VZCZCXRO3950
RR RUEHAST RUEHBI RUEHCI RUEHLH RUEHPW
DE RUEHNE #1209/01 1231204
ZNR UUUUU ZZH
R 021204Z MAY 08
FM AMEMBASSY NEW DELHI
TO RUEHC/SECSTATE WASHDC 1567
INFO RUEHCG/AMCONSUL CHENNAI 2835
RUEHCI/AMCONSUL KOLKATA 2133
RUEHLH/AMCONSUL LAHORE 4405
RUEHBI/AMCONSUL MUMBAI 1946
RUEHPW/AMCONSUL PESHAWAR 4844
RUEHIL/AMEMBASSY ISLAMABAD 4836
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 001209 
 
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 21-25, 2008 
 
 
NEW DELHI 00001209  001.2 OF 005 
 
 
¶1.  (U) Below is a compilation of Economic highlights from Embassy 
New Delhi for the week of April 28 - May 2, 2008, including the 
following items: 
 
-- A SEPARATE DEPARTMENT OF PHARMACEUTICALS? 
-- ADDITIONAL GOI 'ANTI-INFLATION' MEASURES INCLUDE EXPORT 
-- KV KAMATH IS NEW PRESIDENT OF CII FOR 2008-09 
-- U.S. SLOWDOWN IMPACTING INDIAN TEXTILES INDUSTRY 
-- SEZ POLICY UNDER ATTACK 
-- CABINET APPROVALS PROPOSAL FOR DEVELOPMENT OF PRIVATE 
   AIRPORTS 
-- PARLIAMENT PASSES UNION BUDGET 2008-09 
-- INDIA LAUNCHES 10 SATELLITES WITH ONE ROCKET 
-- MOTOROLA INAUGURATES NEW MANUFACTURING FACILITY 
   NEAR CHENNAI 
 
A SEPARATE DEPARTMENT OF 
PHARMACEUTICALS? 
------------------ 
 
¶2.  (U) The GOI is reportedly planning to establish a new department 
of pharmaceuticals within the Ministry of Chemicals and Fertilizers 
(MCF).  Press reports describe a "hectic debate" regarding price 
regulation of pharmaceuticals, with the MCF engaged in finalizing a 
new drug pricing policy.  At present the drug price regulator is the 
National Pharmaceutical Pricing Authority (NPPA), but a GOI 
committee of secretaries will decide whether NPPA will be a part of 
the new department or whether it will continue as an autonomous 
body.  If the new department proposal is approved, it could bring 
together the functions of various GOI agencies dealing with 
different aspects of the pharmaceutical industry, such as the 
Ministry of Health (quality of medicines), Ministry of Chemicals and 
Fertilizers (pricing and regulation), Ministry of Environment and 
Forests (clinical trials) and the Ministry of Science and Technology 
(drug research projects). 
 
¶3.  (U) Comment.  The GOI's impetus for creating a stand alone 
department of pharmaceuticals is its recognition of the sector's 
importance as a sunrise industry.  However, we are skeptical that 
such an extensive reengineering of the GOI bureaucracy, even when 
clearly in the interest of a booming sector, will take place anytime 
soon.  End comment. 
 
ADDITIONAL GOI 'ANTI-INFLATION' MEASURES 
INCLUDE EXPORT DUTIES AND CUTS IN IMPORT 
---------------------- 
 
¶4.  (U) After inter-ministerial consultations, the GOI on April 28 
imposed export duties on various steel products ranging from 5 to 15 
percent in a bid to contain a domestic demand-supply imbalance and 
rising prices of steel.  The GOI also reduced the customs duty to 
nil for basic steel inputs like metallurgical coke, ferro-alloys, 
and zinc, while abolishing the countervailing duty on imported steel 
products used in construction.  Various steel products like pig 
iron, mild steel products, hot-rolled coil, cold-rolled coil, bars, 
rods and angles have been exempted from the basic custom duty. 
 
¶5.  (U) Steel prices have reportedly risen over 60 percent in the 
past year.  According to industry sources, price hikes have been 
frequent in recent months.  In response to various GOI informal 
appeals, Indian steel companies have recently agreed to a voluntary 
freeze on prices.  Prior to the latest announcement of steel export 
duties, the GOI has already taken many measures in recent months to 
stabilize steel prices in the domestic market, such as reducing the 
import duty on scrap metal inputs to zero from 5 percent and the 
withdrawal of export incentives. 
 
¶6.  (U) The GOI also announced some additional duty changes to rein 
in food prices.  The measures include an export levy of Rs. 8,000 
(approx $200) per ton on basmati rice and a 16.7 percent reduction 
in the minimum export price of non-basmati rice to $1,000; reduction 
 
NEW DELHI 00001209  002.2 OF 005 
 
 
in custom duty on skimmed milk powder to 5 percent from 15 percent 
for a tariff rate quota of 10,000 tons; and reduction in import 
tariff for butter oil to 30 percent from 40 percent. 
 
KV KAMATH IS NEW PRESIDENT 
OF CII FOR 2008-09 
----------------------- 
 
¶7.  (U) Mr. KV Kamath, CEO of ICICI Bank, on May 1 became the 
President of the Confederation of Indian Industry (CII - India's 
largest industry chamber of commerce) for the year 2008-09.  He was 
the Vice President of CII during 2007-08 and succeeds Sunil Bharti 
Mittal of Bharti Airtel.  Kamath started his career in 1971 at ICICI 
(originally a public sector unit - Industrial Credit and Investment 
Corporation of India), but moved to the Asian Development Bank for 
some time before returning to a privatized ICICI as its CEO in 1996. 
 Under his leadership, ICICI has transformed itself into a modern 
financial services group with ADRs listed on the NYSE.  Kamath did 
his MBA from IIM-Ahmedabad. 
 
U.S. SLOWDOWN IMPACTING INDIAN 
TEXTILES INDUSTRY 
-------------------- 
 
¶8.  (U)  The Indian garment and textiles industry is facing lower 
demand from U.S. consumers, with retailers such as Wal-Mart, Gap, 
Nike, and Target placing fewer orders for readymade garments and 
fabrics from India.  Garment exporters are reporting both supply and 
demand hurdles, attributing a deceleration in business activity both 
to increased cotton prices and increased global competition, while 
facing decreased U.S. demand.  An example is Gokaldas Exports, which 
is India's largest garments exporter and 50.1 percent owned by the 
U.S. private equity firm Blackstone.  The company earns about 96 
percent of its revenues from exports and employs over 54,000 
workers, but reports its products have become less competitive in 
the international market. 
 
¶9.  (U) According to the Apparel Export Promotion Council (AEPC), 
orders are down about 20 percent from large US retailers, 
compressing industry profits margins.  AEPC also notes the negative 
impact of the rising rupee on garment exporters.  Indian garment 
exporters are now looking at the European market as an alternative 
destination for their products.  There is considerable demand for 
Indian garments from European retailers, such as Tesco.  However, 
AEPC is concerned that the US slowdown may indirectly hit demand 
from European retailers.  The domestic market within India is also 
booming and offers opportunities to garment manufacturers to offset 
lost business. 
 
SEZ POLICY UNDER ATTACK 
----------------- 
 
¶10.  (U) Alleged manipulations in land acquisition deals by some 
Indian real estate companies from southern Indian states has 
triggered the latest round of debates on the success of special 
economic zones (SEZs) policy.  Earlier this week, both the 
opposition party BJP and the Congress Party's Left Party allies in 
the Parliament questioned hasty approvals of SEZs by the GOI over 
the last two years.  Commerce and Industry Minister Kamal Nath 
responded to these accusations on April 28 and emphatically stated 
that the GOI is open to review the SEZ Act to address any problem 
areas.  There has been considerable controversy over land 
acquisition in India for SEZ development.  At a time when the ruling 
coalition is in a weakened position ahead of national elections next 
year, the recent criticism from the Left Parties could lead to 
amendments in the SEZ Act as soon as the next Monsoon Parliament in 
July. 
 
¶11.  (U) Defending the GOI stand on SEZs as engines of growth, 
Minister Nath explained to Parliament that currently 80 SEZs are 
operational in India, and the GOI plans to assess the overall 
 
NEW DELHI 00001209  003.2 OF 005 
 
 
success of its 2005 SEZ Act after having 100 SEZs in place (which is 
expected later this year).  The GOI has approved 439 SEZs (which are 
not yet operational) involving a total of 60,168 hectares of land. 
Highlighting the success of SEZs for the Indian economy, Minister 
Nath pointed out the huge investments of nearly $17 billion in 
various SEZs, employment of 177,000 people, and a 13 percent 
contribution to India's total exports of $126 billion. 
 
CABINET APPROVALS PROPOSAL FOR 
DEVELOPMENT OF PRIVATE AIRPORTS 
------------------------------- 
 
¶12.  (U) On April 24, the Indian Cabinet cleared the Ministry of 
Civil Aviation's proposal to allow private airports, airstrips, and 
helipads for private development and operation.  Both the Ministry 
and the Directorate General of Civil Aviation (DGCA) have been 
authorized to clear private airport proposals, subject to security 
clearance from the Ministry of Home Affairs.  While these project 
proposals do not require Cabinet approval, all private airports will 
have to meet the DGCA's safety norms. 
 
¶13.  (U) Between December 1997 and September 2007, the number of 
private aircraft in India increased from 96 to 229 and the number of 
aircraft for non-scheduled use (charters) from 46 to 196.  The 
number of private planes for government and other miscellaneous use 
has also increased from 247 to 373.  Despite the significant 
increase in private aircraft across India, the number of operational 
airports remains the same.  As such, the latest Cabinet decision is 
expected to lead to an increase in new airport development to 
provide better connectivity to distant and remote locations and 
reduce burdens on current operational airports.  Civil Aviation 
Minister Praful Patel noted that the Cabinet decision is a positive 
step towards meeting the current requirement of 400 to 500 new 
private and greenfield airports. 
 
¶14.  (U) The Minister also noted, that, in a significant departure 
from earlier policies, the Cabinet will allow development of a new 
airport within 150km of an existing airport.  However, pending 
proposals which have a bearing on the contractual obligations of an 
existing airport developer, like those in Bangalore, Hyderabad, or 
Delhi, will need Cabinet approval.  The DGCA will be empowered to 
clear projects beyond 150km of an existing airport as well as those 
which have neither a bearing on existing contractual obligations nor 
seek exemption from any rule. The new policy will not have any 
bearing on the "under consideration" status of the Uttar Pradesh 
state government's proposal to build an airport in Greater Noida nor 
growing demands by some to keep the old Bangalore and Hyderabad 
airports operational for certain services. 
 
¶15.  (U) Under the new simplified policy, the Ministry will provide 
a single window to developers and a steering committee headed by 
Civil Aviation Secretary Chawla to coordinate the appropriate 
clearances from various agencies.  The Ministry's official statement 
also clarifies that, "Proposals for airports to handle cargo and/or 
nonscheduled flights as well as heliports need not be submitted to 
the ministry for approval and these cases may be considered and 
decided at the level of DGCA". 
 
PARLIAMENT PASSES UNION 
BUDGET 2008-09 
------------------ 
 
¶16.  (U) India's budget (Finance bill) for FY 2008-09 was passed by 
both houses of parliament this week and received President Pratibha 
Patil's assent.  Prior to passing the budget in the lower house of 
parliament, the Left parties staged a walkout protesting against 
Finance Minister Chidambaram for not addressing their demands, 
including a complete a ban on futures trading in essential 
commodities.  Chidambaram added several amendments to the bill, 
beginning with new fiscal measures to contain inflation. ThU tax 
holiday for software companies located in parks run by Software 
 
NEW DELHI 00001209  004.2 OF 005 
 
 
Technology Parks of India was originally meant to expire in 2009 but 
has now been extended for one more year until March 2010. This is 
intended to benefit small and medium sized firms that are finding it 
difficult to move into the special economic zones due to lack of 
availability of space and high rental costs. Further, to provide 
relief to public sector units, tax benefits of the seven year tax 
holiday has been provided to three oil refineries being built by 
public sector oil companies, namely, Indian Oil Corporation, 
Hindustan Petroleum Corporation and Bharat Petroleum Corporation, 
provided they begin refining not later than the March 31, 2012. 
 
¶17.  (U) Press reports indicate that Ram Vilas Paswan, Minister for 
Fertilizers and Chemicals, has requested higher fertilizer subsidies 
this year due to spiraling global prices. He has demanded that the 
subsidy be raised by more than 100% to $25 billion from $11.25 
billion paid last year to fertilizer manufacturers, for the same 
quantity of fertilizers.  Fertilizer prices around the world have 
doubled since January 2007.  The government, however, is not in 
favor of increasing fertilizer prices, as that would affect food 
grain prices.  The GOI subsidizes domestic as well as imported 
fertilizers on behalf of farmers to try to keep food prices 
affordable. Comment: Many critics argue for targeting the subsidy 
directly to the farmer, rather than to the fertilizer producer or 
importer, who does not necessarily pass on the cost savings to the 
farmer.  End comment. 
 
¶18.  (U) The Fertilizer Association of India (FAI) also has given 
indications that the government may have to spend an additional sum 
of $6.3 billion during FY 2008-09 on di-ammonium phosphate (DAP) 
subsidies. Due to severe shortage of phosphoric acid (the main input 
for manufacturing DAP) in the global market, Indian fertilizer firms 
have negotiated an import price of $1985/ton with international 
suppliers for FY 2008-09 (an increase of 250% over the average price 
of $566/ton of imported phosphoric acid during FY 2007-08). The cost 
of importing DAP is $1275/ton, while government subsidies enable 
farmers to purchase it at $233/ton. The existing subsidy rate for 
DAP is therefore around $1000/ton.  A hike in the fertilizer subsidy 
bill will impact the fiscal deficit, targeted at 2.5% of the GDP in 
the current fiscal year.  In FY 2007-08, the government issued 
fertilizer bonds worth $1.9 billion to 23 fertilizer companies. The 
government is likely to issue similar bonds in the current year to 
compensate the fertilizer subsidies.  Note:  One of the main drivers 
for increased prices is more demand for natural gas for 
non-fertilizer uses.  Natural gas is 90% of the raw material cost 
for fertilizers such as ammonia.  Six new urea plants are being 
constructed in Iran, Egypt, Nigeria, Oman and Russia, which should 
increase the supply significantly and bring down prices, over time. 
End note. 
 
INDIA LAUNCHES 10 SATELLITES 
WITH ONE ROCKET 
---------------------------- 
 
¶19.  (SBU) India's space agency (ISRO) successfully launched its 
workhorse Polar Satellite Launch Vehicle (PSLV) precisely on 
schedule at 9:23 am on April 28.  Fourteen minutes after lift-off, 
the PSLV began releasing its cargo, which consisted of 10 
satellites:   a 900-kg mapping satellite (Cartosat 2A), an 83-kg 
"mini" satellite, and eight "nano" satellites.  ISRO's Director of 
International Cooperation told Consulate Chennai that the initial 
signals indicate that all satellites are in their prescribed orbits. 
 He added that this launch operationalized ISRO's Commercial Launch 
Services Agreement with the European Space Agency (ESA), noting that 
several of the nano satellites were of European origin. 
 
MOTOROLA INAUGURATES NEW 
MANUFACTURING FACILITY 
NEAR CHENNAI 
--------------- 
 
¶20.  (U) Motorola celebrated on April 26 the grand opening of its 
 
NEW DELHI 00001209  005.2 OF 005 
 
 
new production facility at Sriperumbudur, 50 km west of Chennai. 
Henry Mohan, Motorola India's General Manager, told Consulate 
Chennai that the new facility, focused on the Indian market and able 
to produce one million mobile phones every month, was necessary to 
meet the tremendous demand for the company's products.  He also 
explained that the facility will produce 6000 base stations yearly 
for Indian mobile service providers.  Indicating that he expects the 
Motorola to continue to expand in India, he noted that the new 
facility currently occupies only one-fifth of the 70 acres of land 
in Sriperumbudur the company controls.  Motorola is only the latest 
high-tech manufacturer to set up shop alongside the 
Chennai-Bangalore highway, where the state of Tamil Nadu wants to 
develop an industrial corridor; its immediate neighbors include 
major production facilities for Dell, Nokia, Flextronics, Samsung, 
Caparo, and Hyundai. 
 
¶20.  (U) Visit New Delhi's Classified Website: 
http://www.state.sgov/p/sa/newdelhi 
 
MULFORD