VZCZCXRO2084
RR RUEHAST RUEHBI RUEHCI RUEHLH RUEHPW
DE RUEHNE #0982/01 0941105
ZNR UUUUU ZZH
R 031105Z APR 08
FM AMEMBASSY NEW DELHI
TO RUEHC/SECSTATE WASHDC 1214
INFO RUEHCG/AMCONSUL CHENNAI 2742
RUEHCI/AMCONSUL KOLKATA 2042
RUEHLH/AMCONSUL LAHORE 4377
RUEHBI/AMCONSUL MUMBAI 1848
RUEHPW/AMCONSUL PESHAWAR 4821
RUEHIL/AMEMBASSY ISLAMABAD 4757
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 04 NEW DELHI 000982 
 
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 31 - April 3, 2008 
 
REF:  New Delhi 902 
 
NEW DELHI 00000982  001.2 OF 004 
 
 
¶1.  (U) Below is a compilation of Economic highlights from Embassy 
New Delhi for the week of March 31-April 3, 2008, including the 
following items: 
--MCDONALD'S OPENS ITS FIRST OUTLET IN CHENNAI 
--WIPRO RAMPS UP CHENNAI OPERATIONS 
--GOA TO HAVE LARGEST OFFSHORE CASINO 
--PLANNING COMMISSION'S FOCUS ON FINANCIAL SECTOR 
--BUREAUCRATIC CHANGES AT THE MINISTRY OF FINANCE 
--FOREIGN BORROWING BOOSTS EXTERNAL DEBT 
--INFRASTRUCTURE FIRMS SHOW INTEREST IN AP REGIONAL AIRPORTS 
-- SURGE IN INFLATION PUTS GOVT ON WAR FOOTING 
 
MCDONALD'S OPENS ITS FIRST 
OUTLET IN CHENNAI 
------------------ 
 
¶2.  (U) Chennai's first McDonald's opened on April 2, and Chennai 
Consulate officers cut the opening ribbon and consumed the 
restaurant's first french fries and Maharaja Macs.  The outlet, 
located in a food court in an information technology park near the 
American International School, can serve more than 1200 meals per 
day.  The head of McDonald's India Corporate Affairs and Franchise 
Relations relations office told Consulate Chennai that the company 
plans to ramp up rapidly the number of outlets in the city, and 
promised that Chennai's second McDonald's would open in 
approximately six months.  That facility, he said, would be a 
stand-alone restaurant, in contrast to the current outlet, which 
stands along side a KFC, Subway, and a few local restaurants. 
McDonald's plans to supply its Chennai outlet through its central 
warehousing facility in Bangalore until the there are enough outlets 
in Chennai to justify a Chennai warehouse.  McDonald's could start 
sourcing some of its supplies in the area if demand from the 
restaurants was enough to make this viable. 
 
¶3.  (U) In a good example of corporate social responsibility and a 
clever PR move, the new McDonald's auctioned off it first vegetarian 
burger, gaining Rs. 400,000 for charity.  The winning bid came from 
Saravana Bhavan, a Chennai-based chain of popular South Indian 
vegetarian restaurants.  Saravana Bhavan has followed the McDonald's 
model by opening branches to feed dosa and idli-hungry Indian expats 
in the Gulf countries, Canada and the U.S. 
 
WIPRO RAMPS UP CHENNAI OPERATIONS 
--------------------- 
 
¶4.  (U) Bangalore-based IT giant WIPRO announced on March 28 plans 
to expand its Chennai operations.  The company acquired a total of 
170 acres of land at two locations in the city, which should be able 
to accommodate 35,000 employees.  A top WIPRO official told 
Consulate Chennai that WIPRO had enjoyed 40 to 50 percent growth in 
the domestic market with the telecom, financial, retail and 
petroleum sectors being the main drivers.  The domestic market, he 
continued, contributes 18 percent of the company's revenues.  Some 
of the largest business deals that his business unit secured during 
the past month were from domestic firms, he added. 
 
GOA TO HAVE LARGEST OFFSHORE CASINO 
----------------------------- 
 
¶5.  (U) Press reported that Highstreet Cruises and Entertainment 
Pvt. Ltd. is getting set to launch Casino Royale on Goa's Mandovi 
River in May, avoiding India's ban on gambling by being located 
offshore. Casino Royale will be located on a ship which will feature 
rooms and suites to accommodate guests. Jaydev Mody, Highstreet 
Cruises director, stated that the casino will be all-inclusive with 
slot machines, restaurants, entertainment areas and live music. In 
the next seven to eight months, Goa plans to construct four other 
offshore casinos as the state government tries to lure Indian 
gamblers back to India from Nepal where casinos have been legalized. 
 
NEW DELHI 00000982  002.2 OF 004 
 
 
Goa's economy is highly dependent on tourism and the state 
government is hoping that granting five offshore casino licenses 
will further boost tourism. Currently, Goa has one offshore casino, 
Casino Goa. Bharatiya Janata Party (BJP)'s government decision to 
permit casinos to operate in Goa when gambling is illegal in all 
other states in India has prompted criticism from the Congress 
Party.  (Note: The Congress Party was the first to allow gambling in 
Goa, when in 1992, it amended the Goa Public Gambling Act to allow 
slot machines in five-star hotels.  Later, table games were 
permitted offshore, during the tenure of Congress chief minister 
Pratapsingh Rane.  The BJP opposed these developments at the time. 
Nevertheless, after coming to power in Goa, BJP chief minister, 
Manohar Parrikar granted a license for Casino Goa to commence 
operations. End Note.) 
 
PLANNING COMMISSION'S FOCUS 
ON FINANCIAL SECTOR 
--------------------- 
 
¶6.  (SBU) Press reports provided highlights on April 3 of a new 
Planning Commission report on the services sector, which recommends 
financial sector liberalization supportive of the government's 
commitment towards reforms.  Most of the measures have already been 
debated for the past four years by the UPA government but have not 
been implemented due to the Left party's opposition. Some of the key 
recommendations suggested by the Planning Commission panel for the 
banking sector include abolition of bank branch licensing, a gradual 
reduction in the statutory liquidity ratio requirement for banks 
from the current 25% and phasing out of directed priority sector 
lending by banks.  Consolidation in the banking sector, particularly 
in mid-sized public sector banks, is emphasized to "leverage the 
synergistic benefits" and to avoid duplication of investments in 
technology and other infrastructure. The panel asks the government 
to reduce its equity in public sector banks to 33% from the current 
51% so that banks can raise capital. 
 
¶7.  (SBU) The panel also recommends that foreign investors be 
permitted to hold 49% equity in domestic insurance firms, up from 
the current 26%.  Pension and provident funds should be allowed to 
diversify their investment portfolios from the current excessive 
share of government securities to various categories of corporate 
debt, securitized paper and equity investments. On asset management, 
the panel recommends that the regulations governing venture capital 
and private equity funds need to be rationalized to help 
institutional investors like banks, insurance companies and pension 
funds to invest in this segment. For financial markets, the report 
recommends that the debt capital market and securitization market 
should be developed through affordable and uniform levels of stamp 
duty and listing of securitization paper.  Comment: Like the recent 
reform suggestions in the Ministry of Finance (MOF)'s Economic 
Survey, many of these changes are supported by the MoF and Prime 
Minister Singh, but have been stymied by the Left. Also like the 
Economic Survey, the new report's recommendations indicate the 
direction the UPA's reformers would like to go, if allowed. End 
comment. 
 
BUREAUCRATIC CHANGES AT THE 
MINISTRY OF FINANCE 
-------------------- 
 
¶8.  (SBU) Effective April 1, Ms. Sushma Nath has been appointed the 
new Expenditure Secretary at the Ministry of Finance, succeeding 
Sanjiv Mishra. Nath, 57, is an Indian Administrative Services 
officer of the 1974 batch from the Madhya Pradesh cadre. Prior to 
that, she held the prestigious post of Secretary of the Sixth Pay 
Commission, which recently submitted its recommendations for salary 
hikes for the central government employees.  Nath is expected to 
draw on her first-hand knowledge of the Sixth Pay Commission survey 
results to implement the recommendations in her new position.  She 
has held many senior assignments in her cadre state of Madhya 
Pradesh. At the central level, Nath worked in a number of important 
 
NEW DELHI 00000982  003.2 OF 004 
 
 
positions including as Additional Secretary in the Ministry of 
Agriculture and Joint Secretary at the Ministry of Consumer Affairs, 
Food and Public Distribution and at the Department of Disinvestment, 
Ministry of Finance. Ms Nath holds graduate degrees in law and in 
chemistry and physics. 
 
¶9.  (SBU) On April 1, Vivek Mehrotra took over as the new Secretary 
of the Department of Disinvestment of the Ministry of Finance, 
relieving Finance Secretary Subba Rao of the additional charge he 
had held since P.V. Bhide was appointed as the revenue secretary 
last year.  Mehrotra, 57 years old, is an Indian Administrative 
Services officer of the 1974 batch from the Haryana cadre.  Prior to 
this position, Mehrotra was working as Special Secretary and 
Financial Adviser at the Ministry of Home Affairs.  He has served in 
many key positions in his cadre state such as Finance Secretary and 
Principal Secretary (Fisheries). Mehrotra has worked as Additional 
Secretary at the Ministry of Finance, Ministry of Consumer Affairs, 
 
SIPDIS 
Food and Public Distribution and the Ministry of Home Affairs. He 
holds postgradate degrees in economics and political science. 
Filling the position adds to the government's signals that it 
intends to start the disinvestment process in public sector 
companies (reftel). 
 
FOREIGN BORROWING BOOSTS 
EXTERNAL DEBT 
--------------- 
 
¶10.  (SBU) A recent Ministry of Finance's report on India's external 
debt indicates that the country's outstanding external debt rose to 
$201.4 billion at end December 2007 compared with $169.7 at end 
March 2007.  The rise in external debt was mainly due to corporate 
borrowings (through external commercial borrowings or ECBs), 
short-term debt and rupee appreciation.  However, India's foreign 
exchange reserves at the end of 2007 provided a cover of 137% to the 
total debt, totaling $275 billion (as of March, reserves had risen 
to roughly $300 billion). Long-term debt accounted for 82.6% of the 
foreign debt during April-December 2007.  The share of government 
debt in total external debt at end December 2007 stood at just $53 
billion, while private debt was $148.5 billion. The report says that 
the GOI continues to follow a cautious policy to maintain its 
external debt within reasonable limits with a focus on raising 
sovereign loans at concessional rates with longer maturities, 
pre-paying high cost loans, regulating foreign borrowings, 
rationalizing NRI interest rates on deposits, monitoring short-term 
debt and encouraging non-debt creating capital flows.  SEBI contacts 
told Econoff in January that the RBI was averse to raising the cap 
on foreign debt in India's private and public debt markets in order 
to prevent higher debt levels.  The government also maintains a 
yearly cap on ECBs. 
 
INFRASTRUCTURE FIRMS SHOW INTEREST 
IN AP REGIONAL AIRPORTS 
------------------------ 
 
¶11.  (U)  In response to a state government tender to develop eight 
regional airports in the state of Andhra Pradesh, as many as 37 
infrastructure firms have put in bids.  The regional airports in 
Andhra would help further economic growth within the state and meet 
growing demand for quick transportation.  India currently has 80 
fully functional airports equipped to handle commercial, charter, 
and defense flights.  Of these, 24 major airports together account 
for 94 percent of total air traffic, with remaining traffic shared 
by smaller or regional airports.  Each of the planned regional 
airports will have a 2500 meter runway to accommodate small aircraft 
and will require an investment of around one billion rupees ($25 
million) each. Industry estimates it could take two years from date 
of award to completion of a project.  Companies that have shown 
interest in developing the airports include the UK-based Caparo 
Group Ltd, GMR Infrastructure Ltd, Lanco Infratech Ltd, IVRCL 
Infrastructures and Projects Ltd, Maytas Infra Ltd, Mukesh 
Ambani-promoted Reliance Industries Ltd, Anil Ambani-led Reliance 
 
NEW DELHI 00000982  004.2 OF 004 
 
 
Airport Developers Pvt. Ltd, Unitech Ltd and Hindustan Construction 
Co. Ltd.  Project awards are anticipated in September 2008. 
 
SURGE IN INFLATION PUTS 
GOVT ON WAR FOOTING 
----------------------- 
 
¶12.  (SBU) As a follow up to reftel on government anti-inflation 
measures, the government convened a meeting of the Cabinet Committee 
on Prices March 31 at the Prime Minister's residence, even as more 
inflation data (for the week of March 15) showed wholesale prices 
jumping to a 13-month high, politically dangerous level of 6.68%. 
The RBI said the main impetus was a spurt in global prices for food, 
fuel, and metals (Post will examine, septel, the combination of 
factors behind the price rise and the outlook for the next few 
months).  As he announced new measures, Finance Minister Chidambaram 
told press that the government would employ all available measures - 
fiscal, monetary, and supply-side - to control prices. 
 
¶13.  (U)  The new decisions included the total elimination of import 
duties on unprocessed edible oils and maize, reduction to 7.5% 
import duty on processed cooking oils, and an export ban on 
non-basmati rice and pulses.  Other actions the government has taken 
recently include previous reductions to the import duty on refined 
edible oil, banning the export of wheat and edible oils, and a 
suspension of refunds on exports of steel, cement, chrome and 
manganese ore.  In addition, the government is looking to 
administrative measures to curb inflation.  The government has asked 
states to limit privately held stocks of commodities, under the very 
anti-market Essential Commodities Act.  The government has also 
asked steel producers to lower or at least maintain prices and is 
threatening an export duty. Press also reported that the government 
was planning to allow the January ordinance establishing the Forward 
Market Commission's autonomy to lapse.  Cement producers have also 
been targeted; press reports indicate that cement exports may be 
banned.  In the meantime, the government is importing cement from 
Pakistan to augment domestic supply. 
 
¶14.  (SBU) In the weeks ahead, all eyes will be on the central bank, 
the Reserve Bank of India, as it readies its annual monetary policy 
statement at the end of April.  Market observers are speculating 
that the RBI may raise interest rates or the cash reserve ratio 
(CRR) or a combination of both, to take money out of the system. 
However, some are arguing that the higher interest rates are not 
worth the adverse impact on growth, given that 1) there is a timelag 
between higher rates and lower inflation and 2) inflationary 
pressures currently stem from supply-side constraints, and are not 
demand-driven.  While global commodity prices are not expected to 
fall in the near term, some food prices in India are likely to go 
down in April, as harvests start hitting the markets.  Indian 
futures prices of edible oils were down at the end of the week, 
anticipating the duty cut impact. 
 
¶15.  (U) Visit New Delhi's Classified Website: 
http://www.state.sgov/p/sa/newdelhi 
 
WHITE