VZCZCXRO8023
RR RUEHAST RUEHBI RUEHCI RUEHDBU RUEHLH RUEHPW
DE RUEHNE #4590/01 2851156
ZNR UUUUU ZZH
R 121156Z OCT 07
FM AMEMBASSY NEW DELHI
TO RUEHC/SECSTATE WASHDC 8802
INFO RUEHCG/AMCONSUL CHENNAI 1688
RUEHCI/AMCONSUL KOLKATA 1013
RUEHLH/AMCONSUL LAHORE 4162
RUEHBI/AMCONSUL MUMBAI 0772
RUEHPW/AMCONSUL PESHAWAR 4666
RUEHIL/AMEMBASSY ISLAMABAD 4024
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 004590 
 
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 EAGR SENV IN
SUBJECT: NEW DELHI WEEKLY ECON OFFICE HIGHLIGHTS FOR OCTOBER 8-12, 
2007 
 
 
NEW DELHI 00004590  001.2 OF 003 
 
 
¶1.  (U) Below is a compilation of Economic highlights from Embassy 
New Delhi for the week of October 8-12, 2007. 
 
---------------------------- 
ADB DISCUSSES INFRASTRUCTURE 
FINANCING NEEDS 
---------------------------- 
 
¶2.  (SBU) Econoff met October 12 with Ajay Sagar, Head, Private 
Sector and Financial Services Group, Asian Development Bank (ADB) 
India, and Arun Duggal, private equity consultant, to discuss 
India's infrastructure financing needs.  Saggar and Duggal estimated 
that the combined debt component of the government's $490 billion 
pricetag for infrastructure through 2012 and roughly $100 billion 
needed for low and middle income housing, was roughly $400 billion. 
Out of that, domestic financial institutions only held about $125 
billion that could be made available as domestic long term rupee 
debt funds.  That left a gap of roughly $275 billion in 
rupee-denominated long-term debt, they calculated. 
 
¶3.  (SBU) Sagar stated that the Ministry of Finance's Secretary for 
Financial Affairs, Vinod Rai, and the Joint Secretary for 
Infrastructure, Arvind Mayaram, has asked ADB to address part of 
this gap through the provision of currency swaps.  In this, ADB 
would provide the government of India a basket of rupees in exchange 
for dollars at an agreed upon exchange rate.  The swap would be 
repaid only after 20 years, and at the exchange rate determined at 
the beginning of the swap.  This places the cost of currency value 
change (likely rupee appreciation) on the ADB, rather than the 
central bank or local borrowers.  Sagar also claimed that Indian 
infrastructure companies (like Larsen & Toubro and NTPC), potential 
American investors in Indian infrastructure (like GE and 
Exxon-Mobil), and US financial service companies not yet in India 
(like PMI and MBIA), have also told ADB of their preference for 
currency swaps to enable their entry or expansion in India's 
infrastructure sector, since the swap removes the cost and or risk 
of currency change. 
 
¶4.  (SBU) Duggal and Sagar made one final point about the need for 
long term rupee-based financing options.  India's central bank, the 
Reserve Bank of India (RBI), is beginning to incur heavy financial 
costs associated with trying to neutralize the impact of surging 
dollar inflows. The RBI itself estimates it spent $16 billion in 
sterilizing capital inflows last fiscal year, roughly 40 percent of 
its operating budget.  The RBI sterilizes through the issuance of 
government bonds, which soak up the extra rupees injected into the 
domestic money supply when foreign capital enters the country.  In 
the past year, the government has quadrupled the ceiling on one of 
the principle bonds it issues for sterilization - the market 
stabilization scheme or MSS - to roughly $50 billion.  MSS bonds add 
to the fiscal deficit, imperiling the deficit reduction targets the 
government has set. 
 
¶5.  (SBU) Sagar said that Standard and Poor's told him that it is 
watching the MSS levels as a key determinant of India's rating, 
which S&P raised to investment grade last year because of success in 
fiscal deficit reduction.  Thus, India's investment grade rating is 
at risk as it attempts to rely on sterilization and lacks other 
options for substituting the inflow of dollars, such as currency 
swaps. 
 
---------------------------- 
DESPITE PROTESTS, CORPORATE 
RETAILERS MARCH ON 
---------------------------- 
 
¶6.  (U) Even though the largest protests yet against organized 
retail occurred in Mumbai on October 10 (septel), all of the major 
players appear essentially unfazed, and new corporates continue to 
join the fray.  Reliance Retail, Pantaloon, Subhiksha, and Spencer's 
have all decided to continue with their roll-outs, and the Business 
Standard reports that the companies together have current plans to 
 
NEW DELHI 00004590  002.2 OF 003 
 
 
open 2,500 stores across India.  The Aditya Birla Group is making 
its first foray into north India as well, opening two stores in 
Delhi on October 12.  Pantaloon boss Kishore Biyani, discussing his 
company's intention to invest USD 1 billion in retail outlets by 
2010, said that the key issue for protesters is fresh produce, not 
organized retail, per se.  Thus, Biyani does not see any cause to 
slow development of Pantaloon's stores, for which produce accounts 
for only 2 percent of total sales. 
 
¶7.  (SBU) In a conversation with Emboff, a Reliance representative 
acknowledged that produce was a central issue in retail protests. 
Although produce is their leading money-maker and offers the highest 
return per square foot, Reliance Fresh outlets will reduce the space 
dedicated to fruits and vegetables to help stem unrest.  (Comment: 
Reliance is currently the top seller of U.S. apples in India, so 
this is bad news from our perspective.  End Comment.) 
 
¶8.  (U) Nonetheless, Reliance has resumed its roll-out in Orissa in 
the face of further protests, though several news reports last week 
indicated that the company planned to withdraw from the state. 
Reliance also revealed that it will set up a subsidiary to handle 
the company's human-resources function, as Reliance plans to grow 
its 17,000-strong workforce to half a million by 2011.  Beyond its 
grocery venture, Reliance Retail secured the first exclusive 
distribution deal that Apple Inc. has ever made with a foreign 
company, according to the Economic Times. 
 
¶9.  (U) As familiar players dug in, new entrants into Indian retail 
continued to emerge.  Dutch retailer Spar closed a deal with the 
Landmark Group to set up a chain of big-box stores (note: presumably 
in a similar deal to Bharti-Wal Mart, where the foreign retailer 
provides backend wholesale support. End note).  In addition, the 
Economic Times reported Wednesday that DLF Retail is nearing a deal 
with Armani to sell and market the brand in India.  DLF, which is 
foremost a real-estate concern, has an increasing number of suitors 
in retail, as the scarcity and rising cost of retail space in India 
makes DLF's land-bank of over 13,000 acres all the more attractive. 
 
¶10.  (U) Two ministers from the GOI voiced careful opinions about 
retail this week, in the midst of political turmoil that observes 
are speculating could lead to mid-term elections.  Minister of State 
for Food Processing Industries Subodh Kant Sahai asked organized 
retailers to involve commission agents in their supply chains to 
reduce displacement.  Minister of Commerce and Industry Kamal Nath 
said that he believes retail legislation is a subject for the 
states, not the central government.  Regarding FDI, Nath said that 
the annual review of the GOI's FDI policy will yield no 
liberalization in the retail sector. 
 
--------------------------------------------- 
GOI TAKES GOOD STEPS ON INTELLECTUAL PROPERTY; 
GSK TAKES ONE FOR THE TEAM 
--------------------------------------------- 
 
¶11.  (U) The central government on Monday authorized the Madras High 
Court to exclude S. Chandrasekaran from the Intellectual Property 
Appellate Board that will review the rejection of Novartis' patent 
application for its leukemia drug Glivec.  Novartis had moved to 
have Chandrasekaran removed because he was Controller General of 
Patents in Chennai when the original application was rejected.  The 
Madras High Court has not yet announced whether it will remove 
Chandrasekaran from the Board. 
 
¶12.  (U) According to the Business Standard, the GOI is also 
considering tighter export restrictions for pharmaceuticals, 
including close scrutiny of the exporters themselves and limitation 
of outgoing pharmaceuticals to ports that have on-site facilities 
for drug testing.  The daily indicated that this move comes in 
response to the European Commission's having declared India the 
leading supplier of counterfeit drugs to the EU. 
 
¶13.  (U) GlaxoSmithKline, meanwhile, announced that it has withdrawn 
 
NEW DELHI 00004590  003.2 OF 003 
 
 
its patent application for its antiretroviral combination drug 
Trizivir, saying that the move was in the public interest and part 
of a routine review of the company's patent applications. 
 
--------------------------- 
TENDER FOR LARGE POWER 
FACILITY IN ANDHRA PRADESH 
--------------------------- 
 
¶14.  (U) The Indian Government's Power Finance Corporation plans to 
stop accepting bids by October 25 for a 4000-megawatt power plant at 
Krishnapatnam in southern Andhra Pradesh.  The facility plans to use 
imported coal and will have a dedicated port.  There are no reports 
of U.S. companies placing bids on the USD 6 billion project, but the 
size of the project may present opportunities for American companies 
to participate as sub-contractors, given the range of construction 
and management services necessary for implementation.  The chairman 
of Tamil Nadu's Electricity Board told Consulate Chennai that the 
project will help ease power shortfalls in both Andhra Pradesh and 
northern Tamil Nadu. 
 
--------------------- 
CHENNAI TOPS EMERGING 
OUTSOURCING HUBS LIST 
--------------------- 
 
¶15.  (U) Cyber Media's Global Services Magazine and investment 
advisory Tholons recently published its "Top 50 Emerging Outsourcing 
Cities" study, which ranked Chennai as the best location for 
outsourcing operations.  Hyderabad was rated as the second-best 
location with Pune ranked third.  The report cautions, however, that 
the rapidly rising wages and office space costs in India's big 
cities threaten to allow the country's smaller cities, which have 
more affordable cost structures, to dethrone the current leading 
locations. 
 
--------------------------- 
SOUTH INDIAN RICE EXPORTERS 
HIT BY EXPORT BAN 
--------------------------- 
 
¶16.  (SBU) A shortfall in the procurement of rice for the public 
distribution system has prompted the Indian government to ban the 
export of non-basmathi rice, damaging South India's rice exporters, 
who usually export these varieties to western and south-east Asia. 
The president of the Federation of Rice Mill Owners and Paddy-Rice 
Dealers Associations told Consulate Chennai that his members had 
already procured approximately 100,000 tons for export, and that 
government fears of a shortfall were misplaced.  He added that the 
government's actions threatened not only his members' pocketbooks, 
but also their credibility as dependable business partners with 
their foreign customers. 
 
¶17.  (U) Visit New Delhi's Classified Website: 
http://www.state.sgov/p/sa/newdelhi. 
 
MULFORD