VZCZCXYZ0007
RR RUEHWEB

DE RUEHNE #2575/01 2691057
ZNR UUUUU ZZH
R 251057Z SEP 08
FM AMEMBASSY NEW DELHI
TO RUEHC/SECSTATE WASHDC 3567
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 NEW DELHI 002575 
 
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 
DEPT PASS TO USTDA HSTEINGASS/JNAGY 
 
E.O. 12958: N/A 
TAGS: EAGR EAIR ECON ECPS EFIN EINV ENRG EPET ETRD BEXP
KIPR, KWMN, PHUM, SENV, ASEC, IN 
 
SUBJECT: NEW DELHI WEEKLY ECON OFFICE HIGHLIGHTS FOR THE WEEK OF 
SEPTEMBER 22 TO SEPTEMBER 25, 2008 
 
¶1.  (U) Below is a compilation of economic highlights from Embassy 
New Delhi for the week of September 22 to September 25, 2008, 
including the following: 
 
-- RBI EASES ECB NORMS FOR INFRASTRUCTURE 
-- RBI EASES FOREIGN FUND RAISING RULES 
-- GOI CLEARS 18 NEW SEZ PROPOSALS 
-- ITALIAN FIRM EXECUTIVE KILLED BY EMPLOYEE MOB 
-- INDIA QUEST SETS OUT TO MAKE CIVIL REGIONAL AIRCRAFT 
-- RAMANATHAN APPOINTED NEW FINANCE SECRETARY 
 
-------------------------------------- 
RBI EASES ECB NORMS FOR INFRASTRUCTURE 
-------------------------------------- 
 
¶2. (U) The Reserve Bank of India (RBI) announced this week that the 
external commercial borrowing (ECB) ceiling has been raised for 
infrastructure projects from $100 million to $500 million per 
financial year.  Given the huge funding requirements in the 
infrastructure sector, borrowers will now have access to more funds 
for rupee expenditure.  For ECBs in excess of $100 million, the RBI 
requires a minimum average maturity period of 7 years.  The RBI has 
also raised the libor spread giving medium firms more access to 
foreign financing.  Given the widening of credit spreads, it raised 
the interest ceiling by 100bps from Libor + 350 to Libor + 450 bps 
to enable companies access to overseas markets.  The primary reason 
for this move is to assist the ailing infrastructure sector which is 
hurting for funds.  The immediate catalyst seems to be the likely 
need for higher capital inflows to offset downward pressure on the 
rupee.  Yet, this move may be insufficient given the recent global 
liquidity crunch.  ECB norms for non-infrastructure companies remain 
unchanged.  Detailed release of the RBI announcement is available at 
http://rbi.org.in/home.aspx  (under "What's New," click on "External 
Commercial Borrowings Policy - Liberalisation"). 
 
------------------------------------ 
RBI EASES FOREIGN FUND RAISING RULES 
------------------------------------ 
 
¶3. (U) On Tuesday, the RBI operationalized the issue of Foreign 
Currency Exchangeable Bonds (FCEB) Scheme of 2008 towards attracting 
foreign currency inflows.  The new policy, which was notified by the 
Ministry of Finance in February, will provide corporate groups more 
flexibility to raise funds abroad since they can also leverage the 
value of their holding of a company in group firms.  An FCEB is a 
bond expressed in foreign currency with the principal and interest 
payable in foreign currency.  Foreigners, non-resident Indians 
(NRIs), and overseas entities are eligible to subscribe to these 
bonds, which can be converted into equity shares of a group company 
(known as the offered company).  The offered company should be a 
listed company in a sector which is eligible for FDI and able to 
issue or avail of FCCBs or ECBs.  The investment under the scheme 
must comply with the FDI and ECB policy requirements. 
 
¶4. (U) The norms for FCEBs incorporate all the restrictions 
applicable on ECBs as well as foreign ownership in Indian companies. 
 Bankers have commented that it will be difficult to raise foreign 
capital given the recent global financial turmoil.  However, from 
RBI's perspective, this measure will attract more foreign exchange 
inflows into debt, given that foreign investors have recently been 
heavy sellers in equity markets.  Also, with the government 
stipulating the minimum period of maturity for FCEBs at five years, 
it will also act as a type of "lock in" for funds.  The RBI has also 
required that funds raised through FCEBs cannot be used for 
investments in Indian capital markets or real estate.  The policy 
does allow proceeds from FCEBs to be invested by the issuing company 
in promoter group companies. 
 
------------------------------- 
GOI CLEARS 18 NEW SEZ PROPOSALS 
------------------------------- 
 
¶5. (U) The GOI Board of Approval (BOA) recently reviewed 35 
proposals for setting up Special Economic Zones (SEZs), of which 18 
were granted formal approval, and 10 received in-principle approval 
subject to land acquisition.  Among the formal SEZ approvals, some 
prominent investors included Larsen and Toubro, JSW Bengal Steel, 
and Bharat Forge for a combined investment of nearly $16 billion 
(INR 720 billion).  The BOA converted the earlier in-principle 
approval of Bharat Forge's 1,271 hectare multi-product SEZ in 
Maharashtra to formal approval.  JSW Bengal Steel's 1,804-hectare 
multi-product SEZ project in West Bengal involves a $3.4 billion 
investment.  In addition to the three multi-product, multi-services, 
and engineering SEZs in Maharashtra, other formally approved 
proposals included biotech SEZs in Andhra Pradesh and in Tamil Nadu 
and nine information technology and related services SEZs in Uttar 
Pradesh, Tamil Nadu, Haryana, Gujarat, and Maharashtra.  Overall, 
the GOI has approved 513 SEZs, of which 250 have been notified and 
87 are operational. 
 
¶6. (U)  Among the 10 projects which received in-principle approval, 
the multi-product project EMPI Vittal Center entails an investment 
of $2.5 billion.  The pending Reliance Industries Ltd's (RIL's) 
proposal for a SEZ in Navi Mumbai (Maharashtra) also received 
in-principle approval, despite some land acquisition issues which 
must adhere to GOI policy.  In April 2007, the GOI banned compulsory 
acquisition of land for SEZs following widespread protests against 
the SEZs; the government also established a ceiling of 5,000 
hectares for the maximum amount of land acquired by a SEZ developer. 
 The Maharashtra state government had earlier issued a notification 
mandating all SEZ land acquisition take place through the state 
government.  The GOI has recommended the Maharashtra state 
government withdraw this notification which requires that land 
owners can only sell their land to anyone but the state government. 
This requirement has created antagonism and resentment among farmers 
in Maharastra. 
 
------------------------------------ 
ITALIAN FIRM EXECUTIVE KILLED BY MOB 
------------------------------------ 
 
¶7. (U) On 22 September 2008, a mob of 200 people who are believed to 
be former employees of Graziano Transmission, an Italian auto-parts 
firm, rushed past security guards and began destroying vehicles and 
other company property in Greater Noida.  India division chief 
executive and managing director Lalit Chaudhary heard the commotion 
and went to investigate the incident.  Reportedly, Chaudhary 
attempted to reason with the mob during which time he was attacked 
and killed.  In addition to killing Chaudhary, 20 to 25 other 
workers were injured by the mob.  Human resources head L.K. Gupta 
stated that, "The company will continue to operate.  There is no 
question to shut down or move out as of now."  CEO Marcello 
Lamberto, who arrived in India after Chaudhary's unfortunate death 
acknowledged however that, "There are several issues relating to law 
and order, safety and security, and labor issues."  According to 
media reports, labor unions have termed the event "unfortunate" and 
dismissed it as a one-off case.  Yet, industry officials are 
concerned about the damage to India's image. 
 
¶8. (SBU) A Regional Security Officer (RSO) from the U.S. Embassy 
contacted the local police who confirmed the information above and 
provided additional background on the attacks.  The police noted 
that they had arrested 136 people, of which 63 have been charged 
with the murder of Chaudhary.  The police also stated that while 
almost 200 people entered the Graziano Transmission plant, most of 
them were not former employees but rather individuals recruited for 
this "protest."  The police accountability review has determined 
that police supervisors improperly lowered the number of officers 
assigned to protect the plant because "everything had been going 
smoothly" since the termination of 200 employees four months ago. 
Several police officers responsible for the security of this plant 
have been suspended and/or transferred out of Noida.  The police 
also informed RSO that they have created a new supervisory position, 
Deputy Superintendent of Police (DSP).  The DSP will have 24 four to 
 
five person teams assigned to him for the sole purpose of providing 
protection to multi-national corporations (MNCs). 
 
--------------------------------------------- - 
INDIA SETS OUT TO MAKE CIVIL REGIONAL AIRCRAFT 
--------------------------------------------- - 
 
¶9. (U) On Tuesday, leading technocrats of the Indian aviation and 
scientific community met in Delhi to initiate ambitious plans to 
develop and manufacture civil regional aircraft for domestic and 
foreign sales.  Tentative plans are to develop an indigenous 
anufacture base to produce the "Indian Regional Transport Aircraft" 
- an inexpensive, durable, environmentally-friendly, and easy to 
maintain 70 to 100-seater civilian aircraft within a decade.  HAL 
will lead the project with the Ministry of Defense supervising the 
program to enable India to become self-sufficient in making 
fixed-wing aircraft.  The other two programs include plans for a 
next generation fighter aircraft and military transport plane, which 
India will co-develop with Russia.  Plans for the latter will be 
firmed up later this month during the visit of Alexsei Fedorov, 
Chief of United Aircraft Corporation (the umbrella company of 
Russia's aviation industry).  Defense Minister Antony, who chaired 
the GOI meeting, commented that, "We are shortly going to send a 
spacecraft to the Moon and we are still importing civil aircraft. 
India has all the capabilities and we must make them a reality." 
 
¶10. (U) Specific details about the proposed civil regional aircraft 
are still pending, including issues like work share, funding, and 
whether the aircraft will have a turbo-prop or turbo jet engine.  In 
India, the time from development to certification is estimated to be 
six years and the plane will roll off four to six years after the 
certification.  If the project succeeds, HAL will join a select 
group of companies that manufacture these planes with a range of 
3,000 km.  Currently, companies in this cadre include Embraer, 
Bombardier, Mitsubishi, Sukhoi, and the Chinese company, AVIC. 
 
------------------------------------------ 
RAMANATHAN APPOINTED NEW FINANCE SECRETARY 
------------------------------------------ 
 
¶11. (U) The GOI designated Arun Ramanathan, financial services 
secretary, to be the new Ministry of Finance Secretary.  Ramanathan 
replaces D Subbarao who recently succeeded Y V Reddy as the RBI 
Governor. Ramanathan will face many challenges as the new Finance 
Secretary, including grappling with double digit inflation of 12 
percent, slower economic growth compared to previous years, and 
containing the impact on the Indian economy from the global economic 
slow down and crisis in the U.S. capital markets.  Ramanathan will 
also continue to hold the post of Financial Services Secretary, 
which he assumed in January 2008.  He first moved to the central 
government in June 2007 when he was appointed the Secretary of the 
Ministry of Chemicals and Fertilizers.  He is 59 years old and 
belongs to the 1973 class of the Indian Administrative Service (IAS) 
from the Tamil Nadu cadre. 
 
¶12. (U) Visit New Delhi's Classified Website: 
http://www.state.sgov/p/sa/newdelhi 
 
DAVISON