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RR RUEHAST RUEHBI RUEHCI RUEHLH RUEHPW
DE RUEHNE #1354/01 1371248
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R 161248Z MAY 08
FM AMEMBASSY NEW DELHI
TO RUEHC/SECSTATE WASHDC 1770
INFO RUEHCG/AMCONSUL CHENNAI 2904
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RUEHLH/AMCONSUL LAHORE 4419
RUEHBI/AMCONSUL MUMBAI 2012
RUEHPW/AMCONSUL PESHAWAR 4857
RUEHIL/AMEMBASSY ISLAMABAD 4903
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
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RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE

UNCLAS SECTION 01 OF 05 NEW DELHI 001354 
 
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 
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 
12-16, 2008 
 
NEW DELHI 00001354  001.2 OF 005 
 
 
¶1.  (U) Below is a compilation of Economic highlights from Embassy 
New Delhi for the week of May 12-16, 2008, including the following 
items: 
 
-- EXIM VISIT HIGHLIGHTS NEW INFRASTRUCTURE FINANCING 
   FACILITY 
-- EXIM MEETS WITH INDIA INFRASTRUCTURE FINANCE CO. 
-- INDUSTRIAL GROWTH MODERATES IN FISCAL YEAR 2007-08 
-- SLOWING INDUSTRIAL GROWTH MAY PROMPT ECB CHANGE 
-- INDIAN EXPORTERS PLEASED WITH WEAKER RUPEE 
-- GOI BROWBEATS CEMENT AND STEEL INDUSTRY INTO PRICE CUTS 
-- FAKE DRUG MARKET EXPANDS IN INDIA 
-- MARKETING APPROVAL MAY BE LINKED TO PATENTS 
-- CII SUMMIT ON CSR 
 
EXIM VISIT HIGHLIGHTS 
NEW INFRASTRUCTURE FINANCING FACILITY 
--------------------------------- 
 
¶2.  (SBU) As a reflection of Export-Import Bank's (Ex-Im) growing 
commitment to India, Ex-Im Chairman James Lambright visited Mumbai 
and New Delhi on May 12-14 to announce the export credit agency's 
new $2.2 billion India Infrastructure Facility (IIF).  The facility 
has identified eight Indian financial institutions to participate in 
the facility: Power Finance Corp., Infrastructure Development 
Finance Co., IDBI Bank Ltd., India Infrastructure Finance Co., State 
Bank of India, Infrastructure Leasing &Financial Services, India 
Renewable Energy Development Agency and Punjab National Bank.  All 
but IIFCL signed memoranda of understanding with Ex-Im during 
Chairman Lambright's visit. Lambright used the visit to highlight 
Ex-Im's growing commitments to India, currently at $3.5 billion, 
with another $6 billion of commitments in the pipeline for the next 
few years.  Given the pipeline, Lambright expects India to surpass 
Mexico as the largest beneficiary of Ex-Im financing.  Mexico 
currently has $7 billion in financing.  Exim's total worldwide 
portfolio of loans outstanding is approximately $60 billion. 
 
EXIM MEETS WITH 
INDIA INFRASTRUCTURE FINANCE CO. 
-------------------------------- 
 
¶3.  (SBU) Ex-Im senior loan officer and Emboffs met with IIFCL 
chairman Kohli on May 15 to discuss the reasons behind IIFCL's 
decision not to sign a memorandum of understanding with Ex-Im. 
Kohli indicated that the board had initally decided against the 
signing, but were now more inclined to do so, if the board could 
receive information highlighting where US exporters could 
competitively supply Indian infrastructure needs.  Kohli was hopeful 
that the board could resolve the issue soon.  Kohli noted that their 
use of the Ex-Im guarantees must still get approval of the RBI, just 
like any private entity. However, he implied that IIFCL would have 
an easier time than other entities because of its close government 
ties. It has a higher-than-usual ceiling on ECB guarantees of $2.5 
billion, of which IIFCL used $1 billion last year and plans to use 
$1.5 billion this year. Kholi also hinted that their ceiling could 
be raised to $5 billion if necessary. 
 
¶4.  (SBU) Kohli also provided some insights into the operation of 
the foreign exchange reserve investment facility recently set up as 
a subsidiary of IIFCL in London.  IIFCL as a whole has disbursed 
$500 million out of $4 billion committed, although none has yet come 
from the UK entity.  They will receive funds in $250 million 
tranches and disburse as they go, with the Indian office making all 
lending decisions.  They pay LIBOR to the RBI and charge a nominal 
markup to borrowers.  They have access to $5 billion per year, which 
at the moment is a non-binding constraint.  London was chosen 
because of the strength of the regulatory environment, despite the 
 
NEW DELHI 00001354  002.2 OF 005 
 
 
fact that the UK's regulatory body, the Financial Services Authority 
(FSA) has no authority over them.  Singapore and Dubai were their 
first choices, but the RBI overruled. 
 
INDUSTRIAL GROWTH MODERATES 
IN FISCAL YEAR 2007-08 
------------------------ 
¶5.  (U) The index of industrial production (IIP) for the month of 
March 2008 dropped to 3% (the lowest since February 2002), although 
some of the change was due to March 2007's high statistical base - 
growth that month was 14.7%.  March 2008 output put industrial 
growth for full FY 2007-08 at 8.1% versus 11.6% in FY 2006-07.  Rate 
sensitive consumer durables such as motorcycles, refrigerators, and 
air conditioners witnessed the sharpest drop, with negative growth 
of 2.1% in March compared to the same time last year.  The 
manufacturing sector, which carries a weight of 79.3% in the IIP, 
grew by just 2.9% in March 2008.  In addition, lower output in crude 
oil, petroleum refinery, electricity generation and coal also pulled 
down the IIP in March.  Cumulatively, the manufacturing sector 
registered a still decent growth of 8.6% in FY 2007-08, although 
down from 12.5% in FY 2006-07. 
¶6.  (U) Despite sluggish growth in the IIP in March 2008, India's 
core infrastructure sectors, with a combined weight of 26.7% in the 
IIP, recorded a robust increase of 9.6% in March 2008 (driven by 
growth in finished steel at 21% and cement at 9.3%) compared to 
10.5% growth in the same period last year.  However, for full FY 
2007-08, growth in the six core sectors fell by almost half to 5.6% 
compared to 9.2% in FY 2006-07.  Growth in capital goods remained 
healthy as it grew by 16.5% in FY 2007-08, marginally less than the 
18.2% registered in 2006-07, indicative of continued investment 
taking place in the economy. 
¶7.  (U) Economists expect industrial growth to revive in April and 
moderate to around 7.5% in FY 2008-09.  Industry analysts are not 
buying the base effect explanation and opine that the industrial 
output is slowing down due to higher interest rates and rising costs 
of inputs.  They further blame the fall in consumer durables growth 
on faulty construction of the IIP.  For instance, the index includes 
black and white televisions, VCR's and tape recorders.  Deputy 
Chairman of the Planning Commission Montek Singh Ahluwalia has also 
voiced concern that there exist certain lags in India's data 
collection systems that need revamping.  The GOI is already working 
towards overhauling the consumer durables basket, in which new goods 
such as liquid crystal displays and laptops will find a place, while 
typewriters and sewing machines may be phased out. 
 
SLOWING INDUSTRIAL GROWTH 
MAY PROMPT ECB CHANGE 
-------------------------- 
 
¶8.  (SBU) Economic Times reported today that the IIP data showing 
that industrial growth slowed to 3% in March compared to March 2007 
may prompt the Ministry of Finance and RBI to loosen restrictions on 
domestic companies' external commercial borrowings (ECBs).  In 
August of last year, the RBI announced that companies were limited 
to repatriating only $20 million of any foreign financing; the rest 
had to be spent outside India, so as to mitigate the inflationary 
and rupee appreciation pressure from capital inflows.  The 
government also places - though did not enforce in FY08 - an 
aggregate $22 billion limit on total ECBs per year as well as 
limiting Indian bank guarantees of foreign financing to 25% of net 
worth.  In light of the moderation in industrial growth, stemming 
from higher domestic interest rates and rising input costs, coupled 
with the recent FII outflows and rupee depreciation, market analysts 
anticipate that the RBI may be more willing to consider easing ECB 
restrictions.  The Ministry of Finance's Joint Secretary for Capital 
Markets, K.P. Krishnan, had already indicated to Emboffs MoF 
receptiveness to changes in the policy. 
 
NEW DELHI 00001354  003.2 OF 005 
 
 
 
INDIAN EXPORTERS PLEASED 
WITH WEAKER RUPEE 
------------------------ 
 
¶9.  (U) Reports indicate that the approximately five percent 
depreciation in the Indian rupee against the US dollar over the last 
two weeks is helping Indian exporters as they book new orders, 
especially vis-a-vis China, where the yuan-dollar rate has been 
relatively steady.  The rupee is now trading at around 42.5 against 
the dollar.  The Indian currency gained more than 10 per cent in 
fiscal year 2007-08, but it reversed and started depreciating in 
April, due to a combination of lower capital inflows and higher 
imports.  Despite the relative increase in volatility, the Reserve 
Bank of India has abstained from intervening in the foreign exchange 
market so far.  Based upon the weaker rupee, the Federation of 
Indian Export Organizations (FIEO) now hopes to achieve an export 
target of $200 billion with improved volumes due to the weaker 
rupee.  According to FIEO, India missed its target by five billion 
dollars in IFY 2007-08, with a total of $155 billion in exports, due 
to slowing demand in the US coupled with the weakening of the dollar 
against the Indian rupee during that time period. 
 
GOI BROWBEATS CEMENT AND STEEL 
INDUSTRY INTO PRICE CUTS 
------------------------------ 
 
¶10.  (U) On May 14, the Government of India (GOI) persuaded local 
secondary steel makers and cement manufacturers to cut product 
prices, as a part of its efforts to contain inflation.  Earlier, 
primary steel producers promised to cut prices to ensure better 
availability of steel for the domestic industry.  Steel secretary 
R.S. Pandey told press reporters that the secondary steel producers, 
accounting for about 7 million tons of steel production, have 
pledged to hold the new reduced price line for the next three 
months.  He also confirmed the GOI is examining the request by the 
steel industry to lower recently imposed export duties.  Taking 
credit for the recent measures, Pandey highlighted that steel 
product prices have come down by 20 percent from their peak.  The 
GOI has also pressured cement manufacturers into rolling back prices 
to levels prevailing before April 30.  The cement producers have 
agreed to hold prices steady for at least three months. 
 
FAKE DRUG MARKET 
EXPANDS IN INDIA 
----------------- 
 
¶11.  (U) ASSOCHAM (Associated Chamber of Commerce - a prominent 
industry body) estimates that the counterfeit drugs market in India 
is growing at 25 percent annually.  In fact, the Organization for 
Economic Cooperation and Development's (OECD) latest figures say 75 
percent of fake drugs supplied the world over have their origins in 
India.  However, the Government of India's (GOI) own Health Ministry 
estimates are much more conservative, putting the amount of 
counterfeit drugs supplied globally and sourced from India at about 
5 percent.  The GOI defines a counterfeit medicine as one that has 
no active ingredient or is an expired drug which has been re-labeled 
and sold.  (Note: There is a general confusion in terminology 
between fake, spurious and counterfeit among Indian media, and the 
terms are interchangeably used.  Under Indian law, both counterfeit 
and fake drugs are described as 'spurious' medicines.  U.S. law 
defines counterfeit drugs as those sold under a product name without 
proper authorization.  Counterfeiting can apply to both brand name 
and generic products, where the identity of the source is 
deliberately and fraudulently mislabeled in a way that suggests that 
it is the authentic approved product.  End Note.) 
 
 
NEW DELHI 00001354  004.2 OF 005 
 
 
¶12.  (U) These findings by various organizations and the looming 
threat of India becoming a big counterfeit drug market have prompted 
the Drug Controller General of India's (DCGI) office to undertake a 
Rs.5 million (approx $120,000) study to assess the actual size of 
the spurious drug market in India.  DCGI plans to complete the 
survey within six months by randomly collecting 31,000 samples from 
various drug outlets.  With a detailed project design, it has 
already identified for testing 61 popular drug brands in nine 
therapeutic categories, including anti-tuberculosis, anti-allergy, 
diabetes, cardiovascular diseases, anti-infective steroids, 
anti-malaria, anti-histamine, and multi-vitamins.  DCGI's office 
claims that on average 1000 drug inspectors pick up 40,000 drug 
samples annually for regular testing according to which 0.3-0.4 
percent have zero active content while 8 percent are substandard. 
However, a local drug expert, Dr. C.M. Gulati reportedly stated that 
the 26 government labs test only one percent of the drugs 
manufactured annually. 
 
¶13.  (U) GOI Department of Biotechnology Secretary, M K Bhan, has 
been quoted as saying that the "counterfeit drug market is still not 
a colossal problem in India, but a close watch on the [counterfeit] 
market's expansion is required to punish those involved with it." 
Dr. C M Gulati observes that the estimates on India's counterfeit 
drug market are highly exaggerated, and the cost of producing fake 
and real drugs in the low-cost Indian market is roughly equivalent, 
which acts as a disincentive to counterfeiters.  According to Dr 
Gulati less than 3 percent of the Rs.320 billion ($7.7 billion) 
pharmaceutical industry in India is spurious. 
 
¶14.  (SBU) Health Attach met with the DCGI Dr. Surinder Singh and 
emphasized that for the DCGI's estimation of the counterfeits 
market, sample size and a proper sampling scheme are essential to 
obtain accurate results. 
 
MARKETING APPROVAL 
MAY BE LINKED TO PATENTS 
------------- 
 
¶15.  (U) According to press reports, the Drug Controller General of 
India (DCGI) is considering linking pharmaceutical marketing 
approval to patents.  Such a move could prevent domestic 
pharmaceutical manufacturers from selling generic versions of drugs 
that are under patent in India.  Currently, the DCGI does not 
consider patents in evaluating applications for marketing approval, 
leaving the burden on the innovating company to address cases of 
patent infringement in the courts, after the generic has gone to 
market.  While this new policy of the DCGI could usher in dramatic 
changes in the Indian pharmaceutical industry, there is no current 
timeframe for when the implementing regulations might be in place. 
 
CII SUMMIT ON CSR 
----------------- 
 
¶16.  (U) Confederation of Indian Industry (CII) organized a national 
summit on Corporate Social Responsibility (CSR) in New Delhi in the 
first week of May.  Representatives of the government, NGOs and 
civil society participated in the summit.  Also participating were 
senior officials from Coca-Cola, GE Electric, Microsoft, Boston 
Consulting Group, Hero Honda, the Chief Minister of Rajasthan, a 
Member of Parliament, Secretary of the Ministry of Corporate 
Affairs, a Member of the Planning Commission, and press.  The summit 
emphasized that in order for both companies and the country to 
develop, it is important to adopt an index to measure the impact on 
human development around the company's operations.  This will help 
avoid mistrust toward industry, unrest among the community 
surrounding the area of operation and contribute to inclusive growth 
in real terms. 
 
NEW DELHI 00001354  005.2 OF 005 
 
 
 
¶17.  (U) Panel discussions were held on India's experience with CSR 
and where it is going.  Discussions considered whether privatization 
is a solution, since India's social infrastructure has not kept up 
with the growth and needs. The sessions tried to explore how 
government and industry can partner together to make widespread 
inclusive growth. 
The companies agreed upon working towards protecting and preserving 
the environment.  Stress was laid on improving education, health 
care and water management through Public Private People Partnerships 
(P4).  Further, there were very positive discussions on empowering 
rural India and adding millions to the economic mainstream. 
 
¶18.  (U) Visit New Delhi's Classified Website: 
http://www.state.sgov/p/sa/newdelhi 
 
MULFORD