VZCZCXRO3054
RR RUEHAST RUEHBI RUEHCI RUEHLH RUEHPW
DE RUEHNE #1561/01 1581217
ZNR UUUUU ZZH
R 061217Z JUN 08
FM AMEMBASSY NEW DELHI
TO RUEHC/SECSTATE WASHDC 2078
INFO RUEHCG/AMCONSUL CHENNAI 3024
RUEHCI/AMCONSUL KOLKATA 2298
RUEHLH/AMCONSUL LAHORE 4438
RUEHBI/AMCONSUL MUMBAI 2112
RUEHPW/AMCONSUL PESHAWAR 4874
RUEHIL/AMEMBASSY ISLAMABAD 4961
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 04 NEW DELHI 001561 
 
SIPDIS 
 
URDOC 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 
JUNE 2-JUNE 6, 2008 
 
REF  A) NEW DELHI 1479 
      B) MUMBAI 246 
      C) NEW DELHI 1519 
 
NEW DELHI 00001561  001.2 OF 004 
 
 
 
¶1.  (U) Below is a compilation of Economic highlights from Embassy 
New Delhi for the week of June 2-June 6, 2008, including the 
following items: 
 
-- ECB NORMS FOR SERVICES SECTOR LIBERALIZED 
-- ANTI-DUMPING DUTY REVIEW WORRIES SHRIMP EXPORTERS 
-- TRENDS IN INDIAN EXPORTS 
-- INDIA'S FY 2007-08 GDP REVISED UP TO 9% 
-- PRIME MINISTER ANNOUNCES AUSTERITY MEASURES 
-- MOVEMENT ON BANGALORE INFRASTRUCTURE PROJECT 
-- HIGH INTEREST RATES CURB RESIDENTIAL REAL ESTATE GROWTH 
 
 
ECB NORMS FOR SERVICES SECTOR LIBERALIZED 
----------------------------------- 
¶2. (U) The Finance Ministry, in consultation with the Reserve Bank 
of India (RBI), agreed to relax the external commercial borrowings 
(ECBs) norms for the service sector.  The RBI issued a notification 
on June 2 to allow services sector companies (such as hotels, 
hospitals, and software businesses) to raise funds from overseas up 
to $100 million for the import of capital goods under the approval 
route, in which the borrower must obtain the permission of the RBI. 
Previously, service companies were not allowed to obtain ECBs.  The 
move follows the RBI's decision, announced last week, to allow 
companies in the infrastructure sector to avail of ECBs up to $100 
million under the approval route (see refs A and B). 
¶3. (U) The software industry's response was tepid as it assesses 
that the top-tier IT companies do not need to access ECBs as they 
are cash surplus.  Smaller firms may gain from the new route to 
raise capital from abroad at lower interest rates.  However, many 
smaller firms may still be blocked from external finance since such 
firms often find it hard to obtain a rate within the government's 
required 350 basis points (bps) of LIBOR for medium-term loans.  A 
Planning Commission report by the high level group on the services 
sector in March 2008 had recommended reviewing the ECB policy for 
the sector.  The report indicated that several sub segments within 
the services sector require significant capital investment and the 
need to raise debt resources to finance asset creation.  At present, 
the services sector contributes to more than 55% of India's GDP and 
accounts for about 26% of total organized sector employment in the 
country.  Dr. Ranade, Chief Economist of the Aditya Birla Group, 
assessed that this was another small but positive move, building on 
last week's steps.  He predicted that the overall ECB limits will 
not be lifted until the inflation scare faced currently by the RBI 
passes, which he said will take at least a year. 
 
ANTI-DUMPING DUTY REVIEW WORRIES SHRIMP EXPORTERS 
------------------------- 
 
¶4. (U) Indian shrimp exporters are concerned that the U.S. 
Department of Commerce's selection of just two shrimp exporters -- 
Devi Sea Foods and Falcon Marine, both of whom are among India's 
largest -- will skew Commerce's review of the U.S. anti-dumping 
duties on Indian shrimp.  Elias Sait, President of the Seafood 
Exporters Association of India told Consulate General Chennai that 
previous reviews surveyed small and mid-sized exporters, in addition 
to large exporters.  He said small and mid-sized exporters are 
worried that the larger margins Devi and Falcon generate due to 
their market power will result in a higher anti-dumping duty against 
Indian shrimp.  But Mohan Kumar, Chairman of India's Marine Products 
Export Development Agency, told post that he remains optimistic that 
the review will result in a reduction of anti-dumping duties. 
 
 
NEW DELHI 00001561  002.2 OF 004 
 
 
 
TRENDS IN INDIAN EXPORTS 
------------------------- 
 
¶5. (U) The center of gravity of India's exports is shifting somewhat 
from the US market to the Gulf and Asia, according to a recent Dun & 
Bradstreet report.  The US has traditionally been India's leading 
export destination, but for Indian Fiscal Year (IFY) 2007-08, it 
accounted for approximately 15 per cent of total merchandise 
exports, a decline from 21 per cent in IFY 2003-04.  Meanwhile, the 
share of the UAE in India's total exports expanded to 9.5 percent in 
IFY 2007-08 from 6.3 percent in IFY 2003-04 due to strong growth in 
exports of refined petroleum products, which constitute almost 1/3 
of India's export basket to the UAE.  In addition, shares of China 
and Singapore in India's exports have almost doubled during the 
corresponding period.  These trends suggest that India is now 
trading with other emerging markets by diversifying its export 
product basket and improving product quality. 
 
¶6. (U) India's total exports registered 23 percent growth in IFY 
2007-08 (USD 155.5 billion), and total imports for the same period 
grew 27 percent (USD 235.9 billion).  The GOI has set a target to 
achieve 27 percent export growth in IFY 2008-09.  The latest GOI 
data on India's foreign trade shows 31.5 percent export growth 
during the first month of IFY 2008-09 (April 2008) valued at USD 
14.4 billion compared with the level of USD 10.95 billion during 
April 2007.  India's imports during April 2008 rose 36.6 percent to 
USD 24.27 billion compared with last year's level of USD 17.77 
billion for the same period.  Non-oil import growth is estimated at 
around 32 per cent. 
 
 
INDIA'S FY 2007-08 GDP REVISED UP TO 9% 
------------------ 
 
¶7. (U) The government last week released revised estimates that the 
India economy grew by 9% in FY 2007-08, somewhat higher than the 
8.7% estimated earlier by the government's Central Statistical 
Organization in February.  This completes an unprecedented three 
straight years of at least 9% growth.  The higher 
than-expected-growth is mainly due to a sharp increase in the 
estimated production of agricultural crops.  The agricultural and 
allied sector registered an increase of 4.5%, compared to the 
earlier estimates of 2.6%.  (Comment: Production of wheat, rice, 
pulses and oilseeds has managed to recover to levels that prevailed 
some years ago.  The fresh momentum seems to be coming from 
activities like dairy, poultry, fishing, and cash crops, like 
cotton, as well as fruits and vegetables. End comment.) 
 
¶8. (U) However, the manufacturing sector slowed to 8.8% during FY 
2007-08, compared to 12% growth in FY 2006-07.  The services sector 
continued to remain buoyant at 10.8%, driven mainly by the financial 
services sector (including insurance and real estate) which rose by 
11.8%, while construction activity was robust at 9.8%.  Investment 
as a proportion of GDP going into capital formation touched 37.5% in 
FY 2007-08, up from 35.9% the previous year.  The high GDP growth 
has meant a rise in per capita income to $1021.  At the average 7% 
growth in per capita income over the last four years -- double the 
income growth rate of the previous two decades -- Indians' incomes 
could double within a decade.  Finance Minister Chidambaram 
forecasts GDP growth for FY 2008-09 at 8.5% and has promised to take 
corrective measures to address the slowdown in manufacturing.  But 
experts expect GDP growth to slow down to between 7.5-8% in FY 
2008-09 due to the industrial sector slowdown, tight monetary 
regime, high inflation, heightened fuel prices, and problems in the 
global financial sector. 
 
PRIME MINISTER ANNOUNCES AUSTERITY MEASURES 
 
NEW DELHI 00001561  003.2 OF 004 
 
 
------------------------------------ 
 
¶9. (U) Prime Minister Singh, after announcing fuel price hikes this 
week (see reftel C), sent a letter to his council of ministers and 
officers asking them to practice austerity measures and cut wasteful 
spending in order to mitigate the inflationary impact of the hike. 
As a result, the Finance Ministry issued guidelines on June 5 
directing all ministries and departments to cut their non-plan 
expenditure up to 10 percent to ensure that adequate resources were 
available for meeting the objective of social sector schemes.  The 
measures include cutting down spending on foreign and domestic 
travel (except where necessary), overtime allowances, publications, 
advertising and publicity, and professional services.  The 
ministries will also not be allowed to hold conferences in luxury 
five star hotels.  Further, a mandatory 5 percent cut in expenses 
will be achieved by not approving any new non-plan scheme except the 
ones already approved in the budget. 
 
¶10. (U) The guidelines are not applicable to salaries, pensions, 
interest payments, defense capital, repayment of debt and the 
Finance Commission's grants to the states - the majority of the 
central budget.  By adopting the austerity measures, the government 
aims to save about USD 1-1.5 billion in the current fiscal year. 
Reiterating the Prime Minister's concerns, Expenditure Secretary 
Sushma Nath told reporters that there is tremendous pressure on 
government resources due to food and fertilizer subsidies, the 
National Rural Employment Guarantee Program and rising oil prices, 
leading to the need for rationalization of expenditure.  Comment: 
The efforts at belt-tightening were probably also triggered by the 
projected loss of revenue, estimated at roughly $5 billion, from the 
tax cuts announced as part of the package to help the state-owned 
oil marketing companies.  The revenue loss could add as much as 0.4% 
to the projected fiscal deficit of 2.5%, if other expenditures are 
not reined in, or overall revenues do not exceed projections.  End 
comment. 
 
 
MOVEMENT ON BANGALORE INFRASTRUCTURE PROJECT 
--------- 
 
¶11. (U) The new Bharitya Janata Party (BJP) government in Karnataka 
is set to clear the way for the long-stalled Bangalore-Mysore 
Infrastructure Corridor.  First proposed in 1995, the 500 million 
dollar public-private partnership project has been stalled because 
of problems in acquiring the land needed to build the proposed 
eight-lane expressway between Bangalore and Mysore.  A senior 
official in the recently sworn-in Chief Minister's office told post 
that the government will soon remove the final impediments to land 
acquisition.  Media reports have suggested that one of the project's 
main promoters, the U.S.-based non-resident Indian Ashok Kheny, 
bank-rolled the BJP's recent election campaign. 
 
 
HIGH INTEREST RATES CURB RESIDENTIAL REAL ESTATE GROWTH 
----------------- 
 
¶12. (U) According to ICICI Bank, which has a significant share of 
the Indian home loan market, high interest rates have negatively 
impacted the Indian residential real estate sector.  As interest 
rates on most home loans have gone up from eight per cent to twelve 
per cent, there has been a slowdown in the number of deals. 
However, prices have not declined, partly because builders have 
greater holding power since many finance their projects using equity 
capital rather than debt.  ICICI Bank states speculative demand in 
Indian real estate had historically been minimal, with growth 
largely a function of affordability and actual underlying demand for 
residences from households with rising incomes. 
 
 
NEW DELHI 00001561  004.2 OF 004 
 
 
¶13. (U) Visit New Delhi's Classified Website: 
http://www.state.sgov/p/sa/newdelhi 
 
MULFORD