VZCZCXRO4269
RR RUEHAST RUEHBI RUEHCI RUEHLH RUEHPW
DE RUEHNE #1712/01 1721243
ZNR UUUUU ZZH
R 201243Z JUN 08
FM AMEMBASSY NEW DELHI
TO RUEHC/SECSTATE WASHDC 2333
INFO RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
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

UNCLAS SECTION 01 OF 04 NEW DELHI 001712 
 
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 
JUNE 16 TO JUNE 20, 2008 
 
¶1.  (U) Below is a compilation of Economic highlights from Embassy 
New Delhi for the week of June 16 to June 20, 2008, including the 
following items: 
 
-- INFLATION CROSSES DOUBLE-DIGIT MARK 
-- UPDATE ON THE INFORMATION TECHNOLOGY SECTOR 
-- NEW FISCAL YEAR STARTS OFF WITH ROBUST TAX REVENUES 
-- GOI APPROVES FOUR KARNATAKA AIRPORTS 
-- CHENNAI CHURNS OUT NEW HOTELS 
-- INDIA HOSTS KIMBERLEY PROCESS MEETING 
-- PNB TO PROMOTE RICKSHAW MICROFINANCE 
 
 
INFLATION CROSSES DOUBLE-DIGIT MARK 
----------------------------------- 
 
¶2. (SBU) Expected by economists, but no less problematic for the 
government, wholesale price inflation (WPI) for the week ended June 
4, compared to the same period last year, hit 11.05%, a 13-year 
high.  Economists expected it since the week ending June 4 was the 
first to include the government's oil price hikes and, indeed, it 
was this category that pushed up inflation, rising nearly 8 
percentage points in one week.  In addition to the price rises in 
government-controlled petroleum products, retailers of other 
petroleum products, such as naptha and furnace oil, used the 
opportunity to raise their prices as well. The slimmest of good news 
for the government may be found in the slight downward direction of 
food prices in the last seven days and the early beginnings of a 
good monsoon as a harbinger of a strong harvest. 
 
¶3. (SBU) In the last month, as inflation has continued its upward 
climb, the government has asserted that inflation should come down 
in the next few months.  Many economists support that view, assuming 
a good rice harvest in the fall.  In addition, the WPI's rise should 
moderate by September, as the comparative inflation numbers from 
last year were exceptionally low during the summer, exacerbating the 
current year-on-year comparison. 
 
¶4. (SBU) The economist side of Prime Minister Singh may incorporate 
such inflation projections into considering whether and when to go 
forward with early elections.  If choosing among potential elections 
in November 2008, February 2009, or May 2009, on the basis of 
inflation, November may be better than early next year.  February or 
May increases the chance of higher global oil price pressures on 
domestic inflation, while February through April often present a 
seasonal spike in the prices of wheat and other food staples before 
the winter harvests hit the markets.  Whether economic arguments 
regarding inflation, even if conveyed by a skilled economist like 
the Prime Minister, will carry the day with Congress President Sonia 
Gandhi remains to be seen. 
 
 
UPDATE ON THE INFORMATION TECHNOLOGY SECTOR 
------------------------------------ 
¶5. (U) According to National Association of Software and Service 
Companies (NASSCOM) President Som Mittal, who spoke on June 9 on the 
sidelines of the BPO Strategy Summit in Bangalore, India's 
information technology (IT) sector is likely to grow in the range of 
22-24% in FY 200809 versus a 29 per cent growth achieved last year. 
 Revenues from the sector including hardware are expected to touch 
$64 billion in FY 2008-09, as compared to $48 billion during FY 
2007-08.  The total software and services revenue may reach $52 
billion during the year, compared to $40 billion last year. Of this, 
NASSCOM had originally expected exports to cross $40 billion during 
FY 2008-09, but now the target may be difficult to achieve in the 
face of a global economic slowdown and rising fuel prices.  NASSCOM 
plans to release its revised projections in July.  Meanwhile, the 
business outsourcing process (BPO) segment has been growing annually 
at the rate of 35% for the past four years.  Revenues from the BPO 
sector totaled $11 billion during FY 2007-08 and may increase by 33 
percent in FY 2008-09.  The BPO sector provides jobs to about two 
million people directly and eight million people indirectly. 
¶6. (U) Some analysts expect the global slowdown to affect India's IT 
 
NEW DELHI 00001712  002 OF 004 
 
 
sector's growth, while others see the situation as an opportunity 
for back office firms to cash in on the growing domestic BPO market. 
 In this scenario, more firms will set up captive units and 
outsource to Indian firms to take advantage of the low cost talent 
in India.  Press reports that Indian corporations are not finalizing 
their IT budgets as clients prefer not to rush to spend on 
technology as the industry is faced by uncertainty. 
¶7. (U) Mittal argued that short-term cutbacks in US technology 
spending were unlikely to impact global sourcing, and may on the 
contrary lead to higher offshoring of IT/IT-enabled services. 
NASSCOM has estimated that the Indian IT/BPO growth is on track to 
reach $73-75 billion in overall software and service revenues and 
$60 billion in exports by the year 2010.  Meanwhile, NASSCOM 
Chairman and Genpact CEO Pramod Bhasin indicated that several 
foreign firms are looking at India as a hub of process expertise. 
The country has the largest pool of six sigma experts and is also 
known for its re-engineering expertise. 
 
NEW FISCAL YEAR STARTS OFF WITH ROBUST TAX REVENUES 
--------------------------------- 
 
¶8. (SBU)  The Central Board of Direct Taxes (CBDT) reported a robust 
growth in direct tax collections of 71 percent, to $5.4 billion (Rs 
228 billion), in the first two months of the current fiscal year, 
despite larger tax refunds during this period.  Of this, corporate 
taxes amounted to $1.9 billion (Rs 81 billion), while personal 
income taxes totaled $3.5 billion (Rs 147 billion).  Advance tax 
payments by corporates for the first quarter of FY 2008-09 (April - 
June) rose by 40%, countering the expectation that the moderation in 
industrial growth would slow down tax collections.  This will be 
welcome news to the government, as it struggles to absorb higher 
subsidy costs.  Upbeat over the growth in direct tax collections of 
last year, the CBDT, at the suggestion of Finance Minister 
Chidambaram, has revised upwards the budget estimates of direct 
taxes for the current year to $93 billion (Rs 3950 billion) from $86 
billion (Rs 3650 billion) set earlier in February. 
 
¶9. (U) The government also collected about $8.3 billion (Rs 352 
billion) from indirect taxes, excluding service taxes, during 
April-May 2008. Customs duty collections were up by 25 per cent, 
totaling $4.5 billion (Rs 192 billion), despite the GOI announcing 
cuts in customs duty on various items to reduce the inflation rate. 
However, excise revenues recorded a sluggish growth of 0.9 per cent 
reaching just $3.8 billion (Rs 160 billion), despite modest 
industrial growth in FY 2007-08. FM Chidambaram is convinced that 
there is revenue leakage on the excise front due to misuse of the 
CENVAT credit; as a result, meeting the 8% growth target from excise 
taxes for the year seems difficult. 
 
 
GOI APPROVES FOUR KARNATAKA AIRPORTS 
------------------------------------ 
 
¶10. (U) The Government of India's Steering Committee on Greenfield 
Airports has given its approval for four new airports in Karnataka 
(near the towns of Hassan, Shimoga, Gulbarga, and Bijapur).  An 
executive from Jupiter Aviation, which has signed a concession 
agreement with the Government of Karnataka to establish an airport 
in Hassan, told Congen Chennai that the facility will be operational 
in 2010, and that the Committee's approval enables his company to 
approach appropriate ministries and departments to secure requisite 
clearances.  He maintained that that the recent experience in 
opening greenfield airports in Bangalore and Hyderabad had given 
several useful precedents which will speed up the approval process. 
He also said that his company wants to develop the Hassan airport 
into a maintenance and repair hub for Brazilian-made Embraer 
aircraft operating in South Asia.  The executive pointed out that 
these aircraft use avionics and engines from U.S. companies like 
Honeywell and Pratt & Whitney, so the facility may provide new 
business opportunities for these and other American companies. 
 
 
CHENNAI CHURNS OUT NEW HOTELS 
 
NEW DELHI 00001712  003 OF 004 
 
 
----------------------------- 
 
¶11. (U) Business travelers to Chennai will soon be spoiled for 
choice, as the city is set to more than double the amount of quality 
hotel rooms available in the next three years.  The city currently 
has fewer than 1500 such rooms, but by the end of 2010 there should 
be at least 3600 business-traveler-quality rooms, mostly in the 4- 
and 5-star category.  Most of the international hotel industry's 
biggest names (Hilton, ITC, Kempinski, Hyatt, Le Meridien, J.W. 
Marriot, Taj) are joining the construction fray, as are several 
local companies.  At least five new hotels, with a total of more 
than 900 rooms, are slated to open by the end of this year. 
 
 
INDIA HOSTS KIMBERLEY PROCESS MEETING 
------------------------------------- 
 
¶12. (U) India, the current Chair of the Kimberley Process 
Certification Scheme (KPCS), hosted the 5th Inter-Sessional meeting 
of the KP, established to reduce trade in conflict diamonds, June 
17-19, 2008 in New Delhi.  Delegates from 35 countries, the World 
Diamond Council (WDC), Global Witness (GW), Partnership Africa 
Canada (PAC), and the United Nations participated in the meeting to 
review the mid-year progress of the KPCS implementation, and 
discussed ways to strengthen it.  In his remarks opening the 
meeting, Commerce Secretary G.K. Pillai highlighted the significance 
of the diamond industry to the Indian economy, noting that the 
diamond manufacturing sector provides employment to about one 
million people in India.  India has a share of about 60 percent of 
the world's polished diamond market by value and about 82 percent by 
volume.  State/EEB headed up an interagency U.S. delegation that 
included DHS/ICE and Commerce. 
 
¶13. (SBU) Venezuela resigned from the Kimberley Process at the KPCS 
mid-year review meeting on June 17.  The U.S. delegation believes 
the resignation was a face-saving move engineered behind the scenes 
by Indian KP chair Additional Secretary Rahul Khullar, in response 
to demands for Venezuela's expulsion from the 73-nation rough 
diamond trade control group.  NGOs and the diamond industry had been 
calling for Venezuela's expulsion since it stopped issuing KP 
certificates for diamond shipments two years ago.  The resignation 
will bar Venezuela from trading rough diamonds with other KPCS 
member countries.  Venezuela's Ambassador to India told the KP that 
Venezuela supported the group's goals to control conflict diamonds 
but would "separate and dissociate" itself from the organization for 
"no less than 24 months." 
 
¶14. (U) Under UN auspices, KPCS is a joint government, industry, and 
civil society initiative to check the flow of conflict diamonds 
(rough diamonds used by insurgent movements to finance wars against 
legitimate governments) since November 2002.  KPCS imposes extensive 
requirements on its members to enable them to certify shipments of 
rough diamonds as 'conflict-free'. 
 
 
PNB TO PROMOTE RICKSHAW MICROFINANCE 
-------------------- 
 
¶15. (U) Punjab National Bank, Indian's largest government-owned 
bank, entered into an agreement with NGO American India Foundation 
to make credit available to workers in the informal sector.  PNB, 
having declared 2008 the "Year of Financial Inclusion," believes 
that this MOU will enable the bicycle rickshaw drivers to access 
credit and thus connect themselves with the formal banking system at 
easier financing levels. PNB will disburse the loans to the workers 
through NGOs identified and recommended by AIF.  Loans will be of 
two kinds.  One is to provide credit to the rickshaw drivers to own 
the bicycle carts and the other is to provide them on rent from the 
borrowing NGO. 
 
¶16. (U) The bicycle cart is a significant means of transport in 
India.  There are currently estimated to be 8 million bicycle 
rickshaw drivers in India, with about 600,000 in Delhi itself.  In 
 
NEW DELHI 00001712  004 OF 004 
 
 
some urban neighborhoods, they are becoming increasingly popular as 
the most efficient way to go short distances, especially through 
narrow streets.  The rickshaw drivers are often very poor rural 
migrants, who have never had access to formal banking services such 
as loans, savings, or insurance.  Most of the bicycle carts are 
hired and a major chunk of the drivers' income goes towards rent and 
maintenance of the vehicle.  This initiative will promote 
micro-entrepreneurship among urban poor and rural migrants and is a 
helpful step towards bringing such marginalized groups into the 
purview of the formal financial services sector and reducing their 
vulnerability.  PNB plans to finance 10,000 bicycle rickshaw drivers 
in the next two years and 100,000 in the next five years.  In 
addition to rickshaw drivers, credit will also be extended gradually 
to other informal sector workers, such as waste-workers, 
construction labor, and small-scale dairy enterprises. 
 
¶17. (U) Visit New Delhi's Classified Website: 
http://www.state.sgov/p/sa/newdelhi 
 
MULFORD