VZCZCXRO3380
RR RUEHAST RUEHBI RUEHCI RUEHLH RUEHPW
DE RUEHNE #2795/01 2981239
ZNR UUUUU ZZH
R 241239Z OCT 08
FM AMEMBASSY NEW DELHI
TO RUEHC/SECSTATE WASHDC 3911
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 06 NEW DELHI 002795 
 
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, ASEC, IN 
 
SUBJECT: NEW DELHI WEEKLY ECON OFFICE HIGHLIGHTS FOR THE WEEK OF 
OCTOBER 20 TO OCTOBER 24, 2008 
 
¶1. (U) Below is a compilation of economic highlights from Embassy 
New Delhi for the week of October 20 to October 24, 2008, including 
the following: 
 
-- MOF SECRETARY ON FINANCIAL CRISIS 
-- CHIDAMBARAM PRAISES USAID FISCAL REFORM PROGRAM 
-- SHIPPING INDUSTRY BRAVES THE SLOW DOWN 
-- TRADE OPENS ACROSS THE LINE OF CONTROL 
-- LIMITED LIABILITY PARTNERSHIP BILL INTRODUCED IN PARLIAMENT 
-- COMPANIES BILL - A WELCOME CHANGE 
-- INDEPENDENT AIRPORT REGULATOR BILL GAINS MOMENTUM 
-- NO END IN SIGHT FOR TAMIL NADU'S POWER WOES 
-- BHARTI WAL-MART TO BUILD TRAINING CENTERS IN PUNJAB 
 
MOF SECRETARY ON FINANCIAL CRISIS 
--------------------------------- 
 
¶2. (SBU) Economic Counselor met on October 22 with Ashok Chawla, new 
Secretary of the Department of Economic Affairs, Ministry of Finance 
to discuss current economic and financial events.  Chawla first 
stated that he was at the recent World Bank/IMF meetings in 
Washington, where he noticed a consensus that any future 
multinational planning for dealing with the current financial crisis 
needed to be expanded beyond the G-8 and made more broad-based. 
Chawla thought that the meeting of the G-20 group of developing 
countries with Treasury Secretary Henry Paulson and Federal Reserve 
Chairman Ben Bernanke was a good start, made even more so by 
President Bush's participation. 
 
¶3. (SBU) Turning to the call for a global summit, Chawla stressed 
that all countries need to come together because the current 
situation goes beyond boundaries and the "world is one" where 
finance is concerned.  The Government of India, for its part, is in 
the process of putting together its thoughts as to what line to take 
at the proposed summit.  Chawla saw two themes for such a summit, 
first, handling the present crisis and second, a roadmap for the 
future.  The GOI is convening a non-government group of senior 
economists and experts in diplomacy to consult over the next weeks 
about what should be global next steps.  He expects the government 
decision-making to rise not just to the level of Finance Minister 
but to the Prime Minister.  Chawla also noted that his office was 
talking to the Europeans and British on the proposed summit. 
 
¶4. (SBU) In turning to the impact of the global financial crisis on 
India, Chawla conceded that the government and the regulators were 
grappling with day to day developments. He felt that the money and 
credit markets were settling down, but that the equity markets "are 
what they are", suggesting he expects continued volatility.  ECouns 
asked about press speculation that some FDI caps might be eased, but 
Chawla only noted that such proposals have been "floating" around 
for a while.  Chawla stressed that the government was very 
comfortable that GDP growth would come in around 7.5% for the 
current fiscal year, pointing to strong performance in the first 
half of the year.  He pointed to the government and central bank 
efforts to increase liquidity in the system, but conceded that they 
still needed to make sure the money was actually lent out to 
businesses.  He was pessimistic on parliamentary movement on pending 
financial bills, opining that such sensitive issues don't usually 
progress so close to elections.  Finally, Chawla commended India's 
interagency coordination so far on the crisis, noting that it is not 
usually so good, but that circumstances require it now.  He 
explained that the government has instituted a high level committee 
that meets once a month, headed by RBI Governor D. Subbarao, but 
that many on the committee communicate informally on a near daily 
basis by phone, email, and in person. 
 
CHIDAMBARAM PRAISES USAID FISCAL REFORM PROGRAM 
--------------------------------------------- -- 
 
¶5. (SBU) Finance Minister Chidambaram took time out from the demands 
of the financial crisis and attending Parliament to speak at USAID's 
Reform Event, hosted by USAID Mission Director George Deikun, that 
marked the end of the program's fiscal reform support to the states 
 
NEW DELHI 00002795  002 OF 006 
 
 
of Jharkhand, Uttarakhand and Karnataka.  Chidambaram also formally 
inaugurated the release and launch of print and Internet resources 
for other states to use in rationalizing revenue and expenditures in 
state budgets.  The event was well-attended by GOI officials and the 
finance secretaries of most Indian states, recognizing the 
importance of fiscal reform at the state level.  Chidambaram's 
attendance demonstrated his fiscal hawk proclivities, which have 
been undermined by coalition politics in the last few budgets. 
 
¶6. (SBU) Chidambaram started his remarks by thanking USAID for 
responding to the GOI's need for fiscal reforms at the state level. 
He pointed to the importance of the national Fiscal Responsibility 
and Budgetary Management Act, which many states have further 
adopted, as one of the most important reforms of the past five 
years.  He claimed that these laws have strengthened the hands of 
state financial departments in dealing with their state colleagues 
who pressure them for more resources than are available. 
Chidambaram said he was glad to see that as of March 2008, the 
states' combined deficit to GDP was 2.7% and that for many states, 
revenues were in surplus.  Chidambaram then turned to the four areas 
of USAID's REFORM program, first noting how revenue management 
capacity had improved and states are looking to rationalize and 
improve revenue streams.  The Finance Minister praised the 
implementation of the value-added tax (VAT) which had raised 
revenues in most states, encouraging states to move next to the 
Goods and Service Tax (GST), which would rationalize taxes across 
the country and boost a national market for producers. 
 
¶7. (SBU) Chidambaram regretted that on expenditure reform, too much 
state expenditures were still unplanned.  While the shifted emphasis 
from outlays (only the disbursement of funds was measured) to 
outcomes (tangible results of spending like roads, schools) was 
welcome, there was not enough focus on the quality of the outcome - 
e.g., were children staying in school and receiving skills for the 
marketplace.  On debt financing ability, Chidambaram observed that 
states have recently had a different challenge - managing surpluses. 
 On project appraisal, the Finance Minister encouraged the state 
bureaucracies and finance secretaries to push their political 
leadership towards proper project choices; for example, choosing 
schools over parks and monuments.  He ended with asking that the 
USAID practitioner guide be made available to all the states to 
further guide fiscal reform at the sub-national level. 
 
SHIPPING INDUSTRY BRAVES THE SLOW DOWN 
-------------------------------------- 
 
¶8. (U) The international financial crisis and liquidity crunch is 
impacting the Indian shipping industry.  An estimated investment of 
$20 billion is needed by ship owners to replace parts of their 
ageing fleet and expand cargo capacity.  Over the next four to five 
years, Indian fleets will have to undergo improvements to comply 
with International Maritime Organization's regulation.  Major Indian 
shipping companies like the Shipping Corporation of India, Great 
Eastern, and Essar Shipping had firmed up their funding requirements 
before the financial downturn and placed orders for 58 ships from 
Korea and China valued at $3.3 billion.  So far, Indian ship-owners 
have relied on European banks, particularly those located in 
Scandinavia and the Nordic region, for financing.  This is primarily 
due to the cheaper funding from these specialist banks as compared 
to local funds and also the fact that Indian banks cannot lend money 
for long periods.  In general, while Indian banks provide lending 
for two to three year periods, shipping firms typically need money 
for tenures ranging between eight and 15 years. 
 
¶9. (U) During this time of global financial slowdown, media reports 
that the European banks are nervous about over lending and risky 
lending and have started asking for more and more covenants from 
ship-owners, including long-term contracts for new ships.  Speaking 
at the "India Shipping Summit" in Mumbai, Tobias Konig, Managing 
Partner of Hamburg based shipping investment firm Konig and Cie 
GmbH, said that most of the European banks have closud their books 
for ship financing in 2008 and there will be no new business in ship 
financing for the rest of the year. The debt will be more expensive 
 
NEW DELHI 00002795  003 OF 006 
 
 
for ship-owners than ever before because banks are looking to get 
their money back to reduce their risk.  In turn, smaller shipping 
companies are postponing their expansion plans while major players 
are trying to hold on to their current orders.  Indian ship owners 
may now need to consider larger amounts of internal contributions 
and new sources of funding to pull through the current financial 
turmoil. 
 
TRADE OPENS ACROSS THE LINE OF CONTROL 
-------------------------------------- 
 
¶10. (U) For the first time since 1947, an old trade route was 
reopened at the Line of Control (LOC) on October 21 in Jammu and 
Kashmir.  Enthusiastic businessmen view the move as a "breakthrough 
for India and Pakistan" and hope that this will result in closer 
ties.  According to media reports, the opening of road trade at the 
LOC witnessed a few trucks of pulses, dry fruits, spices, and honey 
crossing in either direction. 
 
¶11. (U) The leader of Pakistan managed Kashmir, Prime Minister 
Sardar Attique Ahmed Khan, has reportedly said the trade would lead 
to closer relations between the two sides.  A Pakistan Chamber of 
Commerce member claimed that, given the opening of what has been a 
natural trade route, merchants will save time and money.  Many 
export goods from Jammu and Kashmir, for example, could flow through 
the port in Karachi, rather than via a circuitous route through 
India.  In general, the business community on the Indian side has 
welcomed the latest initiative and largely views it as a 
confidence-building measure.  While trade across the LOC is expected 
to benefit both economies to some extent, both sides also note that 
trade across the LOC is not going to be substantial given the lack 
of infrastructure, finance, and a legislative framework. 
 
¶12. (SBU) COMMENT:  For now, the benefits of this small window of 
trade across the LOC are largely political, rather than economic. 
Nevertheless, this initiative is a positive gesture and confidence 
building measure, with potentially significant implications for 
economic growth in the future.  Initially, trade will only be 
permitted in 21 items twice a week.  This highly restrictive 
approach unfortunately characterizes much of South Asian trade, 
including the South Asian Free Trade Agreement (SAFTA).  South Asian 
economic integration remains stunted, with intra-regional trade 
constituting 5 percent o the region's total trade, compared to 26 
percent for ASEAN.  If expanded in the future to encompass more 
goods, including in areas like textiles and a broader range of 
agricultural items, cross-LOC would be economically beneficial for 
both India and Pakistan.  There is significant scope for an 
integrated supply chain across the LOC, especially in agriculture 
and textiles. 
 
¶13. (SBU) Next steps to add momentum to the opening of cross-LOC 
trade would be to expand the list of tradable goods and scale up 
infrastructure in the area to support a greater volume of trade.  In 
a region that is constantly struggling for peace, especially at a 
time of rising terrorist activity in South Asia and in Jammu and 
Kashmir, opening up of trade across the LOC is a very positive step 
for Indian-Pakistani relations.  END COMMENT. 
 
LIMITED LIABILITY PARTNERSHIP BILL 
INTRODUCED IN PARLIAMENT 
---------------------------------- 
 
¶14. (U) On October 21, 2008, the GOI introduced in the Rajya Sabha 
(upper house of Parliament) the Limited Liability Partnership (LLP) 
Bill, 2008, aimed at giving professionals flexibility in setting up 
a new business structure (combining aspects of a partnership and a 
corporation) so as to benefit from corporate limited liability, 
while utilizing the management structure of a partnership.  The bill 
was first introduced in Parliament in 2006, but subsequently 
withdrawn and referred to a parliamentary standing committee for 
revisions.  Under the newly introduced bill, while an LLP will be a 
separate legal entity, liable to the full extent of its assets, the 
liability of the partners would be limited to their agreed capital 
 
NEW DELHI 00002795  004 OF 006 
 
 
contributions in the LLP.  The Bill proposes that relevant 
provisions of the Companies Act, 1956, may be made applicable to 
LLPs by a notification by the Union government, if required. 
Currently, partnership firms cannot have more than 20 members, but 
LLP structures have no such limit. 
 
COMPANIES BILL - A WELCOME CHANGE 
--------------------------------- 
 
¶15. (U) On Thursday, the 2008 Companies Bill was introduced in 
Parliament.  This new legislation replaces the 52-year old Companies 
Act and intends to modernize the structure for corporate regulation. 
 The bill is expected to be referred to a standing committee for 
further study.  Minister of Corporate Affairs told the media that, 
"The Bill reinforces shareholders' democracy, facilitates 
e-Governance, recognizes the liability of boards, directors and 
senior management personnel of companies.  It also provides for a 
new scheme for penalties and punishment for non-compliance or 
violation of the law."  The Bill standardizes corporate regulation 
with action by sectoral regulators, incorporates a new framework for 
mergers and amalgamations of companies, and provides an extensive 
insolvency code based on the latest principles, as recommended by 
the United Nations Commission on International Trade Law. 
 
¶16. (U) Rajiv Memani, Chief Executive and Country Managing Partner 
of Ernst and Young commented that the bill "has proposed some 
far-reaching changes in the statutory framework and is expected to 
address the business and investor community's desire for a more 
contemporary and effective regulatory environment.  It primarily 
seeks to reduce government control over corporate processes, impart 
greater transparency, focus on corporate governance, stricter 
compliance requirements, and greater accountability to 
stakeholders."  In response to a question about how the bill 
overlaps with the SEBI Act, Minister Gupta said that the GOI does 
not see any overlap with regulating the capital market. 
 
¶17. (U) The bill include a provision that requires a minimum of 
one-third of the total number of directors in listed companies be 
independent; for other public companies, the requirement and number 
may be prescribed through rules.  Analysts observe that the bill is 
likely to specify an independent director as a non-executive 
director who does not (and his relatives do not) have a direct or 
indirect pecuniary relationship or transaction with the company. 
The bill prohibits companies from raising deposits from the public 
unless they are structured in a way consistent with other 
regulations under banking laws.  For example, if a company wants to 
raise deposits, it has to float a non-banking financial company 
(NBFC), which is governed by a RBI Act.  The bill prohibits insider 
trading by company directors or key managerial personnel and such 
activities can give rise to criminal liability.  To protect investor 
interests, the bill permits shareholders' associations or group of 
shareholders to take legal action in response to any fraudulent 
action by the company and to participate in investor protection 
activities and class action suits. 
 
INDEPENDENT AIRPORT REGULATOR 
BILL GAINS MOMENTUM 
----------------------------- 
 
¶18. (U) On October 23, the lower house of Parliament passed the 
Airport Economic Regulatory Authority (AERA) Bill to create a level 
playing field and foster healthy competition among all major 
airports.  This includes all government-owned, public-private, and 
privately operated airports.  The bill also encourages investment in 
airport facilities, regulates tariffs of aeronautical services, 
seeks to protect user interests, and monitor airport operations. 
AERA will consist of a chairperson and two others who will be 
appointed by the Central Government from those with knowledge and 
professional expertise in aviation, economic law, commerce, or 
consumer affairs.  If the AERA is deliberating on a matter that 
pertains to a defense airfield, the Ministry of Defense will be 
represented by an additional member. 
 
 
NEW DELHI 00002795  005 OF 006 
 
 
¶19. (U) The AERA will (a) determine the tariff structure for 
aeronautical services; (b) determine the amount of development fees 
for major airports; (c) determine the amount of passenger service 
fees to be levied under the Aircraft Rules; (d) monitor the 
performance standards related to quality, continuity, and 
reliability of service as may be specified by Central Government or 
any authority authorized by it; (e) call for information as may be 
necessary to determine the tariff.  AERA will also have the power to 
impose penalties for willful failure to comply with its orders and 
directions under the Act. 
 
NO END IN SIGHT FOR TAMIL NADU'S POWER WOES 
------------------------------------------- 
 
¶20. (U) The Tamil Nadu government (TNG) backtracked from an attempt 
to penalize those consumers who used more than 300 units per month 
in the face of political and business opposition.  The TNG proposed 
that those who consumed more than 300 units pay 50 percent premium 
for the additional power consumed over and above the ceiling.  High 
tension industrial consumers (including Consulate Chennai) were 
asked to reduce consumption by 40 percent and go off the grid during 
the peak period b%tween 6:00 pm and 10:00pm.  The proposal also 
required industries connected to the low tension grid to cut 
consumption by 20 percent and pay an additional 50 percent for power 
consumed over and above the permissible 300 units per month. 
 
¶21. (U) The proposals set off a firestorm of opposition. 
Jayalalithaa, the General Secretary of the TNG's main opposition 
party, the AIADMK, told press that mass employment would result from 
the decision.  She termed the move as the first step toward the 
collapse of the small-scale industry in the state, and threatened to 
launch a state-wide agitation against the measure.  The South India 
Chamber of Commerce and Industry also opposed the decision, 
announcing that many chamber members would go under because of the 
lack of power. 
 
¶22. (SBU) The TNG withdrew the proposal on October 22.  The 
withdrawal demonstrated the paralysis affecting the state's 
political leadership on the question of rationalization of power 
tariffs and management of power supply.  The TNG faces a 10 percent 
shortage in generating capacity at present.  Although several new 
generation units are under construction, it will take a year or two 
for them to become operational.  In the meantime, the TNG faces some 
tough choices, and it is not clear how it will proceed. 
 
BHARTI WAL-MART TO BUILD 
TRAINING CENTERS IN PUNJAB 
---------------------------- 
 
¶23. (U) According to media sources, Bharti Wal-Mart Pvt. Ltd 
initiated talks with the state government of Punjab about the 
creation and development of training facilities.  Bharti Wal-Mart, a 
joint venture (JV) between Bharti Enterprises and Wal-Mart Stores 
Inc., plans to open its first cash-and-carry wholesale outlet near 
Chandigarth, the capital of Punjab, in early 2009.  Over the next 
seven years, the company is expecting to open 10 to 15 more outlet 
stores and to employ approximately 5,000 people.  As a result of the 
talks, the Punjab government may offer Bharti Wal-Mart free land to 
build infrastructure and institutes, which the JV would train 
employees and provide education in retail and cash-and-carry 
operations. 
 
¶24. (SBU) Comment:  Bharti Wal-Mart's likely entrance into a 
public-private partnership with the Punjab government may provide a 
useful model for other retailers positioning themselves to enter the 
Indian market who will also require a supply of well-trained 
employees.  According to a report released by McKinsey and Company 
earlier this month, India is likely to be a $450 billion retail 
market by the year 2015, with organized retail growing from the 
current 5 percent to 14-18 percent of the total retail market by the 
same year.  In order to meet this demand, McKinsey predicts that 
over 1.6 million jobs will be created to support the retail sector 
in the next five years.  End comment. 
 
NEW DELHI 00002795  006 OF 006 
 
 
 
¶25. (U) Visit New Delhi's Classified Website: 
http://www.state.sgov/p/sa/newdelhi 
 
White