VZCZCXRO7326
RR RUEHAST RUEHBI RUEHCI RUEHLH RUEHPW
DE RUEHNE #0902/01 0881242
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R 281242Z MAR 08
FM AMEMBASSY NEW DELHI
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INFO RUEHCG/AMCONSUL CHENNAI 2708
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RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE

UNCLAS SECTION 01 OF 05 NEW DELHI 000902 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
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 24-28, 2008 
 
NEW DELHI 00000902  001.2 OF 005 
 
 
¶1. (U) Below is a compilation of Economic highlights from Embassy 
New Delhi for the week of March 24-28, 2008. 
 
UNSEASONABLE RAIN LEAVES 
SOUTH REELING 
------------------ 
 
¶2. (U) A spate of unseasonable rains from March 19 to 24 caused 79 
deaths and significant economic damage across South India, 
particularly in the agricultural sector.  About 4.5 inches of rain, 
well above the seasonal norm of 0.3 inches, fell across the region. 
In the state of Andhra Pradesh, the rains affected some 141,000 
acres, ruining many commercial crops like mangos, tobacco, peanuts, 
and legumes.  An official from the state's disaster management 
office told Consulate Chennai that the state government is still 
assessing total cost of the damage.  The rain damaged crops across 
some 69,000 acres of agricultural land in the state of Kerala (see 
Chennai 113), where the government told the press that losses may 
reach USD 45 million. 
 
¶3. (U) In the state of Karnataka, the downpour affected nearly 
400,000 acres of crops, including coffee, areca nuts, cashews, 
millet, corn, cotton, chilies, and vegetables.  An official in the 
Governor's office told Consulate Chennai that that state is 
expecting the arrival of a team from the central government to 
assess the official value of the damages.  He said, however, that 
preliminary estimates indicate losses of approximately USD 100 
million.  The state of Tamil Nadu's assessment teams recorded damage 
over an area of 500,000 acres with legumes, rice, and vegetables 
comprising the bulk of the affected crops.  Tamil Nadu also 
announced that it will give farmers a compensation package of nearly 
USD 70 per hectare on top of the central government's standard 
compensatory payments of USD 125 per hectare. 
 
DELL PLANS TO GO THE RETAIL 
ROUTE IN INDIA 
----------------- 
 
¶4. (SBU) Computer-maker Dell announced on March 21 that it plans to 
sell its computers in India through the Tata Group's Croma stores, 
an electronics retail chain.  Long known for its business model of 
eschewing retail outlets in favor of taking orders directly via the 
Internet and assembling machines to each customer's specifications, 
the move is in line with the company's new strategy in the United 
States, China, and Europe, where Dell computers are now also 
available in some retail outlets.  A spokesman for the company, 
which assembles laptops and desktops for the entire Indian market at 
a plant near Chennai, told our Consulate that the company is also 
considering launching its own chain of Dell retail stores to raise 
brand awareness in India.  She said that such outlets would also 
allow customers to interact with their products before purchasing, 
an experience not possible with Dell's Internet-only sales model. 
She also said that the company plans to launch a low-cost computer 
in the third quarter of this year. 
 
NEW HYDERABAD AIRPORT 
FINALLY TAKES OFF 
------------------ 
 
¶5. (U) Hyderabad's new airport began commercial operations on March 
23, a week later than originally scheduled (see Chennai 99 and 100). 
 A Lufthansa flight touched down just after midnight, marking the 
facility's official opening.  (By coincidence, two USG visitors from 
the Ex-Im Bank were on the inaugural flight.)  Media reports 
indicated that the facility's opening was marked by passenger 
complaints about delays, lack of transportation links to and from 
the city, and overly expensive coffee. 
 
GOI May Abolish Import 
Duty on Steel 
--------------- 
 
NEW DELHI 00000902  002.2 OF 005 
 
 
 
¶6.  (U) To check rising domestic steel prices, the Government of 
India (GOI) is considering the abolition of import duty on all 
grades of steel.  Steel prices in the international market are 
rising steeply.  According to the Indian Steel Alliance representing 
India's major steel producers, current domestic prices are about 
$950 per ton, about $50 more than international steel prices. 
During April 2007-February 2008, steel prices on an average 
increased 20 per cent in India.  In order to meet local demands, 
India imports 6.5 million tons of steel a year, less than 13 per 
cent of the domestic consumption of 51 million tons.  The domestic 
industry hit by rupee appreciation on one hand and increasing raw 
material prices on the other, has demanded elimination of import 
duty on steel inputs, and also bringing down the excise duty on 
steel.  The current tariff is about 5 per cent.  Industry analysts 
say without the duty, steel imports could rise to around 9 million 
tons.  The GOI is also concerned about the major inflationary impact 
of high steel prices, affecting the cost of automobiles, consumer 
durables and construction. 
 
¶7.  (U) The Indian Steel Alliance last month also sought fiscal and 
physical measures to contain exports of iron ore.  In response, 
Steel Minister Ram Vilas Paswan requested the Prime Minister's 
Office (PMO) to consider establishment of a regulator in the steel 
sector, impose a 10-percent export duty on steel and abolish import 
duty on all alloys.  While the proposals of setting up of a 
regulator and a 10-percent export duty on iron ore are reportedly 
unlikely to be approved, the Finance Ministry is seriously 
considering the elimination of import duty on steel.  The GOI has 
sought to use duty reductions as well in a bid to control rising 
palm oil prices.  The import duty on crude palm oil was slashed to 
20 percent from 45 percent, and on refined palm oil to 27.5 percent 
from 52.5 percent. 
 
HIGHLIGHTS OF INDIA'S SIXTH 
PAY COMMISSION REPORT 
---------------------- 
 
¶8. (SBU) The Sixth Pay Commission (SCP) on March 24 submitted to the 
government its long-awaited recommendations regarding pay increases 
for the four million plus central government employees, last done in 
¶1997. The Commission recommended average salary hikes of 40%. 
However, the effective rate of increase will only be around 28%, 
since the 40% increase includes formalizing a 50% dearness allowance 
increase that began in 2004.  The government's most senior 
bureaucrat, the Cabinet Secretary, would get the highest salary at 
$2250/month, while the minimum salary at the entry level has been 
put at $165/month. The salary hikes of the middle rung officers, 
such as directors and deputy secretaries, have been less generous 
and this class is already complaining. Due to hardships faced by 
defense personnel, the panel has put the military services' salaries 
on par with that of civilians, plus giving them special pay 
according to their hierarchy called "defense services pay". 
Additional allowances have been recommended for housing, education, 
and travel and these will be revised periodically to neutralize the 
effects of inflation. 
 
¶9.  (SBU) The Commission proposes that higher pay be linked to 
Performance Related Incentives for rewarding the top 20% of the high 
performers by way of a higher annual increase rate of 3.5% versus 
2.5% for the rest of employees.  Another notable feature of the SPC 
report is a proposal to ensure that India has a "young and dynamic 
bureaucracy with a result oriented approach" by creating additional 
senior technical/specialized posts which will be filled by 
contractual appointment from the private sector and from existing 
employees. This could end the monopoly of the top positions of 
Indian Administrative Services. The SPC suggests a market driven 
compensation package for young scientists and professionals. This 
implies that Chairpersons of regulatory bodies such as SEBI and IRDA 
will draw market linked salaries of up to $75,000 per annum. 
Retired people would be paid higher pensions, and even higher rates 
 
NEW DELHI 00000902  003.2 OF 005 
 
 
have been recommended for retirees age 80 and above. The panel also 
proposes a new work culture of fewer holidays, favors flexible 
working hours for women, a new medical insurance and more incentives 
for early retirement. 
 
¶10.  (SBU)  The SPC recommendations, which require Cabinet clearance 
before implementation, would result in an additional $3.2 billion 
cost to the government, which is lower than the Fifth Commission's 
payout of $4.3 billion and lower than expectations of $5 billion. 
This outlay will be shared by the central government and the 
railways.  The railway budget has already factored in a $1.3 billion 
provision for the pay hikes. The SPC hopes to save $1.2 billion of 
the $3.2 billion by reconfiguring the computation of pensions, 
leaving a net annual cost to the central government of $1.9 billion. 
 Given that the revision in salaries is with retrospective effect 
from January 2006, the cost of arrears to the central government 
works out to about $3 billion. 
 
¶11.  (SBU) The central government's extra obligation for the payhike 
and the arrears amounts to roughly 0.5% of GDP.  Finance Minister 
Chidambaram implicitly left room in the budget for the Pay 
Commission, since he projected revenue growth of 15% but expenditure 
growth of just 6%, as well as a deficit to GDP ratio of just 2.5%, 
against the government's target of 3.1%.  Chidambaram could also 
decide to pay the arrears in two years, rather than one, further 
cushioning the effect.  The government also plans to divest from 
half a dozen government owned companies by public offers and this 
could earn as much as $2 billion (more below).  Analysts opine that 
although the pay increases do not match the private sector salaries, 
they will add to the purchasing power of people and this will help 
to stimulate demand.  Comment: The Pay Commission's proposals are 
less than what were expected, and even less than the last Pay 
Commission proposals a decade ago.  If accepted as is, the pay hikes 
would do less damage than feared as the central and state 
governments are better positioned to absorb the higher cost than in 
¶1997.  However, since the pay raise is less than expected, political 
considerations may prompt the Cabinet to increase the pay raises, 
increasing the adverse impact on both the center and states' bottom 
lines.  End comment. 
 
GOVT MAY START UP 
DISINVESTMENT AGAIN 
-------------------- 
 
¶12.  (SBU) After a roughly two year freeze on privatizations, caused 
by resistance from the Left, the government has been signaling its 
intent to sell off 5% and 10% stakes in public sector companies. 
Such small sell-offs do not require parliamentary - and hence Left - 
approval.  The revenues would come in handy to help pay for the 
proposed $15 billion farm debt waiver program, as well as the 
expected hikes in government employee wages in as proposed in the 
just released Pay Commission report.  The Ministry of Finance first 
indicated its divestment plans on February 28, in a list of reforms 
in the Economic Survey.  The Ministry has now indicated it plans to 
sell off 5% stakes in MMTC, State Trading Corporation, Container 
Corporation, and Shipping Corporation of India, which could bring in 
as much as $2 billion. The government will need such additional 
revenues to help pay for both the government pay hikes and the 
farmer debt waiver program. 
 
CABINET APPROVES FARM 
WAIVER FUNDING 
------------------ 
 
¶13. (SBU) The government finally laid out its funding plans for the 
massive $15 billion farm debt waiver program announced February 29 
in the budget.  The Cabinet approved the establishment of a farmers' 
debt relief fund that will start with $2.5 billion, which the 
Ministry of Finance says it can provide from above-target revenues 
that came in during the last few months and were not otherwise 
allocated.  Further, the government will provide funding in four 
 
NEW DELHI 00000902  004.2 OF 005 
 
 
additional increments through 2011-12.  Under this plan, the cost to 
the government in the new fiscal year, which starts April 1, will be 
$3.75 billion. 
 
GOI TRYING TO SHIFT BLAME ON INFLATION 
-------------------------------------- 
 
¶14.  (SBU) Demonstrating how politically important the control of 
food prices is for the ruling UPA coalition, the Finance Minister 
and members of Parliament have in the last week taken to blaming the 
US' biofuel policy for high global commodity prices.  Finance 
Minister Chidambaram spoke out against the use of food crops, such 
as maize or sugarcane, for fuel at a lecture in Singapore this past 
week.  He claimed that the policy deprived a large proportion of the 
world's population of food at reasonable prices. Members of 
Parliament made similar strong comments to Emboffs this past week as 
well.  The remarks came soon after wholesale inflation jumped from 
5.11 to 5.92% in one week, above the central bank's comfort zone. 
The rise in food inflation was more modest, increasing from 5.2 to 
5.4%, but still at an uncomfortable level for the coalition.  The 
government also moved this past week to drastically cut the import 
duties on edible oils (usually in the 40-70% range), as well as 
removing the import duty on rice. 
 
INDIAN BANKS REDUCING INTEREST RATES 
-------------------------------- 
 
¶15.  (SBU) Press reports indicate that most of the public sector 
banks, including the State Bank of India, Bank of India, Bank of 
Baroda, Canara Bank, Union Bank of India and many others have 
lowered their benchmark prime lending rates (BPLR) and also their 
home loan rates in the past month. These banks have heeded a signal 
given by the Reserve Bank of India in its quarterly review last 
month -- as well as comments from Finance Minister Chidambaram -- to 
cut their lending rates to stimulate credit growth, considering that 
credit growth has moderated, leading to ample liquidity.  IDBI Bank 
also announced that it would reduce its BPLR by 50 basis points to 
12.75% from 13.25% with effect from April 1. This will bring down 
the banks' interest rates on retail and corporate loans that are 
linked to the prime lending rate.  This in turn should spur more 
demand for consumer durables, which has slowed in recent months. 
With the reduction in lending rates, banks are likely to reduce 
their deposit rates as well within the month as deposit growth has 
exceeded targets. 
 
 
 
INDIA TO SURPASS US 
IN WIRELESS MARKET 
------------------ 
 
¶16.  (U) India's telecom regulator, TRAI, has forecast that India 
will become the second-largest wireless market in the world after 
China by end-April.  India had 250.93 million wireless users by 
February-end, compared with 540.5 million users in China and 256 
million users in the US.  Additionally, India adds 8-9 million 
subscribers monthly compared to the U.S., which is adding 2-3 
million subscribers monthly.  At those rates, India is projected to 
surpass the US by end-April in total wireless users.  India's 
significant growth in wireless users is led by Bharti Airtel, 
followed by Reliance Communications and Vodafone Essar. 
Concomittantly, India is seeing a decline in the number of 
fixed-line subscribers. 
 
FICCI TO UNVEIL NEW STUDY ON 
INDIA'S PIRACY INDUSTRY 
--------------------- 
 
17.(U) The first Bollywood-Hollywood collaborative report on India's 
piracy industry will be unveiled during the annual Federation of 
Indian Chambers of Commerce and Industry (FICCI) Frames conference. 
 
NEW DELHI 00000902  005.2 OF 005 
 
 
According to the joint report by the US-India Business Council 
(USIBC) and the US Chamber's Global Intellectual Property Center, 
piracy and counterfeiting robbed India's USD 11 billion 
entertainment industry of approximately USD 4 billion, 40 percent of 
potential annual revenues, and around 820,000 jobs.  The new study 
illustrates the need for the GOI to implement stricter legislation 
and tougher policing of piracy and counterfeiting and a more 
cohesive strategy across industry segments.  According to the 
report, India's entertainment industry lost 38 percent of total 
potential sales from the illegal trade of CDs, DVDs, music 
downloads, and television, an increase from the 25-30 percent 
estimated loss last year.  In absolute numbers, the television 
industry was hardest hit with a loss of USD 2.7 billion compared to 
total potential earnings of USD 6.9 billion.  As a result of piracy, 
the film industry lost USD 959 million, 31 percent loss to the 
industry.  However, the music industry experienced the heaviest loss 
in terms of proportion of total potential revenues with a 64 percent 
loss of total revenues and a total profit of USD 183 million for 
corporations, which is significantly lower than potential revenues 
of USD 508 million.  Lastly, the gaming industry lost USD 40 million 
with revenues totaling USD 24 million.  Furthermore, the report 
estimates that the entertainment industry loses 820,000 jobs every 
year as a result of piracy- 571,896 jobs from the film segment and 
133,434 from music.  India's private sector increasingly creates 
intellectual property, raising its direct opportunity costs from 
piracy.  Studies such as these which demonstrate the costs of piracy 
may help in building support for IP protections. 
 
¶18.  (U) Visit New Delhi's Classified Website: 
http://www.state.sgov/p/sa/newdelhi 
 
MULFORD