VZCZCXRO6494
RR RUEHAST RUEHBI RUEHCI RUEHLH RUEHPW
DE RUEHNE #2277/01 2351117
ZNR UUUUU ZZH
R 221117Z AUG 08
FM AMEMBASSY NEW DELHI
TO RUEHC/SECSTATE WASHDC 3099
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 002277 
 
SIPDIS 
SENSITIVE 
 
STATE FOR SCA/INS AND EEB 
USDOC FOR ITA/MAC/OSA/LDROKER/ASTERN/KRUDD 
DEPT OF ENERGY FOR A/S KHARBERT, TCUTLER, CZAMUDA, RLUHAR 
DEPT PASS TO USTR CLILIENFELD/AADLER/CHINCKLEY 
DEPT PASS TO TREASURY FOR OFFICE OF SOUTH ASIA MNUGENT 
TREASURY PASS TO FRB SAN FRANCISCO/TERESA CURRAN 
USDA PASS FAS/OCRA/RADLER/BEAN/CARVER/RIKER 
EEB/CIP DAS GROSS, FSAEED, MSELINGER 
 
E.O. 12958: N/A 
TAGS: EAGR EAIR ECON ECPS EFIN EINV EPET ETRD BEXP KIPR
KWMN, PHUM, SENV, IN 
 
SUBJECT: NEW DELHI WEEKLY ECON OFFICE HIGHLIGHTS FOR THE WEEK OF 
AUGUST 18 TO AUGUST 22, 2008 
 
REF: NEW DELHI 2081 
 
¶1. (U) Below is a compilation of economic highlights from Embassy 
New Delhi for the week of August 18 to August 22, 2008, including 
the following: 
 
-- FINANCE MINISTRY ON LEGISLATION, FARM WAIVER PROGRAM 
-- INVESTMENT STILL GOING STRONG 
-- CABINET APPROVES HIGHER SALARIES FOR GOVERNMENT EMPLOYEES 
-- NEW INVESTMENT NORMS OF PRIVATE PROVIDENT FUNDS 
-- DELHI INTERNATIONAL AIRPORT OPENS THIRD RUNWAY 
-- KARNATAKA'S DRAFT INDUSTRIAL POLICY 
-- KARNATAKA WANTS TO REOPEN OLD BANGALORE AIRPORT 
 
FINANCE MINISTRY ON LEGISLATION, FARM WAIVER PROGRAM 
--------------------------------------------- ------- 
 
¶2. (SBU) Econ and Treasury met on August 21 with Ministry of Finance 
Joint Secretary (Banking Operations) Amitabh Verma and discussed 
pending financial legislation and the farm waiver program.  First, 
Verma noted that his office has been busy putting the final touches 
oo the pending financial bills in Parliament (see reftel) to ensure 
that the bills could be quickly passed, if the UPA coalition decides 
to move on them.  From his perspective, the bills' passage was 
possible from a process point of view provided the Parliamentary 
session convenes for at least a week.  What Verma saw as the 
deciding factor is consistent with earlier assessments: whether the 
UPA wanted to risk testing its new coalition partners by putting the 
bills up to vote.  The Joint Secretary observed that the ruling 
coalition's slim majority combined with the BJP's public stance that 
it will oppose legislation means that any legislative vote acts 
essentially as another trust vote for the government that it will be 
wary to push. 
 
¶3. (SBU) On the post-2009 Banking Roadmap, Verma asserted the 
government was ready to open more of the sector to foreign banks. 
However, the next few months would be difficult ones in which to 
begin such a review.  He noted that RBI Governor YV Reddy ends his 
tenure on September 6 and the new governor would need some time in 
the position before being able to fully engage on the roadmap. 
While internal work may begin this Fall, the GOI would likely 
postpone decisions on the roadmap until after upcoming national 
elections. 
 
¶4. (SBU) Emboffs next asked Verma about the status of the farm debt 
waiver program, which Verma oversees in consultation with the 
Reserve Bank of India.  Verma confirmed that all the eligible small 
and marginal farmers had received an official waiver certificate, 
which doubles as eligibility for fresh agricultural loans.  Next, 
banks must apply for reimbursement, which they would receive in 
three annual tranches from the government. Most farmers received the 
waiver in time to borrow for the summer planting season, although 
Verma noted that, year to date, overall agricultural lending was 
lower this year than last.  On the cost of the program, last 
estimated at Rs 72,000 crore (roughly $17 billion), Verma assessed 
that the maximum cost (still to be spread over three years) would 
come in at Rs 67,000 crore ($16 billion), of which Rs 12,000 crore 
($2.9 billion) goes to big farmers.  Big farmers would only get the 
government payment if the farmer first paid 75 percent of his 
defaulted loan.  Verma thought it unlikely that many big farmers 
would avail of this offer, and so estimated the total cost of the 
farm waiver program to be around Rs 54,000 crore ($12.9 billion), to 
be paid out to the banks over three years. 
 
¶5. (SBU) Verma identified one bill that the government would need to 
pass at the Monsoon Session - a supplementary funding bill that 
often gets passed in this session.  The supplementary "grants" bill 
would, among other things, allocate Rs 25,000 crore ($6 billion) for 
this fiscal year's contribution to the waiver cost.  (Note: press 
reports have also identified the need for the supplementary grants 
bill to cover the Pay Commission government salary hikes, a 
pre-election deliverable the government will want to ensure. End 
note.) 
 
NEW DELHI 00002277  002 OF 004 
 
 
 
INVESTMENT STILL GOING STRONG 
----------------------------- 
 
¶6. (U) Both foreign and direct investment seem unaffected so far by 
the slowdown in Indian and global economic growth.  Foreign direct 
investment (FDI) into India during the first quarter of the fiscal 
year, April to June, exceeded $10 billion, higher than last year 
during the same period, and $1 billion more than all of fiscal year 
2005-06.  FDI is strongly on course to meet the government's 
full-year target of $35 billion. In addition, domestic companies' 
investment plans appear unhindered by signs of slowing elsewhere. 
The Center for Monitoring the Indian Economy (CMIE) stated that it 
had tracked $118 billion worth of new investment plans during April 
to June.  That's a monthly average of $39 billion, compared to a 
monthly average of $33 billion during the last fiscal year. 
 
CABINET APPROVES HIGHER SALARIES FOR GOVERNMENT EMPLOYEES 
--------------------------------------------- --------- 
 
¶7. (SBU) The Indian Cabinet, in time for an Independence Day 
announcement, approved on August 14 most of the recommendations of 
the Sixth Pay Commission for raising the wages of the central 
government's five million employees, retrospective from January 1, 
¶2006.  Employees of the central government, including defense and 
the railways, will get an average salary raise of 21 percent 
(varying between 28-40 percent of their existing pay), above what 
the Pay Commission had recommended in March.  Employees will get 
hiked salaries from September 2008, once the government authorizes 
the payments in its supplemental grants bill to Parliament during 
the Monsoon Session. Arrears amounting to $7 billion (Rs 294 
billion) would be paid in two installments - 40 percent would be 
paid by September 2008 and the balance next year. Expenditure 
Secretary Sushma Nath said that higher salaries (after modifications 
made by the Cabinet) would cost the treasury $4.2 billion (Rs 178 
billion) on an annual basis, about 42 percent more than the hike 
suggested by the Panel earlier in March. Including arrears, the 
total spending would total amount to $10 billion (Rs 428 billion) 
over two years. 
 
¶8. (SBU) The Prime Minister's Advisory Council has sounded concern, 
saying the increased wage bill will push up the fiscal deficit. 
However, Finance Minister Chidambaram clarified by saying that the 
impact of the Pay Commission had been taken into account when the 
government cleared the recommendations and had been factored into 
the budget (Note: However, the March budget papers did not include a 
line item for the Pay Commission salary increases. End note.) 
Analysts opine that the arrears pay-out and incremental salaries 
will raise the disposable incomes of the consumers, particularly at 
the lower spectrum and this would translate into higher consumer 
spending on goods, durables, cars and traveling. Some observers feel 
the increase will not make a great impact on inflation as inflation 
is a supply side problem. Comment: The impact of the pay-out of the 
Sixth Commission on the government's finances is projected to be 
milder than it was during the Fifth Pay Commission, although it is 
likely to add 0.5-0.6 percent to the central government's deficit to 
GDP figure. End Comment. 
 
NEW INVESTMENT NORMS OF PRIVATE PROVIDENT FUNDS 
--------------------------------------------- 
 
¶9. (SBU) The Finance Ministry issued a notification on August 14, 
relaxing the investment pattern rules for non-government provident 
funds, superannuation and gratuity funds, which together total 
around $119 billion, in order to give these funds more freedom to 
manage their portfolio. The new guidelines, which will come into 
force from April 2009, increase the limit on investment in equities 
by these privately managed funds to 15 percent of their corpus from 
the earlier 5 percent, as long as they are in shares of companies 
with derivatives on the Bombay Stock Exchange or National Stock 
Exchange or equity linked schemes of mutual funds. Funds will also 
be permitted to invest in new categories of investments, including 
debt securities, term deposits issued by the commercial banks and in 
 
NEW DELHI 00002277  003 OF 004 
 
 
rupee bonds issued by multilateral agencies for infrastructure 
projects. 
 
DELHI INTERNATIONAL AIRPORT 
OPENS THIRD RUNWAY 
------------------------- 
 
¶10. (U) New Delhi's international airport, Indira Gandhi 
International Airport, opened its third runway for trial runs this 
week.  At 2.75 miles long, it is one of Asia's longest runways, and 
will be able to accommodate large passenger aircraft such as the 
Airbus 380. Civil Aviation Minister Praful Patel inaugurated the 
runway, stating that it would be open to commercial operations by 
next month. The runway is equipped with the CAT IIIB Instrument 
Landing System at both ends, which permits landing with visibility 
as low as 50 meters - a common frequency in Delhi's fog-laden winter 
months.  The new runway, part of the ongoing modernization of the 
international and domestic airports, was completed six months ahead 
of the schedule. 
 
KARNATAKA'S DRAFT INDUSTRIAL POLICY 
----------------------------------- 
 
¶11. (U) Karnataka's new government has floated its draft industrial 
policy on the web.  The state's Minister for Heavy and Medium 
Industry told Consulate General Chennai that his department seeks 
suggestions from the public to help fine-tune the policy.  The draft 
policy proposes changes to the state's land acquisition policy in 
the hopes of reducing local opposition to large scale industrial 
projects.  Under the existing policy the government of Karnataka 
acquires 100 percent of the land required to establish a 
manufacturing facility.  The draft policy reduces government's role 
in land acquisition.  It limits government acquisition to only 30 
percent of the total land required, leaving the investor responsible 
for purchasing the remaining 70 percent directly from the owners. 
Moreover, the government will require that the land it acquires be 
used only for the stated industrial purpose to help prevent 
diversion into real estate development projects. 
 
KARNATAKA WANTS TO REOPEN OLD BANGALORE AIRPORT 
--------------------------------------------- --- 
 
¶12. (SBU) Senior Karnataka officials told Consulate General Chennai 
that they plan to review the state's agreement with Bangalore 
International Airport Limited (BIAL) in the hopes of reopening the 
recently closed, more centrally-located HAL Airport.  The new 
airport, which opened in May, has been the subject of much 
dissatisfaction, primarily with the long drive time to the airport 
from many of Bangalore's business districts.  Bangalore's 
notoriously bad traffic means that it can take up to two hours to 
cover the 40 kilometers from the airport to the city center. 
 
¶13. (SBU) The state's Information and Biotechnology Minister, whose 
portfolio also includes developing Bangalore, told Consulate General 
Chennai that BIAL had not lived up to the commitments it made in its 
Memorandum of Understanding with the state.  Citing one example of 
BIAL's failure to perform, the Minister said the airport does not 
have the number of luggage carousels stipulated in the agreement. 
He also claimed that with the expected increase in traffic through 
Bangalore the new airport will hit its maximum capacity by mid-2009, 
but that the second phase will not come on line until 2011.  The 
Minister believes that the state can renegotiate the deal with BIAL 
to allow the old HAL airport to meet the interim excess demand. 
 
¶14. (SBU) The state's Chief Minister echoed the Information and 
Biotechnology Minister's views.  Chief Minister Yeddyurappa said 
that the new airport's "facilities are not up to international 
standards."  He also noted that "every major city in the world has 
two airports," so his government has asked the central government to 
consider keeping HAL airport open. 
 
¶15. (U) Visit New Delhi's Classified Website: 
http://www.state.sgov/p/sa/newdelhi 
 
NEW DELHI 00002277  004 OF 004 
 
 
 
WHITE