VZCZCXRO1127
RR RUEHAST RUEHBI RUEHCI RUEHLH RUEHNEH RUEHPW
DE RUEHNE #2924/01 3191231
ZNR UUUUU ZZH
R 141231Z NOV 08
FM AMEMBASSY NEW DELHI
TO RUEHC/SECSTATE WASHDC 4199
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 002924 
 
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 EMIN ENRG EPET ETRD
BEXP, KIPR, KWMN, PHUM, SENV, ASEC, IN 
 
SUBJECT: NEW DELHI WEEKLY ECON OFFICE HIGHLIGHTS FOR THE WEEK OF 
NOVEMBER 10 TO NOVEMBER 14, 2008 
 
¶1. (U) Below is a compilation of economic highlights from Embassy 
New Delhi for the week of November 10 to November 14, 2008, 
including the following: 
 
-- PM Singh Comments on His Plans for G-20 Summit 
-- Inflation Rate Drops to Single Digits 
-- Private Carriers Protest Their Exclusion Under GOI New Ground 
Handling Policy 
-- GOI Reviewing Trade Policy with Pakistan 
-- Indian Exports Fall Following Lower Global Demand and Poor Export 
Financing 
-- India Confident of Meeting Target of 100 Percent Sanitation 
Access in Rural Areas 
-- Tamil Nadu Allows Market Access for European Spirits 
-- International Mining and Machinery Exhibition (IMME 08) 
-- BIMSTEC Calls for Early Conclusion of Free Trade Agreement 
 
PM Singh Comments on His Plans for G-20 Summit 
--------------------------------------------- - 
¶2. (U) Prior to his departure for the G-20 Summit in Washington, 
D.C., local media quoted Prime Minister Singh as stating "I will put 
forward our views on the need for greater inclusivity in the 
international financial system, the need to ensure that the growth 
prospects of the developing countries do not suffer, and the need to 
avoid protectionist tendencies."   Singh also reiterated that the 
fundamentals of the Indian economy were strong and that India has 
potential to contribute to global economic growth; however, such 
contributions are limited by the lack of international support that 
provides effective governance.  Media reports suggested that the PM 
would like world leaders to discuss the need for a global monitoring 
authority to promote global supervision and cooperation. 
 
¶3. (U) Local media also quoted an unnamed official from the PM's 
office, who stated that Singh will take a "holistic and political 
view"  and that Planning Commission Deputy Chairman Montek Singh 
Ahluwalia, as the Indian 'sherpa' for the G-20 Summit, will consult 
with the PM on the 'larger economic impact' of the decisions 
resulting from the gathering. 
 
Inflation Rate Drops to Single Digits 
--------------------------------------------- - 
 
¶4. (U) India's inflation rate unexpectedly lowered to 9.98% at the 
end of the first week of November, the first time the Wholesale 
Price Index (WPI) dropped to single digits since hitting 12.8% in 
August.  According to local media, the downward shift was a sharper 
correction than expected; the rate was anticipated to fall below 10% 
around the turn of the year. 
 
¶5. (U) COMMENT: With economic indicators suggesting that growth is 
decelerating, the only factor that has prevented the Reserve Bank of 
India (RBI) from cutting policy rates has been high inflation, 
meaning the downward shift will provide RBI the maneuverability to 
further cut rates in order to encourage growth.  The decline in 
inflation rates may also have a positive impact on upcoming state 
and national elections. END COMMENT. 
 
Private Carriers Protest Their Exclusion 
Under GOI New Ground Handling Policy 
--------------------------------------- 
 
¶6.  (U) Effective January 1, the GOI will implement a new civil 
aviation requirement that, with the exception of the state-carriers 
Air India and Indian Airlines, prohibits all other carriers from 
providing ground-handling services. Besides the state carriers, The 
Cabinet Committee on Security will permit only the Airports 
Authority of India and an independent agency selected through a 
global bidding process (in which private sector airlines can also 
participate) to provide these services.  When implemented, the new 
rules will force the private carriers who currently provide their 
own ground handling services to lay off their ground handling staff. 
 The largest private carrier, Jet Airways, employs 4,000 ground 
handling staff, while IndiGo, Spice Jet and Go Air together employ 
 
NEW DELHI 00002924  002 OF 004 
 
 
an additional 2,000 staff.  29 per cent of the 28,000 personnel 
employed by private carriers are involved in ground handling. 
Private carriers are opposed to the new policy which they argue 
would lead to a cost escalation and affect service quality. In 
response, the government is reportedly discussing with the carriers 
a compromise formula under which front-end ground-handling (customer 
interaction) will be done by the airlines and back-end work would be 
done as required under the new rules. According to an Ernst & Young 
report the Indian ground handling market is estimated to be worth 
US$ 625 million. 
 
GOI Reviewing Trade Policy with Pakistan 
----------------------------------- 
 
¶7. (U) Inspired by the rising business interest among the Indian and 
the Pak traders, the Government of India (GOI) is, reportedly, 
reviewing its trade policy with Pakistan to push economic ties 
despite an impasse over Kashmir and other pending issues.  Media 
reports that the Indian commerce ministry is currently consulting 
stakeholders to enhance trade with Pakistan by changing the entire 
approach.  Some proposals that are being considered include trading 
with Pakistan through a unilateral, negative trading list as opposed 
to a positive list approach.  However, the task is perceived to be 
daunting as a few sections of the Indian establishment still tend to 
attach political sensitivities to trade liberalization with 
Pakistan.  Lack of reciprocity from Pakistan - mainly on the issue 
of according MFN (Most favored Nation) status to India - is often 
cited as the major deterrent to a more liberal trade policy from the 
Indian side. 
 
¶8. (U) Indo-Pak bilateral trade, at $2.12 billion, is restricted and 
dominated by a positive list maintained by Pakistan and non-tariff 
barriers imposed by India.  However, trade still finds its way, and 
items other than the ones on the positive list, are traded in third 
countries such as Dubai.  Pakistani president Asif Ali Zardari has 
expressed interest in pushing economic cooperation with India 
through announcing a new trade policy in August 2008, expanding its 
positive list of exportable items to India.  However, the 
notification of these items is still awaited.  Similarly, the 
Wagah-Attari road and the Khokrapar-Munabao railway line to all 
permissible trade items was to open to push bilateral trade, which 
has yet to take place.  According to Dr. Taneja, a senior researcher 
at the Indian Council for Research on International Economic 
Relations (ICRIER), the political factors that were trying to guide 
trade have taken a backseat and the private sector in both countries 
is very active despite the fact that Pakistan hasn't given India MFN 
because of the promising profits.  Dr. Taneja also mentioned lack of 
implementation of stated intent and policies from the Pakistani 
government. 
 
Indian Exports Fall Following Lower Global Demand and 
Poor Export Financing 
--------------------------------------------- ------- 
 
¶9. (U) According to the Government of India (GOI) preliminary 
monthly trade data, exports have declined 15 per cent to $12 billion 
in October 2008 compared to $14 billion in October 2007.  Exports 
from all areas other than oil, accounting for over 80 percent of 
India's total exports, registered a decline; industries like gems 
and jewelry and handicrafts are the hardest hit.  The downward 
trend, witnessed for the first time since 2003, points to 
increasingly difficult times for Indian exports, given the ongoing 
global dip in demand following the financial crisis in its major 
destination markets (the US accounts for 13 percent of Indian 
exports and the EU 22 percent).  Government sources expect the trend 
to continue in the coming months, suggesting that the export growth 
target of 23 percent to $200 billion for Indian fiscal year (IFY) 
2008-09 is unlikely to be achieved.  India's average export growth 
rate for first six months of the current fiscal year 
(April-September) stood at an impressive 31 percent, which has now 
dropped to 21.5 percent after the October figures.  The slowdown in 
exports has occurred despite the 20-percent depreciation of the 
rupee against the US dollar over the last year, suggesting that 
 
NEW DELHI 00002924  003 OF 004 
 
 
scarce and expensive export financing is also a major negative 
factor.  According to trade analysts, traders are finding it 
difficult to access liquidity both at the buyers' end and at the 
sellers' end. 
 
¶10. (U) In a recent press conference, GOI officials stated that 
despite recent steps taken by the Reserve Bank of India (RBI), such 
as further reductions in both the cash reserve ratio (cash that 
banks must deposit with the RBI) and statutory liquidity ratio (the 
amount banks must invest in government securities), small exporters 
are still finding it difficult to obtain financing.  Concerned over 
the possibility of significant job losses in labor-intensive export 
sectors, the GOI is considering as yet unidentified additional 
measures to help exporters. 
 
India Confident of Meeting Target of 100 Percent 
Sanitation Access in Rural Areas 
---------------------------------------- 
 
¶11. (U) India's rural development ministry recently told the media 
that India expects to build 112,300 toilets every day to ensure 100 
percent sanitation access in the country by 2012.  However, a 
Water-Aid India (a local arm of an international organization 
specializing in drinking water and sanitation) representative has 
estimated completion of these sanitary facilities by 2015.  The 
Government of India's (GOI) sanitation goals are the latest 
supplement to its "Total Sanitation Campaign" (TSC) which was 
initiated in 2004 to eradicate the "open toilet" system in the 
country by 2010.  The cost of building toilets under this campaign 
is shared by the federal government, state governments and the 
beneficiaries.  According to the Ministry of Health and Family 
Welfare, poor sanitation and resultant diseases cause an annual loss 
of 180 million man-days and an economic loss of Rs.12 billion in 
India. According to a UNICEF/WHO (United Nations Children's 
Fund/World Health Organization) joint study on the country's 
progress on sanitation goals, India has more than 500 million people 
who use the "open toilet" system. 
 
Tamil Nadu Allows Market Access for European Spirits 
--------------------------------------------- ------- 
 
¶12. (SBU) The South India state of Tamil Nadu quietly began allowing 
more European brands of spirits into the market on November 10, as 
the state-owned alcohol monopoly Tamil Nadu State Marketing 
Corporation (TASMAC) started selling products owned by London-based 
Diageo.  TASMAC's marketing director told Consulate General Chennai 
that a recent Government of India (GOI) directive mandated this 
change, prompting TASMAC to offer spirits including Johnnie Walker 
Black Label, Johnnie Walker Red Label, Smirnoff vodka, and Gordon's 
dry gin at all of its stores.  (Our own inspection of a TASMAC 
outlet on November 11, however, found that the only one of these 
items actually available was Gordon's, but the TASMAC managing 
director said that the other varieti%s should hit the shelves 
starting November 17.) 
 
¶13. (SBU) The timing of Tamil Nadu's action is probably not 
accidental.  A contact at Chennai's British Deputy High Commission 
told us that it expected a team from the European Commission to 
arrive in India next week to monitor GOI compliance with recent 
World Trade Organization (WTO) rulings against India's trade 
practices regarding spirits. 
 
¶14. (SBU) The TASMAC marketing director also told us the 
organization's next scheduled internal review (in February) will 
likely result in another expansion of available brands.  He added 
that "a few US brands" might be included on that list. 
 
International Mining and Machinery Exhibition (IMME 08) 
--------------------------------------------- ----- 
 
¶15. (U) The Confederation of Indian Industry (CII) organized the 9th 
International Mining and Machinery Exhibition (IMME'08) in Kolkata 
from November 5 - 8.  Over 300 exhibitors from 15 countries 
 
NEW DELHI 00002924  004 OF 004 
 
 
exhibited - a 25 percent increase from the last show held two years 
ago.  Six new-to-market American firms exhibited in addition to the 
established American manufacturers.  In discussions with exhibitors 
and participants, PolEconOff found that China and India remain 
attractive mining markets despite the global slowdown; however, the 
credit crunch is negatively impacting firms' investment plans. 
Equipment financing is viewed as a profitable and growing market 
segment.  One U.S. firm told PolEconOff that it would like to import 
and sell re-conditioned machinery in India; but is hindered by 
Indian restrictions on importing used machinery. 
 
BIMSTEC Calls for Early Conclusion of Free Trade Agreement 
--------------------------------------------- - 
 
¶16. (U) According to local media sources, the second summit of the 
Bay of Bengal Initiative for Multi-Sectoral Technical and Economic 
Cooperation (BIMSTEC) culminated with a call for an early conclusion 
of a free trade agreement (FTA) to stimulate economic activity among 
the seven memer countries, which includes India, Sri Lanka, Bhutan, 
Bangladesh, Thailand, Myanmar and Nepal. 
 
¶17. (U) The summit also agreed on a pact to combat terrorism and 
finalized agreements on promoting exchange in three areas, weather, 
culture and energy.  As part of the implementation of these 
objectives, the group of nations decided to set up a weather and 
climate center in India, a cultural industries center in Bhutan, and 
an energy center in India.  According to media sources, Prime 
Minister Singh offered to extend information sharing from its 
Tsunami Warning Center to other member countries and discussed 
pooling resources to set up a food bank that could be drawn from by 
BIMSTEC countries in need. The summit also agreed to focus on 
enhancing rail, road and shipping links to promote greater contact 
through exchange, business and tourism. 
 
¶18. (U) Visit New Delhi's Classified Website: 
http://www.state.sgov/p/sa/newdelhi 
 
MULFORD