VZCZCXRO1532
RR RUEHAST RUEHBI RUEHCI RUEHLH RUEHPW
DE RUEHNE #2334/01 2420958
ZNR UUUUU ZZH
R 290958Z AUG 08
FM AMEMBASSY NEW DELHI
TO RUEHC/SECSTATE WASHDC 3194
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 03 NEW DELHI 002334 
 
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 ENRG EPET ETRD BEXP
KIPR, KWMN, PHUM, SENV, IN 
 
SUBJECT: NEW DELHI WEEKLY ECON OFFICE HIGHLIGHTS FOR THE WEEK OF 
AUGUST 25 TO AUGUST 29, 2008 
 
¶1. (U) Below is a compilation of economic highlights from Embassy 
New Delhi for the week of August 25 to August 29, 2008, including 
the following: 
 
-- TAMIL NADU'S WIND POWER WOES CONTINUE 
-- FOREIGN EXCHANGE RESERVES DECLINE 
-- ...AND ITS IMPACT ON EXPORTERS 
-- MOBILE SUBSCRIBERS HITTING NEW HIGHS 
-- MAJOR US CASINO LOOKING AT GOA 
-- GM COMMITS TO $200M FACTORY IN MAHARASHTRA 
-- INDIA-ASEAN FTA NEGOTIATIONS CONCLUDE 
 
TAMIL NADU'S WIND POWER WOES CONTINUE 
------------------------------------- 
 
¶2. (U) Residents of Tamil Nadu continue to face rolling blackouts 
("load shedding") as the state continues to fail to produce enough 
electricity to meet demand.  Lack of rain had earlier reduced 
capacity to produce power from hydro sources, now a drop in wind 
speed following rains in the area have lowered expected production 
from the state's wind farms by nearly 75 percent, leaving the grid 
short by approximately 1000 megawatts of capacity. 
 
¶3. (SBU) The chairman of a small wind farm (four 1250kW windmills) 
told Consulate Chennai that his operation produced 50 percent less 
power than expected this season (usually the peak windpower season 
in Tamil Nadu) and that his windmills have been standing still since 
mid-August when unseasonable rains hit the state.  He said that 
stopping windmills during the monsoon season was normal, noting, 
however, that the monsoon season in Tamil Nadu generally does not 
start before mid-October and that the August-September timeframe is 
traditionally peak season for windpower production. 
 
FOREIGN EXCHANGE RESERVES DECLINE 
--------------------------------------- 
 
¶4. (U) According to the Reserve Bank of India's (RBI) weekly 
statistical supplement, India's foreign exchange reserves have 
declined by nearly $20 billion in the last three months to $296.21 
billion on August 15. Forex reserves touched an all-time high of 
$316 billion in May 2008, but have been depleted since then. (Note: 
According to a recent IMF study, India's current reserves are much 
above the optimal level, indicating that foreign exchange 
accumulation has reduced external vulnerabilities and decreased the 
risk of financial contagion. End note.) The recent fall in reserves 
is mainly due to the RBI intervening in the foreign exchange market 
by selling dollars to temper the rupee's recent slide.  The rupee 
has fallen to its lowest level against the dollar in more than 18 
months, hovering at Rs 44.10/dollar on August 26. After appreciating 
12.3 percent in 2007, the rupee has depreciated more than 10 percent 
in 2008 to date. 
Most analysts credit the rupee's weakening to the $7 billion in 
outflows of foreign institutional investors from India's equity 
markets since March, a reversal from the roughly $20 billion net 
inflow last fiscal year.  In addition, government-owned oil 
companies have been buying dollars for higher cost imports, 
following the rise in crude oil prices over the last two months, 
putting further downward pressure on the rupee. 
 
...AND ITS IMPACT ON EXPORTERS 
---------------------------- 
 
¶5. (U) The last eighteen months of a volatile rupee have been tough 
on exporters, who are used to more predictable directional movements 
in the rupee.  Exporters who had hedged in the last year against a 
stronger rupee at Rs 39.5/dollar are not happy at the more recent 
pace of decline of the rupee. As there is a time lag of a few months 
between booking of orders, delivery of goods and realization of 
payments, exporters do not know how to price their goods. Ganesh 
Gupta, President, Federation of the Indian Export Organization 
commented that frequent exchange rates fluctuations cause loss in 
revenue to the exporters. On the other hand, exporters who had not 
hedged their dollar earnings are relieved as a weaker rupee will 
 
NEW DELHI 00002334  002 OF 003 
 
 
give them higher profits. Gupta opines that if the current exchange 
rate is maintained, exports will grow by 35 percent in FY 2008-09 
and exceed the target of $200 billion set by the government for the 
year. India's exports rose by 22.3 per cent to $42.84 billion 
between April-June 2008 as compared to a growth of 23 percent to 
$155.5 billion for full FY 2007-08. Sanjay Kothari, Chairman of the 
Gems and Jewellery Export Promotion Council too prefers a stable 
exchange rate between Rs 42-43/dollar for purposes of forward 
contracts. Analysts indicate that the rupee is headed for a 
short-term decline on concern of slower growth, high inflation and 
capital outflows from foreign institutional investors. 
 
MOBILE SUBSCRIBERS HITTING NEW HIGHS 
--------------------------------- 
¶6. (U) According to the latest data from the Telecom Regulatory 
Authority of India, India remains the fastest growing mobile 
services market with a total user base now at 296 million as of July 
¶2008. In the month of July alone, mobile operators, GSM and CDMA 
together, added 9.22 million subscribers, which is the highest ever 
addition in a single month. The overall tele-density (defined as the 
availability of cellular phones as a percentage of the population) 
in India at the end of July crossed 29 percent. The growth in the 
sector is expected to cross the 10 million per month threshold as 
new operators start rolling out their services.  Videocon, Unitech, 
Reliance and Tata Teleservices all have plans to launch GSM mobile 
services by year end.  This will help the government to achieve its 
target of 500 million cellular phone users by the year 2010. 
 
MAJOR US CASINO LOOKING AT GOA 
------------------------------ 
 
¶7. (U) Indian news reported on comments this week by the head of 
major casino Las Vegas Sands that the company is interested in 
investing as much as $12 billion on a strip of casinos in India, 
similar to the ones it has in Macau, if the government of India 
invites it in.  Chairman Sheldon Adelson had just come from a visit 
to India, where he met with the Ministers of Tourism and Trade.  He 
stated that Las Vegas Sands is interested in setting up a casino in 
Goa. Currently, Indian law does not permit casinos.  Goa, a coastal 
state, has issued a few licenses for offshore casinos, thus 
circumventing the restrictions.  Several US casinos are eyeing 
markets in Asia, especially Singapore and Macau, the only place in 
China where casinos are legal.  Adelson noted that Macau's gambling 
revenues are expected to exceed the combined total of Las Vegas and 
Atlantic City casinos this year. 
 
GM COMMITS TO $200M FACTORY IN MAHARASHTRA 
------------------------------------------ 
 
¶8. (U) General Motors formalized its plan to invest $200 million in 
the creation of a new manufacturing plant in Talegaon, in Pune 
district, for the production of powertrain engines.  The new 
investment adds to an existing $300 million investment in production 
facilities. The new facility will start with an annual production 
capacity of 160,000 engines, with the possibility of scaling up to 
300,000 engines annually.  Karl Slym, President and Managing 
Director, GM India, commented that the plant is part of GM's global 
strategy to position itself in strong emerging markets.  He said 
that the Talegaon investment is part of a $1 billion invested in 
markets such as Russia and China. 
 
INDIA-ASEAN FTA NEGOTIATIONS CONCLUDE 
------------------------------------- 
 
¶9. (U) Indian news reported on August 29 that a free trade agreement 
(FTA) between the Association of South East Asian Nations (ASEAN) 
and India will be signed in December 2008 on the sidelines of the 
ASEAN Summit in Bangkok.  According to the ASEAN Secretariat, the 
FTA text is being finalized following the recent resolution of 
obstacles on market access issues on palm oil between India and the 
10-member ASEAN.  The formal announcement for conclusion of the 
talks came immediately after the India-ASEAN Economic Ministers 
consultation meeting in Singapore on August 28, which was led on the 
 
NEW DELHI 00002334  003 OF 003 
 
 
Indian side by Commerce Minister Kamal Nath. 
 
¶10. (U) The agreement covering trade in goods between the ASEAN and 
India was scheduled to conclude last year; however, talks were 
hobbled until mid-August due to differences over products which 
India wanted to exclude from tariff cuts.  New Delhi had submitted a 
list of 1,414 products, while ASEAN's target number was 400.  After 
many rounds of negotiations, India has agreed to keep 489 items out 
of the tariff cut by putting them in the "negative list". 
 
¶11. (U) Under the FTA, India will eliminate or substantially reduce 
duties on almost 96 per cent of the items it trades with ASEAN 
(electronic goods, edible oils, coal, coke, chemicals and machinery) 
but protect the sensitive farm sector.  India and ASEAN will bring 
down the duty to zero on 71 percent of products by December 31, 2012 
and another 9 percent by 2015; and duties on another 8-10 percent of 
the products will be slashed to 5 percent. A limited number of 
products will be excluded from tariff concessions based on the 
domestic sensitiveness of the respective countries.  The FTA 
provides for a special track for tariff reduction for five specific 
products (crude and refined palm oil, pepper, tea, coffee) of 
interest to the ASEAN members.  According to Minister Nath, India 
has cut its tariff on crude palm oil to zero from 50-60 percent, and 
its peak tariff rate now averages 9.7 percent. 
 
¶12. (U) India is currently ASEAN's seventh largest trade partner. 
According to the ASEAN Secretariat, two-way trade between the ASEAN 
and India amounted to $37 billion in 2007, up 29 percent from the 
previous year.   India-ASEAN trade is expected to grow to $50 
billion by 2010.  ASEAN is reportedly seeking to strengthen regional 
trade ties, given the current uncertainty over the Doha Round of 
global trade talks. 
 
¶13. (U) Visit New Delhi's Classified Website: 
http://www.state.sgov/p/sa/newdelhi 
 
MULFORD