VZCZCXRO9552
RR RUEHAST RUEHBI RUEHCI RUEHLH RUEHPW
DE RUEHNE #1275/01 1301134
ZNR UUUUU ZZH
R 091134Z MAY 08
FM AMEMBASSY NEW DELHI
TO RUEHC/SECSTATE WASHDC 1669
INFO RUEHCG/AMCONSUL CHENNAI 2873
RUEHCI/AMCONSUL KOLKATA 2169
RUEHLH/AMCONSUL LAHORE 4412
RUEHBI/AMCONSUL MUMBAI 1983
RUEHPW/AMCONSUL PESHAWAR 4850
RUEHIL/AMEMBASSY ISLAMABAD 4869
RUCPDOC/DEPT OF COMMERCE WASHDC
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 06 NEW DELHI 001275 
 
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 
EEB/CIP DAS GROSS, FSAEED, MSELINGER 
USTR FOR CATHERINE HINCKLEY 
 
E.O. 12958: N/A 
TAGS: EAGR EFIN EINV EPET ETRD SENV IN ECPS BEXP
SUBJECT: NEW DELHI WEEKLY ECON OFFICE HIGHLIGHTS FOR THE WEEK OF MAY 
5-9, 2008 
 
REF:  NEW DELHI 0902 
 
NEW DELHI 00001275  001.2 OF 006 
 
 
¶1.  (U) Below is a compilation of Economic highlights from Embassy 
New Delhi for the week of May 5-9, 2008, including the following 
items: 
 
-- GOVT MOVES ON DIVESTMENT PLANS 
-- GOVT BANS SOME MORE FUTURES TRADING 
-- CONTROVERSY OVER BIOTECH CROPS AND FOOD 
-- INDIA INCREASES FOOD GRAIN STOCKS 
-- HRD PROPOSES BUREAUCRATIC RULES FOR INTERNATIONAL 
   SCHOOLS 
-- UPDATE ON INDIA'S EXTERNAL SECTOR 
-- THINK TANK ESTIMATES COST OF RESERVES 
-- CHILI MARKET BURNS DOWN; CHILI FUTURES HEAT UP 
-- CHENNAI TO GET SECOND AIRPORT BY 2013? 
-- FINANCE MINISTER BACKS GLOBAL AUCTION FOR 3G SPECTRUM 
-- GOI-OWNED BSNL FLOATS 93 MILLION LINE, US$10 BILLION 
   TELECOM EQUIPMENT TENDER 
 
GOVT MOVES ON 
DIVESTMENT PLANS 
------------- 
 
¶2.  (SBU) Press reported this week that the Ministry of Finance's 
Department of Divestment (DOD) has started due diligence on 
divestment plans of various profit-making public sector units, first 
reported in reftel.  DOD has asked the relevant ministries to submit 
requested financial information by May 15 to identify those public 
sector units with a net worth of at least Rs 200 crore 
(approximately $50 million) and three consecutive years of 
profitability, to be eligible for listing on the exchanges and 
possible divestment of 5-10% of government ownership.  DOD 
anticipates roughly two dozen public sector enterprises will be 
eligible, including Nuclear Power Corporation, Cotton Corporation of 
India, Indian Railway Fund Corporation, Hindustan Paper, Coal India, 
and Goa and Cochin Shipyards. 
 
GOVT BANS SOME MORE 
FUTURES TRADING 
---------------- 
 
¶3.  (SBU) The government announced on May 7 a ban on futures trading 
in four agricultural commodities - chana (a lentil), soyoil (an 
edible oil), potato and rubber, after weeks of threatening the move. 
 Together, chana and soyoil account for nearly 40% of turnover on 
the National Commodities Derivatives Exchange (NCDEX).  Analysts 
estimated that $180-250 million in daily turnover on the commodity 
exchanges would be disrupted because of the ban.  The move - which 
is to be in place for at least four months - is expected to further 
dampen investors' sentiment, after last year's ban on trading wheat, 
rice and some pulses.  Meanwhile, the initial reaction in the 
commodity markets was the opposite of the putative anti-inflationary 
attempt, with prices going up, although only by 3%.  The ban on 
soyoil led immediately to a sharp rise in spot prices for all edible 
oils.  The same day as edible oil prices rose in spot trading, the 
Minister of State for Industry, Ashwani Kumar, told press that the 
price of edible oil had decreased 19% between March 1 and May 6, 
while wheat prices declined 9% and those of rice and pulses went 
down 1.64 and 7.69% respectively. 
 
CONTROVERSY OVER BIOTECH 
CROPS AND FOOD 
----------------- 
 
¶4.  (SBU) The Coalition for GM Free India, a front for Green Peace, 
organized a rally in Delhi on Tuesday, May 6, 2008 seeking a ban on 
 
NEW DELHI 00001275  002.3 OF 006 
 
 
genetically modified food crops, more specifically Bt egg plant 
which is being examined by GOI for final commercial release. 
Besides the regular anti-GM activists, some media celebrities, 
politicians and farmer representatives participated in the protest. 
BJP leader and former Minister of Science and Technology Dr Murli 
Manohar Joshi addressed the rally alleging that the GM crops were 
another attempt by the foreign corporates to take over Indian 
agriculture.  The protest is has come at a time when Indian biotech 
regulators in the Genetic Engineering Approval Committee (GEAC) is 
considering application for approval of Mahyco's Bt egg plant for 
cultivation in India, which may be the first approved GM food crop 
in India and first approved GM vegetable crop in the world. 
 
¶5.  (U) The protest comes at a time when the GOI is considering an 
application for seed production for Mahyco Seed Company's Bt brinjal 
(eggplant), the first such biotech vegetable in the world.  Indian 
media has also reported claims by Greenpeace India that Doritos 
containing Mon 863 and NK 603 variety biotech corn ingredients were 
imported into India, violating the ban on the sale of biotech food 
products without the permission of the GOI's Genetic Engineering 
Approval Committee (GEAC).  Pepsico denies that it imports these 
chips into India. 
 
¶6.  (SBU) Industry sources report that these kinds of ad-hoc 
protests were anticipated as final approval of eggplant moves 
forward.  The food safety trials are already over and large scale 
multi-location field trials for assessing environmental safety and 
agronomic performance are going on under GEAC's guidance.  The last 
set of field trials are expected to be over by end of 2008 and the 
Bt eggplant is set for approval -if all goes well-- in early 2009 
depending on the politics of the pro and anti GM lobby. 
 
¶7.  (U) The Indian Food Safety Act, 2006, provides for the 
establishment of a regulatory body - the Food Safety and Standards 
Authority (FSSA) - which is yet to be implemented.  In 2007, the 
Ministry of Environment and Forests issued a notification saying 
that GEAC would no longer regulate biotech processed foods.  After 
protests from activists and court orders, the Ministry suspended 
that notification and GEAC continues to regulate all biotech crop 
and food proposals.  India has so far only permitted the use of Bt 
cotton in the country. 
 
¶8. (SBU) Speaking on the issue, Dr Mangala Rai, Director General of 
Indian Council of Agricultural Research said, "Nothing is 
untouchable.  Risk assessed GM crops are good and the government's 
policy is crystal clear on this.  GM crops can increase stagnating 
yields of food crops and answer the concerns about India's food 
security.  For problems of future, we will need the futuristic 
answer that lies in transgenic."  Significantly Dr Rai, who heads 
India's agricultural research system, has rarely spoken in favor of 
GM crops as in private he tends to waiver between MNC bashing on GM 
technology monopoly vs. stating GM crops are safe and needed for 
Indian agriculture.  His public statement is a step forward as 
Indian agricultural scientists show the courage of their 
conviction. 
 
INDIA INCREASES FOOD 
GRAIN STOCKS 
------------- 
 
¶9.  (U) According to GOI food procurement agencies, wheat and rice 
stocks continue to swell as India procures sufficient quantities of 
the grains from local markets.  Government agencies buy grains from 
local farmers for emergency needs as well as to provide subsidized 
rations to the poor.  India imported 5.5 million tons (MT) of wheat 
in the past two years in order to meet local demands.  Recently, in 
an attempt to ensure the adequate supply of food grains and to tame 
 
NEW DELHI 00001275  003.2 OF 006 
 
 
inflation, it has banned exports of wheat and rice. 
 
¶10.  (U) According to the government food procurement agency, the 
target of 27 MT of rice is likely to be reached by September 2008. 
Current rice stock levels are 23.2 MT - 1.8 MT more than the 
previous year's level.  Wheat stocks are at 17 MT, having more than 
doubled last year's level, and are expected to reach about 20 MT by 
September 2008.  With a capacity to store up to 25 MT of wheat, 
India could also import wheat if needed.  A GOI Committee of 
Secretaries has recommended easier procedures for wheat imports to 
avoid delays.  According to official sources, record food grain 
production of around 227 MT in 2007-08 coupled with increased 
minimum support prices (MSP) for farmers has helped India achieve a 
comfortable food grain stock position.  However, India's bulging 
food grain stocks offer no comfort to countries that face shortfalls 
because of the recent export curbs. 
 
HRD PROPOSES BUREAUCRATIC 
RULES FOR INTERNATIONAL SCHOOLS 
-------------------- 
 
¶11.  (U) The Department of Education in the Ministry of Human 
Resource Development (HRD) has proposed 'stringent norms' for 
regulating international schools in India, including in areas such 
as curriculum, fee structure, and even the number of foreign 
teachers appointed in such schools.  In a particularly poignant 
display of HRD circular reasoning, Ministry officials have justified 
the proposal by stating that the idea is to make the international 
schools adhere to certain rules which are not in place at present, 
such as no bar on the number of foreign teachers.  The HRD ministry 
believes that the number of international schools in India has risen 
significantly recently, and a well-defined policy is required to 
regulate such institutions.  If the proposal is approved by the 
Cabinet, international schools will have to obtain permission from 
the GOI before starting their operations in India.  In addition, the 
schools will have to secure from the concerned state that ubiquitous 
fixture of GOI bureaucracy, the 'no-objection certificate'. 
 
UPDATE ON INDIA'S 
EXTERNAL SECTOR 
--------------- 
 
¶12.  (U) Recent balance of payments data for FY2007-08 released this 
week shows that India experienced another balance of payments 
surplus, from high portfolio and investment flows, even though the 
trade deficit further expanded to $80 billion.  On the trade side, 
exports during FY 2007-08 were up 23% to $155 billion, while imports 
grew at 27% to $235.9 billion.  Net invisible earnings, at $67.6 
billion, helped mitigate the current account deficit, containing it 
at 1.8% of GDP.  Higher remittances from overseas Indians ($35 
billion) and software service exports were primarily responsible for 
the strong rise in invisibles.  Total capital inflows were robust at 
a record $99.1 billion.  About $41 billion was on account of 
portfolio investments, while foreign direct investment flows 
contributed another $24.6 billion.  Indian companies borrowed nearly 
$31 billion through the external commercial borrowing route during 
FY 2007-08.  The surge in capital flows led to an additional $100 
billion in foreign exchange reserves, reaching a record $312.87 
billion at end-April 2008, sixth largest in the world. 
 
¶13.  (U) Despite strong appreciation of the rupee and high interest 
rates, Indian exports grew at a robust pace of 23% in dollar terms 
in FY 2007-08 to reach $155.5 billion; although growth in rupee 
terms was roughly 9%.  Due to the global slowdown, the past year has 
seen a shift towards the Middle East and Chinese markets from the 
traditional markets like the US and the European Union. Similarly, 
high oil prices and investment-led expansion kept imports buoyant, 
 
NEW DELHI 00001275  004.2 OF 006 
 
 
growing by nearly 27% at $235.9 billion during the year.  Import 
growth was largely driven by the large oil import bill of $90 
billion. 
 
¶14.  (U) Recent government data indicates that India received record 
foreign direct investment (FDI) of $30 billion (including reinvested 
earnings) in FY 2007-08, versus $19.4 billion in FY 2006-07. This 
makes India the largest recipient of FDI in Asia after China and 
Hong Kong. Significantly, 80% of the total FDI inflows in FY 2007-08 
were greenfield investments and not through acquisitions.  The 
sectors that attracted FDI during the year include services, 
housing, construction, electrical equipment, computer software and 
hardware. As usual, Mauritius remains the most preferred route for 
FDI inflows into India, followed by US and Singapore. 
 
¶15.  (U) Portfolio flows by foreign institutional investors (FIIs) 
hit $41 billion, despite the market slide in the last quarter of the 
fiscal year.  Indian companies' foreign borrowing spree, to finance 
investments and acquisitions at home and abroad, continued. 
According to the Reserve Bank of India's (RBI) recent data, about 
625 Indian companies borrowed nearly $31 billion through the 
external commercial borrowing (ECB) route during FY 2007-08, even 
with the ECB restrictions issued last August. 
 
¶16.  (U) India's foreign exchange reserves stood at $312.87 billion 
at end-April 2008, sufficient to finance approximately 16 months of 
imports and act as a strong cushion against external shocks. In 
December 2007, the Prime Minister's Council of Trade and Industry 
suggested the creation of a $5 billion sovereign wealth fund (SWF) 
to finance overseas acquisitions of Indian firms. The SWF could help 
domestic companies to acquire energy assets such as oil, gas and 
coal across the world. The RBI had also signaled publicly its 
willingness to create a SWF. However, Finance Minister Chidambaram 
told the Upper House of Parliament this week that the GOI has no 
plans to establish a SWF, since no directive has been issued by the 
Prime Minister. 
 
THINK TANK ESTIMATES 
COST OF RESERVES 
----------------- 
 
¶17.  (U) Meanwhile, the Indian Council for Research on International 
Economic Relations (ICRIER), a well-known economic think tank, 
recently released a report titled, 'The cost of holding excess 
reserves: the Indian experience', in which it estimates that India 
is losing more than 2% of its GDP by accumulating reserves instead 
of employing them to increase the physical capital of the economy. 
The report argued that the country could gain more than 0.3% of GDP 
by using the resources absorbed in reserve accumulation to reduce 
the private sector's external commercial borrowings or public sector 
debt. The report further says that RBI needs to maintain reserves in 
liquid US treasuries to meet the needs of current account financing, 
short-term external debt obligations and to stem the rupee's 
volatility. The remaining reserves could be parked in an account and 
put to better use to improve returns, such as investments in 
equities, private equity, and real estate. 
 
CHILI MARKET BURNS DOWN; 
CHILI FUTURES HEAT UP 
---------------------- 
 
¶18.  (U) A May 3 fire at one of Asia's largest chili markets, 
located in the town of Guntur in the South Indian state of Andhra 
Pradesh, reportedly roasted the entire stock of 200,000 bags of 
chili into cinder.  The lack of appropriate equipment for fire 
personnel hindered efforts to put out the blaze.  An Andhra Pradesh 
Agriculture Department official told Consulate Chennai that the loss 
 
NEW DELHI 00001275  005.2 OF 006 
 
 
amounted to two weeks' supply.  The states of Karnataka and Andhra 
Pradesh are expecting a bumper crop of chili that should hit markets 
in mid-July.  Traders, however, may not be convinced of the alleged 
impending bounty, as 100-kg bags fetching USD 119 now are going for 
USD 132 in the futures market for August delivery.  A top official 
at a company that exports spices and oleoresins to the United States 
told us that it is still too soon to judge the ultimate extent of 
the fire's impact.  He said that the price of chili had shot up, but 
that it would take more than a week before the situation became 
clear. 
 
CHENNAI TO GET SECOND 
AIRPORT BY 2013? 
------------- 
 
¶19.  (SBU) The continuing growth of South India's air transport 
sector (domestic traffic at Chennai's airport in the past year was 
up 59 percent, according to an airport official) apparently has 
spurred the state of Tamil Nadu's government to hasten its plans for 
opening a second airport.  Tamil Nadu Industries Secretary M.F. 
Farooqi told Consulate Chennai that his government is already 
discussing the modalities of a second Chennai airport with central 
government authorities in New Delhi.  He said that he believes the 
airport, to be located in the Sriperumbudur industrial area 50 km 
west of Chennai, can be up and running as soon as 2013.  (Comment: 
Given that the precise location of the second airport and the 
structure of the project (public-private partnership, 
government-only, or private) have yet to be decided, the Minister's 
target of 2013 looks to be wildly optimistic.  End comment.) 
 
¶20.  (U) Farooqi also told us that the next phase of the current 
airport's expansion will begin during the first week of June.  This 
expansion has bogged down for eight years because of resistance from 
947 landholders who own slightly less than 1070 acres of land needed 
to add a second runway.  The additional runway and an expanded 
terminal should allow the airport to handle 50 aircraft movements 
per hour, compared with 28 presently. 
 
FINANCE MINISTER BACKS GLOBAL 
AUCTION FOR 3G SPECTRUM 
--------------------- 
 
¶21.  (U) In a positive sign for U.S. telecommunications services 
companies, such as AT&T and Verizon, India's Finance Minister P. 
Chidambaram -- in an April 21 letter to the Ministry of 
Communications and Information Technology (MCIT)'s Minister A. Raja 
-- endorsed an "open, global auction" allowing all potential foreign 
players to participate in the upcoming auction for coveted radio 
frequency spectrum for Third Generation (3G) wireless 
communications, such as Blackberry-type high-speed data, video, and 
audio services.  Chidambaram's letter supports the MCIT Department 
of Telecom (DOT)'s position in opposition to the recommendation of 
the Telecom Regulatory Authority of India (TRAI) that only the 
incumbent telecom service operators and license holders in the 2G 
spectrum (i.e. regular cell-phone voice and simple text messaging 
services) be allowed to participate in the auction for 3G spectrum 
-- a move that would have effectively excluded U.S. and most other 
foreign telecoms.   If MCIT/DOT overrides TRAI's recommendations, it 
would be a major blow to India's telecoms companies who have pushed 
hard to have new players and international telecoms barred from the 
auctions, but it would a major boost to global players who have 
missed the 2G bus in India and planned to enter via the 3G platform, 
according to the Economic Times (5/6/2008). 
 
¶22.  (U) Four factors are operating in this politically-charged, 
high-stakes issue:  potential entry of global telecom majors, who do 
not yet have a presence in India as the world's fastest growing 
 
NEW DELHI 00001275  006.2 OF 006 
 
 
telecom market as measured by numbers of new subscribers; future 
profitability of incumbent telecoms in a fiercely competitive 
environment; the size of revenues to accrue to the GOI from spectrum 
auction in a competitive market; and the cost of telecom services to 
the customer.  MCIT/DOT draft policy would allow for all players to 
bid for up to 10 MegaHertz (MHz) through two blocs of 5MHz each 
(uplink/downlink), because new players would need at least 10 MHz to 
launch 3G services, whereas the existing telecom companies in 2G 
services would need only a total of 5MHz to migrate to 3G. 
 
GOI-OWNED BSNL FLOATS 93 MILLION 
LINE, US$10 BILLION TELECOM 
EQUIPMENT TENDER 
----------------- 
 
¶23.  (U)  The GOI-owned telecom service company BSNL floated a 
tender to provide equipment for 93 million telecom lines, with a 
estimated value of about 40,000 crore Indian rupees (about USD 10 
billion), with bids to be opened on July 16, 2008.  Of the total: 21 
million lines are reserved for third generation (3G) services, and 
the other 72 million for second generation services (2G);  and 25 
million lines each will be used in the North, South and West telecom 
zones, while 18 million will be in the East Zone.  Since one company 
cannot win more than two zones, the maximum order for an equipment 
major apparently would be 50 million lines.   The tender also has 
four components, which can be bid on individually or in combination: 
2G lines; 3G lines; infrastructure; and operating support systems 
(OSS) and business support systems (BSS).  Tender details have 
already been sent to global network majors including: Motorola, 
Alcatel-Lucent, Ericsson, Nokia-Siemens, Nortel, Huawie, and ZTE. 
 
 
¶24.  (U) The MCIT/DOT has not yet clarified whether 30% of the 
tender would be "reserved" for the GOI-owned telecom equipment 
company ITI, which has a partnership with Alcatel Lucent.  BSNL 
reportedly has asked that the reservation clause not be applied in 
this case, as ITI has failed to deliver on time for previous telecom 
equipment orders.  At present, BSNL has a mobile subscriber base of 
36 million; the largest private telecom company, Bharti Airtel, has 
64 million.  The U.S. company Motorola had lost out to Ericsson in a 
previous, controversial BSNL equipment tender in 2006-07, after 
Motorola had been disqualified on technical grounds, but had dropped 
its lawsuit to preserve its relationship with BSNL, as noted in 
previous post reporting.  Soon after Ministry of Communications and 
Information Technology (MCIT) Minister A. Raja replaced Minister 
Maran, the former reduced the size and per unit terms of the tender 
award to Ericsson.  USG advocacy interest for the new tender 
potentially would be in favor of Motorola as a U.S. company, and of 
French company Alcatel-Lucent, to the degree it would source from 
its recently acquired U.S.-based component Lucent. 
 
¶25.  (U) Visit New Delhi's Classified Website: 
http://www.state.sgov/p/sa/newdelhi 
 
MULFORD