VZCZCXRO7892
RR RUEHAST RUEHBI RUEHCI RUEHLH RUEHPW
DE RUEHNE #2645/01 2771225
ZNR UUUUU ZZH
R 031225Z OCT 08
FM AMEMBASSY NEW DELHI
TO RUEHC/SECSTATE WASHDC 3674
INFO RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLECTIVE
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 002645 
 
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 29 TO OCTOBER 3, 2008 
 
¶1. (U) Below is a compilation of economic highlights from Embassy 
New Delhi for the week of September 29 to October 3, 2008, including 
the following: 
 
-- MOCI PROPOSES EXPANSION OF FDI IN RETAIL 
-- NEW MANUFACTURING POLICY IDEAS - 
MOVE IN RIGHT DIRECTION? 
-- TWO LARGE RAILWAY PROJECTS WITH 
US INVOLVEMENT CHUGGING FORWARD 
--ECONCOUNS VISIT TO KOLKATA 
-- POLITICS AS USUAL IN WEST BENGAL 
-- USTDA GRANTS CONTINUE TO SUPPORT U.S.-INDIA ENERGY DIALOGUE 
 
MOCI PROPOSES EXPANSION OF FDI IN RETAIL 
----------------------------- 
 
¶2. (U) Following Commerce Minister Nath's comments in France on 
October 1 that India will look at removing the 51% cap on FDI in 
single-brand retail, local press reported in Delhi that the Ministry 
had forwarded a proposal for 100% FDI in single brand retail to the 
Cabinet for approval.  The proposal supposedly also includes 
allowing FDI in multi-brand retail for the first time, up to 51%, 
although limited to single-industry retailers of electronics, 
computers, sporting goods, and watches.  Grocery and consumer goods 
retail would remain off-limits to FDI for the time being. The 
proposal is also reported to include a requirement that foreign 
retailers with more than 51% equity would have to source at least 
50% of their goods from within India.  The Ministry had pushed a 
proposal in 2007 for specialty multi-brand FDI, but it was opposed 
by the Left parties.  With the Left's withdrawal of support to the 
government in July, the Ministry perceives a chance to enhance FDI 
in retail.  Increasing FDI in retail does not require legislation, 
only Cabinet approval. 
 
NEW MANUFACTURING POLICY IDEAS - 
MOVE IN RIGHT DIRECTION? 
-------------------------------- 
 
¶3. (U) A senior group of advisors headed by the National 
Manufacturing Competitiveness Council (NMCC) Chairman V. 
Krishnamurthy recently released its report recommending a 
manufacturing policy to reverse deceleration in growth in the 
sector.  It includes proposals to link FDI approvals to commitments 
on technology transfer.  The report makes several recommendations 
for specific issues relating to technology transfer, trade, tax, 
public sector enterprises, infrastructure development, and labor 
reforms while emphasizing the state's intervention for domestic 
value addition and small and medium enterprises protection in view 
of increased competition by Chinese goods. 
 
¶4. (U) According to the report, India's FDI policy for the 
manufacturing sector is "very liberal" and it recommends 
re-examination of the present policy of permitting 100 percent 
subsidiaries of foreign companies in this sector.  Another 
recommendation points to the need to counter the damage to the 
domestic industry due to increased duty-free imports of power 
generating equipment.  The report also highlights the original 
purpose of promoting SEZs for attracting investment into the 
manufacturing sector and recommends the GOI consider SEZs to be 
economic zones with no fiscal concessions but with world class 
infrastructure. 
 
¶5. (U) In January 2008, Prime Minister Singh established a core 
group of secretaries representing finance, revenue, commerce, 
textiles, and industry to carefully examine decelerated growth of 
the manufacturing sector and make recommendations to improve 
productivity of this sector.  The Confederation of Indian Industry 
(CII) has welcomed the core group's recommendations.  In a press 
release, CII stated that the NMCC-supported manufacturing policy 
will help give the required thrust to manufacturing growth over the 
short- and long-term.  According to industry estimates, India's 
manufacturing sector has been contributing about 17 percent to the 
 
NEW DELHI 00002645  002 OF 004 
 
 
GDP and has witnessed growth of 7.8 percent in 2007-08. 
 
¶6. (SBU) COMMENT: While the report advances some recommendations 
that would focus directly on manufacturing development issues, it 
also contains worrisome protectionist recommendations such as the 
FDI limitations.  These provisions not only fall short of addressing 
the real problems plaguing slower growth rates in manufacturing, but 
could harm the sector by discouraging competition.  Post will 
monitor reaction by the government and industry to the NMCC's 
manufacturing policy in the coming weeks.  END COMMENT. 
 
MAJOR RAILWAY TENDER TO BE AWARDED 
TO ONE OF TWO US FIRMS CHUGGING FORWARD 
--------------------------------------- 
 
¶7. (U) The GOI decided last week to release the Request for Proposal 
for a $5 billion diesel locomotive project, which will be awarded to 
one of two American firms. Globally only GE and EMD produce diesel 
locomotives; they are, therefore,   the only bidders on the project 
to supply 1000 diesel locomotives and build a locomotive factory in 
Bihar. The RFP includes $3 billion for equipment to be procured over 
10 years, with production gradually shifting to the new Indian 
plant. The remaining $2 billion will go towards maintenance and 
service of the locomotive fleet. Awarding the project is expected to 
take place in the first quarter of 2009. 
 
ECONCOUNS VISIT TO KOLKATA 
-------------------------- 
 
¶8. (U) During his Kolkata visit September 29-October 1, U.S. 
Embassy, New Delhi, Econ Minister Counselor John Davison met 
prominent Kolkata contacts, including senior officials of the West 
Bengal government, business journalists, industry associations 
AMCHAM, Indian Chamber of Commerce and NASSCOM, and independent 
consultants PricewaterhouseCoopers.  Davison also addressed MBA 
students at the Indian Institute of Social Welfare and Business 
Management which is India's first business school. 
 
¶9. (SBU) Two subjects dominated conversations Congen interlocutors 
had with Davison.  The status of the U.S. financial markets was the 
top concern.  NASSCOM sources expressed concern that Indian IT 
companies would soon get requests from their U.S. clients to delay 
or reschedule payments for services rendered, or 
cancellation/postponement of planned IT infrastructure investments 
in the mid-term.  A business journalist predicted that the U.S. 
financial crisis would lead to a severe long term financing crunch 
for energy infrastructure projects in India, slowing down investment 
and expansion in other sectors of the economy. However, there was a 
general consensus that the Indian financial system was more immune 
to the U.S. crisis than most because it is more tightly regulated 
relative to others. 
 
¶10. (SBU) The situation in Singur also featured prominently in the 
conversations. There was a consensus that the Singur incident will 
have an adverse impact on West Bengal's image as an investment 
destination. But many also argued that   the state has strong 
economic fundamentals and there is a consensus on the need for 
industrialization. Trinamul Congress leader and former Member of 
Parliament (Rajya Sabha) Mr. Dinesh Trivedi (please protect) 
provided a different - his party's -- perspective on the 
controversy. He said Trinamul Congress was not averse to either the 
project or investor (Tata Motors). His party's opposition was to the 
unfair manner in which the entire project was conceived and 
managed. 
 
¶11. (SBU) Trivedi said that, since the state government was 
extending fiscal incentives to Tata, including a sales tax holiday, 
the public had the right to know how their money was being used.  He 
alleged that Tata Motors collected hefty amounts by sub-leasing the 
land to component suppliers who set up their facilities adjacent to 
the Nano plant. Large profits from land speculation enable Tata to 
sell the Nano cheaply at USD 2,500. Trivedi compared it to the U.S. 
 
NEW DELHI 00002645  003 OF 004 
 
 
bailout of financial institutions, i.e., the West Bengal government 
was diverting public money to enrich a private investor. 
 
POLITICS AS USUAL IN WEST BENGAL 
-------------------------------- 
 
¶12. (SBU) Political wrangling also threatened to derail the German 
Metro cash and carry project in Kolkata.  Blocking the project was 
the Forward Bloc party which is the Communist Party's (CPM's) 
coalition ally in West Bengal.  A minister loyal to the Forward Bloc 
runs the Department of Agricultural Marketing which grants licenses 
to vendors of farm products.  The Forward Bloc is opposed to any 
move toward allowing Foreign Direct Investment (FDI) in multi-brand 
retail (which is currently banned nationally), and although Metro 
will run only wholesale - and not retail - operations in Kolkata, 
the Agricultural Marketing Department refused to renew the license 
it granted to the company in 2006.  With Metro ready to start its 
operations, the entire project was threatened and the German consul 
general in Kolkata intervened, stating publicly that investment from 
his country will bypass West Bengal if Metro's license was not 
renewed. 
 
¶13. (SBU) In an unprecedented move, Chief Minister Buddhadeb 
Bhattacharjee exercised his executive power and directed the 
Agricultural Marketing department to renew Metro's license.  This 
created a political crisis, with Forward Bloc threatening to 
withdraw from the state government. Later, the Left Front political 
leaders met and resolved the crisis. It was decided that Metro's 
license will be renewed by October 10 with "certain conditions." 
These "conditions" will likely include a provision that each billing 
for an identified product must not be less than Rs. 50,000. 
 
USTDA GRANTS CONTINUE TO SUPPORT U.S.-INDIA ENERGY DIALOGUE 
----------------------------- 
 
¶14. (U) This week USTDA ended FY 2008 by awarding two grants over 
the last two days, totaling almost $900,000 that further the 
agency's commitment to the objectives of the U.S.-India Energy 
Dialogue.  Since 2005, USTDA has provided over $3.5 million, and 
leveraged more than an additional $1 million, in funding for project 
studies, not only in refinery process modernization, but also in 
coal bed methane development and alternate coal mining technology, 
as well as technical assistance in the development of new regulatory 
structures for India's expanding oil and gas industries. 
 
¶15. (U) The first grant, to India's Petroleum and Natural Gas 
Regulatory Board (PNGRB), will be used to promote competition in 
India's oil and gas sector through the development of a more 
transparent regulatory environment.  The second grant, to Hindustan 
Petroleum Corporation Limited (HPCL), will fund investment analysis 
on a refinery bottoms upgrades project for its refinery in Mumbai. 
 
¶16. (U) The PNGRB was established by the Government of India in 2006 
to develop and consolidate regulation of many critical areas of the 
growing Indian oil and gas business.  Currently, the agency is 
seeking expert assistance from partner countries in order to develop 
and improve its competencies in regulatory processes and rulemaking. 
 The $348,339 USTDA grant awarded today will support this effort by 
funding a series of technical workshops in India and the United 
States, site visits to U.S. federal and state regulatory authorities 
and private industry, and internships for PNGRB personne at a U.S. 
public utility commission.  In particular, the grant will assist the 
PNGRB in developing midstream and downstream regulations in the 
areas of pricing, utility accounting and monitoring, safety, and 
licensing of infrastructure development for the oil and gas sector. 
 
 
¶17. (U) The PNGRB has selected the National Association of 
Regulatory Utility Commissioners (NARUC), a non-profit organization 
based in Washington D.C., as the contractor to perform the 
USTDA-funded technical assistance. NARUC brings considerable 
experience to the project, having represented the regulatory utility 
 
NEW DELHI 00002645  004 OF 004 
 
 
commissioners (oil and gas, water, and electricity) from each of the 
state governments in the United States for more than 100 years.  In 
addition to the USTDA grant, NARUC will provide additional resources 
toward the project's completion. 
 
¶18. (U) HPCL is planning to upgrade its petroleum refinery in 
Mumbai, India with the addition of a new processing unit that will 
enable it to convert heavy end residual products derived in the 
refining process to lighter end and higher value products. The 
$597,882 USTDA-funded assistance will support this effort by 
determining the viability of applying a proprietary technology from 
Kellogg Brown and Root LLC (KBR) of Houston, Texas, called Residuum 
Oil Supercritical Extraction (ROSE(tm)), to achieve HPCL's 
objectives.  HPCL has selected KBR to perform the study.  In 
addition to the USTDA grant, both KBR and HPCL will contribute 
additional resources towards the study's completion. 
 
¶19. (U) Visit New Delhi's Classified Website: 
http://www.state.sgov/p/sa/newdelhi 
 
MULFORD