 2000 to 750 rupees since a Reliance 
Fresh opened nearby, made the front page of Monday's Business 
Standard. 
 
¶4.  (U) Complicating matters, organized retail foes new and old 
spoke out against Reliance and others this week.  WB Chief Minister 
Buddhadeb Bhattacharya told industry executives that he is against 
foreign involvement in grocery retail, saying, "We do not need 
foreigners to sell our vegetables."  He added that even large Indian 
retailers should not sell food grains.  In UP, where the deadline is 
approaching for the study on the impact of organized retail on small 
vendors asked for by Chief Minister Mayawati when she shuttered 
Reliance outlets in the state in response to protests, opposition 
leader Mulayam Singh Yadav announced his support of Mayawati's 
closure edict, saying it was for the good of farmers and traders. 
Bhartiya Jan Shakti President Uma Bharti led a demonstration against 
organized retail in Indore, Madhya Pradesh, symbolically placing a 
lock on the already-closed door of a Reliance Fresh, and said she 
planned further protests for Bhopal.  A traders' association in 
Uttarakhand protested against Reliance Retail's prospective entry 
into the state and promised further agitation if Chief Minister B. 
¶C. Khanduri ignores their memorandum demanding that Reliance be 
barred from entering.  In addition, the Rashtriya Vyapar Mandal, the 
traders' organization involved in the attacks on retail outlets in 
UP last month, announced plans for coordinated protests in the 
National Capital Region (NCR), Mumbai, and Ranchi, Jharkhand. 
 
¶5.  (U) As for foreign players, French retailer Carrefour is 
tentatively considering coming to India and has discussed 
 
NEW DELHI 00004336  002.2 OF 005 
 
 
partnerships with DLF, ADAG, and the Essar Group.  Press coverage 
indicates that Carrefour is still more cautious than Wal-Mart 
regarding compromising on the terms of a partnership and the nature 
of related outlets, which caused them to abort an earlier effort to 
tap India's retail market. 
 
¶6.  (U) The broader retail sector, meanwhile, is facing a crunch on 
available real estate, raising concerns about prospects for current 
and future stores.  The Economic Times reported that many fashion 
retailers are likely to close stores and abandon expansion plans as 
rental prices rise to as much as USD 30 per square foot per month. 
This is causing retailers to spend 25 to 30 percent of their total 
cost on rentals, versus a global average of 15 percent, with a 
shortage of space in many places yielding little hope for 
improvement in the near future.  While 16.3 percent of retail space 
is currently available in the NCR, the figure is just 0.3 percent in 
Bangalore and 0.8 percent in Hyderabad. 
 
IPR WORKING GROUP COVERS 
LITTLE GROUND 
-------------- 
 
¶7.  (SBU) The US-India working group on intellectual property rights 
met on Wednesday to discuss several outstanding IP-related issues. 
The Indian side, headed by Joint Secretary N. N. Prasad of the 
Ministry of Commerce and Industry, raised concerns about 
misappropriation of traditional knowledge and piracy of Indian music 
in the US but did not press for action or clarification of status. 
Prasad also expressed the GOI's belief that India should not be on 
the Special 301 priority watch list and asked for USG support on 
India's bid to become an International Searching Authority. 
 
¶8.  (SBU) The US side pushed, without success, for expected 
timelines on the GOI circular against book piracy, an updated 
copyright amendment, the enactment of an optical-disk law, a revised 
Mashelkar report on TRIPS-compliance issues related to the amended 
Indian Patent Act, and a response to Deputy USTR Bhatia's letter on 
US concerns regarding the data-protection measures suggested in the 
Reddy report.  In addition, Prasad was evasive on the transitional 
phase recommended in the Reddy report for data protection for 
pharmaceuticals, offering no clarity on how long the phase would 
last or whether there would be any data protection for 
pharmaceuticals during this phase.  Prasad did say that IP 
recordation at customs has already begun and covers trademark, 
though neither he nor his team knew whether copyright would be 
included in the system. 
 
¶9.  (U) Both sides expressed an interest in meeting face-to-face at 
the first opportunity, but there are no current plans for a 
delegation in either direction. 
 
BUILDING STRONG ECONOMIC 
PARTNERSHIPS 
------------- 
 
¶10.  (U) At the fourth annual Indo-US Economic Summit hosted by the 
Indo-American Chamber of Commerce (IACC) from September 18-20, there 
were several useful sessions on key economic sectors like retail, 
aviation, manufacturing, and infrastructure.  The Ambassador and 
Planning Commission Deputy Chairman Montek Ahluwalia gave inaugural 
addresses on the Indian economy and furthering the bilateral 
economic relationship.  The text of the Ambassador's speech is 
available on the Embassy website. 
 
BOOMING ECONOMY BUT 
EDUCATION NEEDS REFORM 
-------------- 
 
¶11.  (U) In his remarks, Ahluwalia highlighted the strong 
performance of the Indian economy, averaging 8.57 percent growth 
rate over the last four years.  For this year, he projects a rate 
between 8.5 to 9 percent with a target of 10 percent by 2011-2012. 
 
NEW DELHI 00004336  003.2 OF 005 
 
 
Following on the summit's theme of building strong partnerships, 
Ahluwalia highlighted how India's openness and integration offer 
tremendous opportunities for business.  Also, he stated, how a high 
savings rate over the last ten years has sustained an investment 
rate of 36 percent (as compared to 50 percent in China).  He also 
conceded that while India has advantages of a skilled workforce and 
management, there are pressures that manifest overtime - 
particularly education.  With India experiencing faster economic 
growth, Ahluwalia discussed how this adds to the scarcity of trained 
manpower.  The Planning Commission is working on an education 
strategy to expand opportunities and improve quality.  GOI hopes to 
double/triple the current number of 3 to 4 globally ranked 
universities in India. 
 
¶12.  (U) He also highlighted the strengths of India's soft power - a 
strong and healthy democracy.  He challenged the opinion of some 
business types who say it takes too long to make decisions in India 
and rather attributed this to the strength of the democratic 
process.  He also referred to a gradual social transformation in the 
villages where combined, they elect three million representatives of 
which one million are women. 
 
HOW TO FIX 
INFRASTRUCTURE 
--------------- 
 
¶13.  (U) Ahluwalia focused on another crucial area in India's growth 
strategy - infrastructure.  He said that, while other countries in 
Asia have moved ahead, India has fallen short of the needed 
investment in infrastructure.  The 11th five year plan highlighted 
that total investment in infrastructure is 5 percent of GDP, which 
the Planning Commission wants to increase to 9 percent of GDP in the 
next five years.  He compared the success that is possible in 
infrastructure with what India did in the telecommunications sector. 
 Ten years ago telecom was a publicly dominated, backward sector 
that, following liberalization, became an open, competitive sector 
that grew rapidly and is now one of the most dynamic in the world. 
He noted that the monthly addition of mobile phones in India now 
exceeds China (even though China is still ahead on higher 
penetration). 
 
ANSWER - INCREASE 
INFRASTRUCTURE SPENDING 
AND PROMOTE PPPs 
------------------ 
 
¶14.  (U) The infrastructure panel, chaired by IACC Infrastructure 
Committee head S. Chandrasekar, presented various business 
perspectives on roads, highways, ports, real estate, and project 
financing.  All panelists highlighted the critical need and 
opportunities for US know-how, technology, management, and financing 
in infrastructure development.  The chairman highlighted the IACC's 
11 recommendations to the GOI in April 2005, of which four have been 
implemented: most notably, the creation of a separate financial 
institution exclusively for financing infrastructure, the India 
Infrastructure Finance Company, Ltd. (IIFCL).  He stated that India 
spends USD 30 billion annually on infrastructure or 4.6 percent of 
GDP, but noted Ahuluwalia's target for GOI spending of 9 percent of 
GDP.  Chandrasekar added that the projection for spending on 
infrastructure development over the next five years has been raised 
to USD 430 billion. 
 
¶15.  (U) Chandrasekar touched on some key figures relating to roads, 
ports, and real estate.  He said that with 3.3 million kilometers of 
roads, India has the second-largest network in the world (after the 
United States).  However, at least USD 50 billion would be needed 
just for "four-laning" and "six-laning" existing roadways to meet 
increased demand.  In addition, he explained that 95 percent of the 
volume and 70 percent of the value of total foreign trade is handled 
by India's ports, with shipping being the cheapest delivery option. 
Over the next five years, public-private partnerships (PPPs) are 
expected to invest USD 11 billion in Indian ports.  As for real 
 
NEW DELHI 00004336  004.2 OF 005 
 
 
estate, Chandrasekar suggested that estimates of 95 to 110 million 
square feet of development needed by 2010 did not account for the 
booming retail industry.  Rather, he projected that, powered by 
organized retail, the total retail market would rise from USD 280 
billion per year to USD 1 trillion per year, requiring 200 million 
square feet of space for retail. 
 
¶16.  (U) Chandrasekar said that PPPs are the best way to move 
forward with infrastructure development, as the profit motive leads 
to better service and reduction in costs.  He  emphasized India's 
need for US technology and investment in this sector. 
 
INDIAN ROADS NEED US 
INVESTMENT AND EXPERTISE 
---------------- 
 
¶17.  (U) Dr. A. Ramakrishna, former President (Operations) & Deputy 
MD of Larsen & Toubro, said that India should strive for a road 
network like that of the United States and for that India would need 
healthy US cooperation.  He noted that 79 PPPs have been sanctioned 
by the National Highway Authority of India, of which 45 were on the 
BOT model and 20 on an annuity model.  He added that the Prime 
Minister has set a target of USD 150 billion of foreign investment 
in infrastructure, and wants closer India-US ties on infrastructure, 
a transparent regulatory structure, and an emphasis on PPPs.  He 
said that mega-projects should be executed solely by the GOI, with 
the possibility of handing over management to private companies 
thereafter. 
 
PORT DEVELOPMENT IS MAJOR 
THURST AREA FOR GOI 
---------------- 
 
¶18.  (U) Rakesh Srivastava, GOI Joint Secretary for Ports, said that 
port development is a "thrust area" and a  personal interest of the 
Prime Minister.  The central government manages India's 12 major 
ports, of which there are six on the east coast and six on the west. 
 These 12 ports handle 75 percent of India's total port traffic. 
There are also 200 state-run ports, 61 of which handle cargo.  The 
state-run ports currently handle 25 percent of India's overall port 
traffic, but the GOI has a goal of 50 percent by the end of the 11th 
five-year plan.  India's ports handled 649 million tons of cargo in 
2006, an increase of about 12 percent over the previous year. 
Srivastava said India's total capacity is expected to increase from 
737 million tons of cargo in 2006-2007 to 1.5 billion tons by 
2011-2012.  He said that all ports are open to operation by PPPs, 
and bids will be accepted on numerous construction projects as well. 
 He said they practice open, competitive bidding in two stages.  He 
also mentioned that the current model license agreement would be 
replaced by a model concession agreement by the end of 2007 and that 
soon tariffs would be fixed by the Tariff Authority prior to 
bidding.  Chandrasekar noted that while Dubai, Singapore, and 
Germany have been involved in port management in India, the US is 
not yet active. 
 
ON REAL ESTATE 
BET ON TOWNSHIPS 
-------------- 
 
¶19.  (U) Mr. Kok Huat Goh, CEO of TSI Ventures, which has a 50-50 
joint venture with ICICI Bank, India's largest private bank, said 
that despite bad press on the real-estate market, there are still 
tremendous opportunities in India, with good fundamentals for 
long-term improvement.  He said that much of the bad news stems from 
overdevelopment in a few areas.  In the next four or five years, Goh 
said, India will need approximately 20 million additional 
residential units.  In his view, the best opportunities are in 
development of townships rather than development of individual 
buildings, as the former allows a company to redefine the context 
for its units, but he noted that these larger developments require 
significant public involvement and negotiation of goals and terms. 
 
 
NEW DELHI 00004336  005.2 OF 005 
 
 
ALL ONBOARD THE 
INDIAN RAILWAYS 
--------------- 
 
¶20.  (U) Arun Chandran, Parsons Brinckerhoff's Business Development 
manager, spoke very broadly, offering relatively few insights on the 
situation specific to rail development.  He said that PPPs are the 
best model for rail development and mentioned the following factors 
that make rail development more complicated than road development: 
higher capital costs, higher operation and maintenance costs, the 
need for multimodal connectivity (as between subways and buses), and 
the continuing demands of safety, reliability and customer service. 
 
INFRASTRUCTURE FINANCING 
-------------- 
 
¶21.  (U) S. R. Bansal, Vice President of IIFCL, said that his 
organization has INR 3 billion in paid-up equity and can raise funds 
from private and multinational sources, including the World Bank and 
the Asian Development Bank.  They offer loans for up to 10 years to 
banks or directly for projects, with priority given to PPPs.  The 
IIFCL is currently helping to fund 64 projects in 19 states, with 
most projects based in Tamil Nadu and the most funding going to 
Gujarat and Maharashtra.  Bansal estimated that the IIFCL would give 
USD 3.7 billion on loans in FY 2008.  The organization has MOUs with 
19 banks and financial institutions, as well as a number of private 
companies.  They are a co-sponsor of a facility for Pooled Municipal 
Debt Obligations.  They have a Standard & Poor's rating of BBB-. 
 
FINANCING MODELS 
---------------- 
 
¶22.  (U) Sanjiv Aggarwal, Citibank's Director and Head of Power, 
Energy, Transportation and Metals & Mining, did not talk in depth 
about anything related to financing models, instead giving a general 
picture of the investment climate for infrastructure.  He cited a 
figure of USD 320 billion in coming infrastructure investment of 
which USD 64 to 100 billion would need to come from private sources. 
 Investors, he said, are now fairly comfortable with the political 
risks involved in India and are happy to take equity positions. 
Aggarwal said that international investors prefer to turn over their 
equity quickly, which may require India to modify its regulatory 
structure.  He added that infrastructure projects in India generally 
do return 18 to 25 percent on equity that PE funds are looking for. 
 
¶23.  (U) Visit New Delhi's Classified Website: 
http://www.state.sgov/p/sa/newdelhi 
 
WHITE