VZCZCXRO8223
RR RUEHAST RUEHBI RUEHCI RUEHLH RUEHPW
DE RUEHNE #0721/01 0671028
ZNR UUUUU ZZH
R 071028Z MAR 08
FM AMEMBASSY NEW DELHI
TO RUEHC/SECSTATE WASHDC 0801
INFO RUEHCG/AMCONSUL CHENNAI 2588
RUEHCI/AMCONSUL KOLKATA 1898
RUEHLH/AMCONSUL LAHORE 4335
RUEHBI/AMCONSUL MUMBAI 1692
RUEHPW/AMCONSUL PESHAWAR 4793
RUEHIL/AMEMBASSY ISLAMABAD 4628
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 000721 
 
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 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 
USDA PASS FAS/OCRA/RADLER/BEAN/CARVER/RIKER 
 
E.O. 12958: N/A 
TAGS: EAGR EFIN EINV EPET ETRD SENV IN
SUBJECT: NEW DELHI WEEKLY ECON OFFICE HIGHLIGHTS FOR THE WEEK OF 
March 3-7, 2008 
 
NEW DELHI 00000721  001.2 OF 005 
 
 
¶1.  (U) Below is a compilation of Economic highlights from Embassy 
New Delhi for the week of March 3-7, 2008. 
 
REACTIONS TO GOI BUDGET MIXED 
AMONG AMERICAN COMPANIES IN 
SOUTH INDIA 
------------- 
 
¶2.  (SBU) The announcement of the GOI's budget on February 29 drew 
mixed reactions from some U.S. companies with major operations in 
South India.  Ford, for example, expects to lose market share 
because of changes in excise tax.  An executive at Ford's Chennai 
plant told Consulate Chennai that Ford's Fiesta model (considered a 
medium-sized car in the Indian market) would take a beating if 
exercise duties went up to 24 percent as envisaged in the budget. 
Small cars, he said, face only a 12 percent rate.  He said he feared 
that this difference would encourage potential customers to opt for 
high-end small cars, rather than make the jump to a medium-sized 
model.  Ford India's range has at present no model to cater to the 
small car market segment. 
 
¶3.  (SBU) Some IT companies, however, applauded the budget, in 
particular the proposals for increased spending on higher education 
and an increase in the number of elite Indian Institute of 
Technology- and Indian Institute of Science-type institutions across 
India.  An Intel India executive told Consulate Chennai that these 
policies would help ameliorate an expected shortage of highly 
skilled labor.  An IBM executive noted that the reduction in customs 
duties levied on certain components, like monitors, from 16 percent 
to 14 percent would help reduce costs. 
 
¶4.  (SBU) Not all IT companies were pleased.  A Dell executive told 
Consulate Chennai that the hike in duties on packaged software from 
8 percent to 12 percent would increase the prices of the computers 
it produces, since it loads the software onto the machines at its 
factory.  He also noted that he feared that this price increase 
would also encourage more software piracy. 
 
INDIA CONTRIBUTES MOST 
DRUG FILINGS TO FDA 
------------- 
 
¶5.  (U) According to the Business Standard, India made more drug 
master filings (DMFs) with the U.S. Food and Drug Administration 
(FDA) than any other country in the fourth quarter of 2007.  Of the 
187 total DMFs filed, India accounted for 89, versus fewer than 20 
from China.  India's Ranbaxy made 13 filings, while Aurobindo Pharma 
and Dr. Reddy's Laboratories made 10 each. 
 
EU-INDIA FTA ON HOLD 
----------- 
 
¶6.  (U) The Hindu reports that negotiations on a free-trade 
agreement (FTA) between the European Union (EU) and India are on 
hold and are unlikely to be completed by the original target of the 
end of this year.  The two sides had agreed to exchange proposals 
late last year, but the timing has been pushed back to at least 
April, when the EU hopes to have a ministerial meeting with India. 
The daily indicates that significant differences have arisen over 
intellectual property rights, competition policy, agriculture, 
public procurement, and market access. 
 
SAARC ACTIVE ON AGRICULTURE, 
TRADE IN GOODS, SERVICES 
------------------- 
 
¶7.  (U) India announced at a ministerial meeting of South Asian 
Association for Regional Cooperation (SAARC) countries this week 
that it will unilaterally reduce its negative list with respect to 
South Asia's four least-developed countries--Bangladesh, Bhutan, 
Maldives, and Nepal--from 744 to 500 items.  India also recommended 
 
NEW DELHI 00000721  002.2 OF 005 
 
 
that the number of items on the negative list of the South Asia Free 
Trade Agreement (SAFTA) be reduced to promote greater regional trade 
in goods. 
 
¶8.  (U) On the sidelines of the ministerial meeting, Pakistan's 
Commerce Secretary Syed Asif Shah told the press that Indian banks 
will soon be able to open branches in Pakistan and vice versa. 
SAARC members expect to convene an expert group to negotiate a 
broader framework for trade in services by June 2008. 
 
¶9.  (U) Another expert group of SAARC members is currently meeting 
(March 5-7) in New Delhi to promote science-based agricultural 
transformation in South Asia. 
 
UN REPORT: INDIAN PHARMACIES 
ARE  AN INCREASING   SOURCE OF 
UNREGULATED DRUGS 
------------- 
 
¶10.  (U) The UN International Narcotics Control Board's 2007 Annual 
Report released this week stated that pharmaceutical drugs 
manufactured in India are increasingly being diverted to Western 
countries, primarily via illegal Internet and mail-order pharmacies. 
 The report cites irregular drug regulation and enforcement as the 
leading causes.  India is the source for approximately 10% of the 
world's pharmaceutical materials. 
 
SURGE IN DISCOUNT RETAIL 
------------- 
 
¶11.  (U) The past few months have seen a sharp increase in Indian 
discount retailers. Discount retail currently accounts for Rs.11,880 
Cr., approximately 45% of the Indian retail market. An Economic 
Times estimate suggests it will grow to Rs.26,000 Cr. in the next 3 
years. Brand discount retailers typically offer 25-80% discounts 
year-round. 
 
TATA MOTORS SEEKS $3 BILLION 
FOR JAGUAR AND LAND ROVER DEAL 
------------- 
 
¶12.  (U) The Financial Times reported Wednesday that Tata Motors is 
seeking $3 billion in loans to fund its planned purchase of Ford 
Motor's Jaguar and Land Rover vehicles, exceeding the estimated $2 
billion purchase price. The company has assigned Citigroup and JP 
Morgan to arrange the financing.  Standard & Poor's said the auto 
deal would be "a large-scale acquisition for Tata Motors" and could 
possibly lower its current BB+ credit rating profile. 
 
MAHINDRA TO BUILD ASSEMBLY 
PLANT IN US 
------------- 
 
¶13.  (U) Automotive maker Mahindra & Mahindra plans to establish an 
assembly plant in the US for its utility vehicles.  The Hindustan 
Times reported that the company is in advanced talks with 3-4 
US-based companies for sites in the Midwest, making it the first 
Indian auto manufacturing plant in the US.  Mahindra Group 
president, Pawan Goenka, said that the company would maintain its 
core focus on SUVs, pick-up trucks, and multi-utility vehicles. 
 
GROWING PRESSURE TO KEEP 
OLD AIRPORTS OPEN 
-------------- 
 
¶14.  (U) A key Parliamentary Committee added to mounting public 
pressure from airlines, airline employees, and civic groups with a 
unanimous vote on Wednesday to keep the existing airports in 
Hyderabad and Bangalore open. Committee head and CPI(M) leader, 
Sitaram Yechury, said that the government should suitably amend the 
clause that facilitates closure of the existing airports. 
 
NEW DELHI 00000721  003.2 OF 005 
 
 
Hyderabad's new airport is scheduled to open on March 16 and 
Bangalore's in late March.  The existing airports are slated to be 
closed the day after operations in the new airports begin. Until 
now, the Aviation Ministry has been unwilling to modify the 2004 
agreement, fearing it would set a negative precedent for future 
investments. 
 
NEW AIRPORTS' HIGH USER FEES 
SPARK CONTROVERSY 
------------- 
 
¶15.  (U) Private airport developers in Bangalore and Hyderabad have 
proposed charging user development fees (UDF) of Rs.750 for domestic 
passengers and Rs.950-1,000 for international passengers. Low-cost 
airlines are strongly opposed to the high UDF and have indicated 
that they may reduce the number of flights from these locations, 
saying high fees would raise ticket prices by 33%-50%. The Civil 
Aviation Ministry has joined the debate, requesting that developers 
consider charging lower UDF for domestic travelers. 
 
CONNECTING ANDRA PRADESH ... 
ONE AIRPORT AT A TIME 
---------------------------- 
 
¶16.  (U) The southern Indian state of Andhra Pradesh is planning to 
develop eight regional airports, including in the cities of Bobbili, 
Nellore, Tadepalligudem, Ongole, Kurnool, Kothagudem, Nizamabad, and 
Ramagundam.  The state government will allocate land as its share of 
the project cost, with the remaining costs having to be borne by the 
developers.  Thus far, 37 companies have expressed an interest in 
the projects.  With the technical and financial bidding for the 
projects expected to be completed in the next three to four months, 
the regional airport development projects are likely to be awarded 
in September 2008.  the main bidders for the projects are Reliance 
Industries, Reliance Airport Developers, Maytas Infra, Unitech, 
IVRCL Infrastructure Limited, Lanco Infratech, GMR Infra, and the 
London-based Caparo Group. 
 
MAKING THE KINGFISHER-AIR 
DECCAN MERGER VIABLE 
------------------------- 
 
¶17.  (U) According to media reports this week, Kingfisher's launch 
of international routes is likely to be delayed, from the earlier 
proposed target of April/May 2008.  The Ministry of Civil Aviation 
(MOCA) has announced that international service can only begin after 
the merger of Kingfisher Airlines and Air Deccan is completed, which 
includes cancelling the license of the former airline.  This must 
take place before the new merged entity will receive the 
government's blessing for in-principle approval to fly overseas. 
Also, the new entity must obtain International Air Transport 
Association (IATA) membership, in addition to clearing a number of 
other formalities. Meanwhile, the UB Group, Kingfisher's parent 
company, is moving ahead with plans to cut operational costs of Air 
Deccan.  For example, it has urged the MOCA to allow Air Deccan to 
withdraw flights on some routes while also limiting frequency of 
flights on a few sectors in the upcoming summer schedule.  According 
to the new route plan submitted to the aviation authorities, Air 
Deccan wants to withdraw services on four sectors - 
Guwahati-Lilabari, Kolkata-Imphal-Dimapur, 
Kolkata-Agartala-Guwahati, and Delhi-Guwahati-Bagdogra.  The airline 
plans to reduce the frequency on the Kolkata-Guwahati-Imphal route 
from daily operation to four flights a week.  This is likely to 
raise some resistance from the government, which traditionally has 
prohibited airlines from withdrawing capacity on domestic sectors to 
launch overseas flights. 
 
INDIA EXTENDS TARIFF CONCESSIONS 
TO LDCS IN SOUTH ASIA 
-------------------------------- 
 
 
NEW DELHI 00000721  004.2 OF 005 
 
 
¶18.  (U) At the third South Asian Free Trade Agreement (SAFTA) 
Ministerial meeting on March 1-3, India declared its decision to 
prune the negative list from 744 to 500 items (list of items not 
covered under the free trade agreement for custom tariff purpose) or 
by almost 33 percent for the least developed countries (LDCs), 
including Bangladesh, Nepal, Bhutan, and Maldives (as well as 
Afghanistan after its accession formalities to SAFTA are complete), 
in the SAARC region.  These additional items from LDCs will now 
enjoy zero custom duty when entering the Indian market.  Commerce 
Minister Nath has said the move is aimed at expanding trade in goods 
within the region. 
 
¶19.  (U) Dr. Nisha Taneja at the Indian Council of Research on 
International Economic Relations (ICRIER) views the tariff 
concessions as an initiative to liberalize trade fully in the region 
and as a trendsetting gesture toward the LDCs, despite the fact that 
additional market access issues may not result in substantial gains. 
 Dr. R.U. Das of the Research and Information System for Developing 
Countries (RIS, a research organization on international trade, 
sponsored by the GOI) told ECON staff that India has already 
implemented its trade commitments made by Prime Minister Singh at 
the last SAARC Ministerial Summit in April 2007.  He further noted 
that India, being the biggest economy in the region, is expected to 
grant tariff concessions beyond the SAFTA forum to the smaller 
economies, without reciprocity, for better trade cooperation. 
 
¶20.  (U) As of January 1, 2008, India has reduced import duties to 
zero on all items other than those in the negative list for the 
LDCs.  Intra-regional trade among the SAARC countries currently 
stands at about $20 billion, which member countries aim to double by 
2011-2013.  Recognizing the importance of trade in services, SAARC 
members asked RIS to draft a SAARC Framework Agreement on Trade in 
Services under SAFTA.  The draft agreement has been completed and 
will be considered by member countries at the next meeting. 
 
DELHI TO HOST GLOBAL MEETING 
ON AGRO-INDUSTRIES 
-------------------- 
 
¶21.  (U) New Delhi will host the first global conference on 
agro-industries, organized by the Food and Agriculture Organization 
(FAO), the United Nations Industrial Development Organization 
(UNIDO) and the International Fund for Agriculture Development 
(IFAD), from April 8 to 11.  The conference will emphasize the role 
of agro-industries in economic development and poverty reduction, 
with particular focus on increasing agricultural productivity in 
low-income countries.  Organizers expect 500 senior representatives 
from the agro-industry, governments, technical and financing 
institutions, civil society, and UN agencies to attend and share 
ideas on opportunities, risks and challenges posed by rapid 
globalization, market liberalization, and urbanization. 
 
DLF FORWARDS AMBITIOUS 
DEVELOPMENT PLAN 
-------------- 
 
¶22.  (U) Real-estate titan DLF plans to invest USD 5 billion in 
building more than 75 hotels and 25,000 total rooms across India, 
beginning with 4000 rooms by 2010, when Delhi will host the 
Commonwealth Games.  Additionally, DLF intends to invest USD 2 
billion in serviced apartments and construct nine super-luxury 
hotels throughout India, among several other large projects.  The 
cost to build a five-star, high-quality hotel room, including the 
cost of land and facilities, is USD 100,000 to 125,000.  While 
critics feel DLF may fail due to India's lack of skilled architects 
and civil engineers, Goldman Sachs, DLF's investment bank, contends 
that DLF will be able to execute its ambitious plans because of 
superior management and strategic ties. 
 
POSSIBLE RELAXATION ON 
ENVIRONMENTAL CLEARANCES FOR 
 
NEW DELHI 00000721  005.2 OF 005 
 
 
INFRASTRUCTURE PROJECTS 
------------------- 
 
¶23.  (U) To expedite major infrastructure projects, the Ministry of 
Environment and Forests is contemplating exemptions from mandatory 
environmental clearances for modernization projects on airports and 
ports while continuing to require clearance for greenfield projects, 
though environmentalists have voiced concern that this would be a 
step backward for India's already weak environmental laws. 
Additionally, the GOI may require environmental consultants to 
register with the Quality Council of India (QCI) to prevent the 
filing of fraudulent reports to get clearances, but critics question 
whether the change will prevent fraudulent reports or simply create 
onerous paperwork.  Also, the GOI proposed a common set of standards 
across states to obtain state-level environmental clearance. 
 
ILO: MORE INDIAN WOMEN JOINING 
WORKFORCE, BUT OBSTACLES REMAIN 
------------------- 
 
¶24.  (U) According to "Global Employment Trends for Women," a new 
report by the International Labor Organization (ILO), the percentage 
of employed South Asian women working on farms fell from 74 to 60.5 
over the past 10 years.  Additionally, the percentage of women 
working in factories and mills rose from 11.2 to 18.4, and in 
services it rose from 14.7 to 21.1.  However, the percentage of 
women in "vulnerable" employment has not declined, with many of the 
newly obtained jobs in industry and services in the unorganized 
sector, with less pay and less security than women got before.  The 
report also shows that many South Asian women remain without jobs. 
Only 34 percent of working-age women have a job, compared to 78 
percent of working-age men, and women still suffer from wage 
discrepancies. 
 
¶25.  (U) Visit New Delhi's Classified Website: 
http://www.state.sgov/p/sa/newdelhi 
 
MULFORD