VZCZCXRO0556
RR RUEHAST RUEHBI RUEHCI RUEHLH RUEHPW
DE RUEHNE #1092/01 1081107
ZNR UUUUU ZZH
R 171107Z APR 08
FM AMEMBASSY NEW DELHI
TO RUEHC/SECSTATE WASHDC 1367
INFO RUEHCG/AMCONSUL CHENNAI 2790
RUEHCI/AMCONSUL KOLKATA 2089
RUEHLH/AMCONSUL LAHORE 4394
RUEHBI/AMCONSUL MUMBAI 1900
RUEHPW/AMCONSUL PESHAWAR 4834
RUEHIL/AMEMBASSY ISLAMABAD 4802
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 001092 
 
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 
APRIL 14-17, 2008 
 
NEW DELHI 00001092  001.2 OF 003 
 
 
¶1.  (U) Below is a compilation of Economic highlights from Embassy 
New Delhi for the week of APRIL 7-11, 2008, including the following 
items: 
-- FOREIGN TRADE POLICY ANNUAL REVIEW FOCUSES ON 
   FIGHTING INFLATION 
-- PM SKEPTICAL OF DEVELOPING BIOFUELS IN INDIA 
-- 787 DREAMLINER ORDER DELAYS IMPACT INDIAN CARRIERS 
-- INDIA PARTNERS WITH IRAN ON RUSSIA RAIL LINK 
 
-- TOYOTA WILL INVEST 352 MILLION IN INDIA 
-- AAI SHORTLISTS SIX COMPANIES FOR MODERNIZING CHENNAI 
   AND KOLKATA AIRPORTS 
-- DIAL WILL INVEST 7.5 BILLION IN DELHI AIRPORT 
-- DGCA PLANS TO PHASE OUT FOREIGN PILOTS 
 
FOREIGN TRADE POLICY 
ANNUAL REVIEW FOCUSES ON 
FIGHTING INFLATION 
-------------------- 
 
¶1.  (U) Seeking to address concern over rising food prices and the 
past year's appreciation of the Indian rupee against the dollar, 
Commerce Minister Kamal Nath on April 11 reinforced (we already 
reported these bans in the April 3 highlights) a ban on the export 
of non-basmati rice, edible oil and pulses at the launch of the 
annual supplement to the Foreign Trade Policy 2004-09 (FTP).  In 
view of the election year, the UPA government has accorded priority 
to measures that may fight inflation.  With the backdrop of rising 
prices of some essential commodities and a slowdown in the 
manufacturing sector, the fourth annual supplement to the FTP 
focuses on agriculture and labor intensive sectors.  Significantly, 
the new policy withdrew incentives under an export promotional 
scheme for Basmati rice, cement, and primary steel items.  As one of 
the many measures to fight inflation, the GOI is also considering 
banning all steel exports, and a decision is expected soon after the 
meeting of the Cabinet Committee on Prices. 
 
¶2.  (U) Citing average annual Indian export growth of 23 percent in 
the last four years, which exceeded expectations, Minister Nath set 
a long-term target of $1.6 trillion in exports by 2020.  This target 
would see India's share of global trade reach 5 percent in 2020 from 
1.5 percent currently, and create an additional 10 million jobs in 
the country's export sector.  Overall exports from India stood at 
$155 billion in Indian fiscal year (IFY) 2007-08, and the target for 
the current fiscal year is $200 billion.  India's total trade 
(exports and imports) in goods and services is now equivalent to 
more than 40 per cent of its GDP.  Nath, in his speech, noted the 
important role of the Special Economic Zones (SEZs) as vehicles of 
industrialization and employment generation by the GOI. 
 
¶3.  (U) The 2008 annual supplement to the FTP also announced some 
incentives for the export community, including a duty reduction to 3 
percent from 5 percent for capital goods imported under the Export 
Promotion Capital Goods scheme (EPCG is an export incentive scheme 
that seeks to modernize production facilities); and sector-specific 
incentives in farm products, toys/sports goods, gems/jewelry, IT 
hardware and telecommunication sectors.  In addition, the last 
supplement to the FTP expiring March 31, 2009, included measures 
aimed at further rationalization of procedures and on-line 
facilities to reduce transaction costs.  The GOI on April 1, 2008 
already extended the Duty Entitlement Pass Book (DEPB) Scheme (an 
export subsidy that reimburses basic and special customs duty paid 
by an exporter on an imported input) for one year. 
 
¶4.  (U) Comment: The latest supplement to the five year FTP consists 
mainly of tweaks and adjustments to various incentives and schemes 
with a goal of reining in burgeoning inflation.  Although the FTP 
supplement unveils ambitious export targets, it is clear that 
inflation has become a top priority of the GOI as it begins to 
prepare for elections within the next year.  Post will report septel 
on additional steps the GOI is taking to deal with its top priority 
 
NEW DELHI 00001092  002.2 OF 003 
 
 
of inflation.  End comment. 
 
PM SKEPTICAL OF DEVELOPING 
BIOFUELS IN INDIA 
------------------- 
 
¶5.  (U) Reports this week indicate that Prime Minister Manmohan 
Singh is not comfortable with GOI policy options under consideration 
that could pave the way for the large-scale conversion of cropland 
into land for biofuel crop production.  Recent worries about food 
supply management have deepened the PM's unease over developing 
biofuels to meet the challenge of growing energy demand.  India has 
become a net importer of food and, according to an unidentified 
official in the PMO, until its domestic farm bottlenecks are 
cleared, it will need to import food grains regularly.  In this 
context, the optics of diverting land to biofuel production would be 
politically damaging. 
 
787 DREAMLINER ORDER 
DELAYS IMPACT INDIAN CARRIERS 
------------------------ 
 
¶6.  (U) Boeing executives are in India this week meeting with Air 
India, in part to discuss compensation (as specified in the purchase 
agreement) for the delays to 787 deliveries.  Air India has 
announced that the company will take a financial hit since the new 
787s were planned to phase out some of the leased and older aircraft 
in its fleet.  Jet Airways has also announced similar plans to seek 
compensation from Boeing.  On April 9, Boeing announced delays for 
its first flight and initial deliveries of the 787 Dreamliner due 
to, according to the company's press release, "slower than expected 
completion of work that traveled from supplier facilities into 
Boeing's final assembly line, unanticipated rework, and the addition 
of margin into the testing schedule."  The revised timeline includes 
a first 787 flight in the fourth-quarter of 2008, with 787 
deliveries to begin in the third-quarter of 2009.  Current 
production plans now target approximately 25 787 deliveries in 2009; 
though, it remains unclear how many of which will go to Indian 
carriers Air India and Jet Airways. 
 
INDIA PARTNERS WITH IRAN 
ON RUSSIA RAIL LINK 
-------------------- 
 
¶7.  (U) India and Iran have signed an agreement to establish a new 
rail link between Iran and Russia.  The agreement allows for greater 
cooperation with the International Union of Railways, a global body 
that facilitates trans-national rail linkages.  Indian and Iran 
signed a Memorandum of Understanding (MOU) between the Indian 
Railway Board and Iran's Railway Company to permit technical 
training of personnel, railroad signalling projects, and supply of 
locomotives and spare parts.  A possible rail link between Iran and 
Russia will expand the North-South corridor.  The MOU also plan to 
construct a new track to connect Iran's strategic port of Chabahar 
with the city of Fahrej in central Iran, which will complement the 
proposed road link between Chabahar and Afghanistan.  This proposed 
corridor could become a gateway for trade with Central Asia.  In 
terms of other cooperation, Iran has sought India's expertise and 
assistance in modernizing its railway system. 
 
TOYOTA WILL INVEST 
352 MILLION IN INDIA 
--------------------- 
 
¶8.  (U) Toyota Kirloskar Motor (TKM), the Indian arm of the world's 
second largest automaker Toyota Motor Corporation of Japan, plans to 
invest USD 352 million to build a second car plant at Bidadi, near 
Bangalore adjacent to the existing plant. Toyota now joins the 
league of global companies like Suzuki, Hyundai, General Motors, and 
Ford Motors who have increased their manufacturing presence in India 
in the last few years.  The new plant will begin operations in 2010 
 
NEW DELHI 00001092  003.2 OF 003 
 
 
and will be the base for the new "strategic small car," as well as 
passenger vehicles like the Corolla.  TKM plans to increase its 
current manufacturing capability from 63,000 units per year to an 
initial annual production of around 100,000 vehicles.  Toyota is 
hoping to capture 15 percent of the Indian car market by 2010, from 
its current share of less than five percent, with the introduction 
of the small car. 
 
AAI SHORTLISTS SIX COMPANIES 
FOR MODERNIZING CHENNAI 
AND KOLKATA AIRPORTS 
---------------------- 
 
¶9.  (U) The Airports Authority of India (AAI) has short listed six 
companies for the government led airport modernization of Chennai 
and Kolkata airports, valued at USD 955 million.  According to media 
reports, this includes companies like ITD (Hong Kong), Ssangyong 
(Malaysia), M/s TAV Tepe Akfen (Turkey), Larsen & Toubro (India), 
and Louis Berger Group (US; as project management consultants).  The 
foreign company bidders have Indian partners for their airport JVs. 
The Kolkata airport modernization has received pre-Public Investment 
Board (PIB) clearance but awaits final PIB and CCEA approvals. 
Chennai has not received any of the above three clearances.  Civil 
Aviation Minister Patel has urged that work commence soon on both 
airports to meet the target 2010-2011 deadline. 
 
DIAL WILL INVEST 7.5 BILLION 
IN DELHI AIRPORT 
----------------------- 
 
¶10.  (U) The Delhi International Airport Ltd (DIAL) will invest USD 
7.5 billion to add four new terminals (from the existing two) and 
build a fourth runway by 2026 at Delhi Airport.  With the company 
targeting passenger handling capacity of 100 million per year by 
2026, they have revised their master plan to include the increased 
investment.  The expansion will be done in phases with the third 
terminal being completed by 2010 to handle 60 million passengers per 
year.  After that, a new terminal will be added every five years up 
until 2025.  Terminal 3 is expected to have 55 aerobridges and 30 
remote parking bays to handle passenger traffic.  The fourth runway 
will roll out in 2021 and DIAL plans to commission the third runway, 
amongst the longest in Asia and capable of handling Airbus 380 
aircrafts, in the next 4-5 months.  DIAL is also planning to 
straighten the existing secondary runway, which is converging into 
the existing runways, with hopes of having two sets of parallel 
runways by 2021. 
 
DGCA PLANS TO PHASE OUT 
FOREIGN PILOTS 
-------------------- 
 
¶11.  (U) Given the acute shortage of trained pilots, various Indian 
airlines have employed nearly 1,000 foreign pilots, according to the 
government.  However, the Directorate General of Civil Aviation 
(DGCA) recently announced plans to phase out foreign pilots and 
replace them with trained Indian pilots in approximately five years. 
 At the same time, the government reiterated existing plans to 
increase the supply of skilled Indian pilots, including: 
-- conditionally increasing the age-limit to 65 years for pilots; 
-- upgrading and modernizing training infrastructure of the Indira 
Gandhi Rashtriya Uran Akademi to boost capacity from 40 to 100 
pilots per year; and 
-- establish a world class flying training institute at Gondia, 
Maharashtra to train 100 cadets and assist flying clubs by 
allocating trainer aircraft through the DGCA and Aero Club of 
India. 
 
¶12.  (U) Visit New Delhi's Classified Website: 
http://www.state.sgov/p/sa/newdelhi 
 
WHITE