VZCZCXRO6575
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DE RUEHNE #2972/01 3261126
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R 211126Z NOV 08
FM AMEMBASSY NEW DELHI
TO RUEHC/SECSTATE WASHDC 4303
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 05 NEW DELHI 002972 
 
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, CVIS, CMGT, CASC, PREL, IN 
 
SUBJECT: NEW DELHI WEEKLY ECON OFFICE HIGHLIGHTS FOR THE WEEK OF 
NOVEMBER 17 TO NOVEMBER 21, 2008 
 
¶1. (U) Below is a compilation of economic highlights from Embassy 
New Delhi for the week of November 17 to November 21, 2008, 
including the following: 
 
-- Further Delays in India-EU FTA 
-- National Highway Authority of India (NHAI) Projects in Jeopardy 
-- PM and Sonia on Crisis 
-- Private Pension Fund Managers to Be Appointed Soon 
-- GOI Approves $150M Farmer-Support Program in Southern India 
-- GOI Considering Textile Industry Relief Package 
-- Turkish PM to Discuss Energy and Trade with India 
-- Advani Warns of 'Economic Emergency' 
-- Rupee Depreciates to All-Time Low 
-- German Consulate Opens in Bangalore 
-- Karnataka Cancels Global Investor Summit 
 
 
Further Delays in India-EU FTA 
----------------------------- 
 
¶2. (U) Additional delays are likely in the negotiations towards a 
bilateral trade agreement between India and the European Union (EU), 
which was originally slated for finalization by the end of this 
year.  The EU reportedly wants to raise government procurement, 
competition policy, and the environment in the trade talks. 
However, India has traditionally excluded these issues from any 
bilateral or multilateral trade negotiations and views their 
inclusion with skepticism.  India and the EU agreed to sign a 
comprehensive economic partnership agreement including a free trade 
agreement (FTA), investment agreement, and a services agreement.  In 
the last India-EU summit held in September 2008, both sides raised 
concerns over the scope of the FTA.  Indian industry is insistent 
that the EU bring down tariffs on 95 per cent of the goods covered 
under the India-EU FTA negotiations as opposed to the proposed 
elimination of tariffs on 90 per cent of tariff lines under the FTA. 
 Official sources have told the press that the FTA is not likely to 
be concluded before mid-2009 due to these differences.  [Comment: 
Given upcoming Indian elections and the pace of FTA talks so far, we 
view even a mid-2009 conclusion as optimistic.  End comment.] 
 
National Highway Authority of India (NHAI) Projects in Jeopardy 
--------------------------------- 
 
¶3. (U) Many short listed bidders of NHAI projects have withdrawn 
their bids either due to government restrictions or projects no 
longer being commercially viable.  The Indian government plans to 
bid out about 50 public-private partnership projects, which require 
a total investment of $12 billion (Rs 60,000 crore), under the 
build, operate, and transfer (BOT) scheme in December.  These 
projects are likely to be delayed with large construction companies, 
including Larsen & Toubro, Hindustan Construction, Nagarjuna, Maytas 
Infra, DLF, Gammon and GVK, having withdrawn from over 15 highway 
projects.  In the last two months, nearly five highway projects 
worth $600 million (Rs 3,000 crore) could not find a single bidder. 
Some of the key stretches on which the short listed bidders have 
withdrawn bids include MP-Maharashtra Border Dhule, 
Tirupati-Tiruthani-Chennai, Vijaywada-Machilipatnam, 
Kundapur-Surathkal. 
 
¶4. (U) In August 2008, the Ministry of Road Transport and Highways 
restricted a company from bidding on more than 15 projects and 
undertaking no more than 8 projects at a time. Large companies find 
this restriction economically un-viable, as these companies want to 
participate in as many projects as possible to bring down cost and 
spread their risk.  The companies are also finding it difficult to 
get financial closures of projects due to the global liquidity 
crunch.  Also, further restraining construction companies are the 
higher interest rates which have increased by 12 to 16 percent, 
charged by the banks for project loans.  Private industry is finding 
the BOT projects unviable due to the high construction costs, faulty 
traffic projections, and stiff penalties on projects that get 
delayed for reasons beyond their control. 
 
 
NEW DELHI 00002972  002 OF 005 
 
 
PM and Sonia on Crisis 
--------------------- 
 
¶5. (U) Prime Minister Singh and Congress Party President Sonia 
Gandhi, in a rare public speech, assured the audiences at a 
leadership summit in Delhi on November 21 that the Indian economy 
remained strong, although Gandhi also used the opportunity to deride 
the greed of bankers for their role in the global financial crisis. 
Singh reiterated the government view that India can attain 8% GDP 
growth this fiscal year, despite the fact that most economists have 
lowered their projections to around 7%.  While India cannot pretend 
that it is not affected by the world financial situation, Singh 
maintained that it was a global problem requiring a global solution. 
 Gandhi's remarks, which the moderator characterized as a preview of 
the Congress Party's election themes, asserted that liberalization 
must be continued in India, albeit with "caution".  While praising 
Indira Gandhi's nationalization of the banks in the 1960s for 
leading Indian banks to be sound enough to withstand the crisis, 
Gandhi stressed that India could not go back to such controls.  She 
stated that India must recognize that it is interconnected with the 
world economy whether "we like it or not" and believes an open 
economy is the proper one.  As such, Gandhi opined that India should 
pursue liberalization with sensible, but not "heavy-handed" 
regulation.  She called for more public investment in physical and 
social infrastructure, lamenting the adverse impact of the crisis on 
India's vulnerable sectors. 
 
Private Pension Fund Managers to Be Appointed Soon 
-------------------------------------- 
 
¶6. (SBU) Confirming what Meena Chaturvedi, Executive Director of the 
Pension Fund Regulatory and Development Authority (PRFDA) told 
Econoff in September, Business Standard reported this week that the 
regulator PFRDA will start the process of inviting bids in December 
2008 from prospective private pension fund managers including 
foreign fund managers for managing the pension contributions.  The 
PFRDA is appointing a Committee and also consulting firm Mercer to 
evaluate the bids of the fund managers, based on the management 
fees.  Workers in the large unorganized sector, including the 
self-employed, would be allowed to participate in the new pension 
scheme.  Norms, currently being worked out by PFRDA would be 
announced by January 31, so that the private fund managers can start 
operations beginning fiscal year, April 1, 2009. 
 
¶7. (SBU) The fund managers will have to establish separate asset 
management companies to offer pension plans and will also have to 
sign an agreement with the PFRDA since a Bill providing statutory 
backing to the regulator is pending parliamentary approval.  Foreign 
investors will be allowed to invest up to 26 percent equity in these 
asset management firms, (the same amount as that in the insurance 
sector) for which the initial capital required will be $2 million. 
Initially up to six asset management companies will be appointed and 
the number may be increased at a later stage.  The government 
earlier this year appointed three public sector companies, the Life 
Insurance Corporation, the State Bank of India and UTI Asset 
Management Company as fund managers for managing the government 
employees' contributory pension scheme.  These fund managers will 
have to submit fresh bids if they want to manage the private pension 
schemes. 
 
¶8. (SBU) An expert committee headed by HDFC Chairman Deepak Parekh 
is working out the investment options and the investment pattern and 
the default option - that is, the scheme that will automatically 
apply if the investor (due to lack of awareness) does not make a 
specific choice.  The schemes will vary from investing only in 
government securities to a debt-oriented option and a life-cycle 
plan where the investment pattern changes according to the 
investor's age profile of the individual.  Subscribers will have the 
option to change their fund manager and the investment option once a 
year.  The regulator is also inviting applications from banks and 
other intermediaries as Points of Presence (entities such as an 
insurance company, mutual fund or post office regulated by one of 
the financial regulators) where pension money can be deposited. 
 
NEW DELHI 00002972  003 OF 005 
 
 
 
GOI Approves $150M Farmer-Support Program in Southern India 
---------------------- 
 
¶9. (U) Acting on recommendations by the Chennai-based MS Swaminathan 
Research Foundation, the GOI's Cabinet Committee on Economic Affairs 
(CCEA) on November 30 approved financial support of about Rs 765 
crore ($150M) to implement programs in districts with large numbers 
of farmers in distress.  The decision, taken by the CCEA at a 
meeting chaired by PM Singh, includes financial support of Rs 361 
crore (approx $72M) for promoting research on plantation crops such 
as rubber, coffee, cardamom, pepper and tea, according to press 
quoting PMO Minister of State Prithviraj Chavan.  The Swaminathan 
Foundation's recommendations to provide support to counter the high 
price of copper fungicides and banana crop insurance were also 
approved, Chavan said.  Following high levels of farmer indebtedness 
and distress, the GOI in 2006 identified 36 districts in Kerala, 
Andhra Pradesh, Karnataka, and Maharashtra for a special plan of 
action.  The Chennai-based Foundation was then assigned to study the 
problem and recommend measures to mitigate agrarian distress. 
 
GOI Considering Textile Industry Relief Package 
---------------------------------- 
 
¶10. (U) According to local media, the textile industry, which has 
already experienced a job cut of around 700,000 workers this year, 
may see a further reduction of 500,000 jobs due to the recent 
decline in exports combined with an unstable rupee, cotton prices, 
power problems and the credit crunch.  FICCI estimates that the 
growth rate of the textile industry has dropped from eight percent 
in 2005-2006 to 0.8 percent in April-August 2008-2009.  In order to 
prevent expected job cuts, Prime Minister Singh, at the urging of 
FICCI and the textile sector, has organized a panel of senior 
government officials to develop a relief package with input from the 
textile industry. 
 
¶11. (U) FICCI and the textile sector have advocated that a relief 
package include, among other things, reduction of excise duties on 
man-made fibers, ten percent import duties on man-made fibers, and 
continuance of financial assistance to the industry in the form of 
packing credit.  Packing credit, which textile exporters tend to use 
as their working capital to handle shipments until final payments 
are made, is based on exporters' order books approximately 180 days 
before shipment and 90 days after shipment.  In the past the packing 
credit was allowed at a rate of interest less than four percent, 
however, RBI issued a notice to terminate the interest subvention as 
early on September 30, 2008, leaving exporters only able to access 
credit at prevailing market rates. 
 
Turkish PM to Discuss Energy and Trade with India 
------------------------------------------- 
 
¶12. (U) Turkish Prime Minister Recep Tayyip Erdogan, on his 
first-ever state visit to India, will meet Prime Minister Manmohan 
Singh to discuss broadening bilateral relations.  While Turkey and 
India have maintained friendly relations, the visit of the Turkish 
PM from November 20-24 is specifically aimed at enhancing bilateral 
economic and anti-terrorist cooperation.   Bilateral trade volume 
has almost tripled between 2003 and 2007 between India and Turkey, 
from $795 million to $2.6 billion.  PM Erdogan has reportedly stated 
that the aim is to increase this figure to 6 billion USD by 2010. 
 
¶13. (U) Private sectors of both India and Turkey see great prospects 
for further cooperation in the fields of energy, construction, 
tourism, automotive and information technologies.  Energy is one 
area where the two countries see potential for cooperation.  India 
has been in talks with Turkey and Israel for an oil pipeline project 
transporting oil, via Ashkelon-Eilat (Israel), to India through the 
Red Sea with oil tankers.  The Indian Oil Corporation is pursuing 
negotiations with the consortium of companies involved.  The 
project, if finalized, is projected to help overcome some of the 
critical bottlenecks in global energy supply chain, by linking 
energy suppliers in Eurasia with the energy consumers in Southeast 
 
NEW DELHI 00002972  004 OF 005 
 
 
Asia, mainly India.  PM Erdogan in a press interview has hinted that 
a cooperation agreement on anti-terrorism was in the works. 
 
Advani Warns of 'Economic Emergency' 
----------------------------------- 
 
¶14. (U)  Commenting on the current economic situation in a meeting 
with local industry, opposition Bhartiya Janata Party (BJP) leader 
LK Advani warned that India could face an "economic emergency" if 
the government fails to tackle the uncertainty and insecurity 
resulting from the global financial crisis.  He was emphatic that 
the crisis has touched all segments of the economy and the society 
and that it "could assume the proportions of an economic emergency 
unless it is handled with determination, clarity of thought, and 
creative new approaches".  The industry leaders representing almost 
all core sectors briefed Advani about the impact of the global 
slowdown on them -- especially the high interest rate regime, credit 
squeeze, and slowdown in demand.  PM Singh also convened a similar 
meeting a few days ago to understand the impact of the economic 
crisis on India and its industry in particular.  The GOI expects 
economic growth this fiscal year to be in the range of 7-7.5 per 
cent -- far below the average 9 per cent it achieved for the last 4 
years. 
 
Rupee Depreciates to All-Time Low 
------------------------------- 
 
¶15. (SBU) The rupee has depreciated by about 25 percent in the past 
six-and-a-half months, from Rs 40/02 dollar in April to a record low 
of Rs 50.2/dollar on November 20, as the global financial crisis has 
come ashore in India several ways.  First, before oil prices tumbled 
sharply in the last fortnight, a sharp widening of the trade and 
current account deficit to finance expensive oil imports and huge 
demand of dollars from foreign institutional investors, who have 
sold stocks worth over $10 billion since January 2008, created the 
early downward pressure on the rupee.  The rupee's slide worsened 
since September, as foreign financing dried up for Indian companies 
and banks.  Domestic companies which are unable to raise funds from 
the global market are converting rupee borrowings into dollars to 
meet overseas business commitments, increasing the demand for the 
dollar and hence weakening the rupee. 
 
¶16. (SBU) Analysts believe the rupee's recent fall may also be due 
to an arbitrage opportunity between the domestic rate and the 
offshore rate for non-deliverable forwards. Forward trades on the 
partially-convertible rupee - under which a buyer can buy dollars 
for a delivery at a future date but at today's price - are conducted 
in offshore markets. The rupee/dollar exchange rate in these markets 
had recently exceeded that in India's forex markets because of the 
central bank's intervention to mitigate the rupee's slide, giving 
dealers a clear arbitrage opportunity for buying dollars in the 
domestic market for selling them in the offshore markets of 
Singapore and Dubai.  Further, news media report that exporters are 
not bringing their dollar earnings to India in the hope of bringing 
them in later when the rupee depreciates further, which would then 
allow them to earn more rupees. This further lowers capital inflows 
and keeps the rupee weak. 
 
German Consulate Opens in Bangalore 
---------------------------------- 
 
¶17. (U) Germany inaugurated on November 21 a fully functional 
Consulate General in Bangalore, complete with visa operations.  The 
Consulate is Germany's second diplomatic post in South India, after 
its Consulate General in Chennai.  Consul General Stefan Graf (who 
has been working in Bangalore for more than a year) told Consulate 
General Chennai that the presence of many German companies and 
German nationals in the city prompted the establishment of the new 
Consulate. 
 
¶18. (SBU) The Government of Karnataka expects the Consulate to 
attract more investment.  The state's Industries Secretary told us 
that the state hoped to attract the Thyssen-Rohm-Krupp group to 
 
NEW DELHI 00002972  005 OF 005 
 
 
invest in the state.  He also said that the presence of the German 
Consulate would provide a "level of comfort" that German investors 
would find attractive.  (Comment:  In our own discussions with 
Karnataka officials, their top talking point is always to encourage 
the USG to open a diplomatic presence in Bangalore.  End Comment) 
 
Karnataka Cancels Global Investor Summit 
-------------------------------------- 
 
¶19. (SBU) The Government of Karnataka (GoK) on November 20 announced 
the cancellation of a proposed "Global Investor Summit" originally 
slated for January 2009.  A top assistant to the state's Chief 
Minister told Consulate Chennai that only two of the fifty U.S. 
companies that expressed interest in participating in the event had 
actually paid the required registration fee.  He said that similar 
proportions of companies from the Middle East and Europe also failed 
to confirm their participation by paying the fee, prompting the 
GoK's Industries Minister to cancel the event, which had been 
expected to draw top-tier companies from around the world. 
 
¶20. (U) Visit New Delhi's Classified Website: 
http://www.state.sgov/p/sa/newdelhi 
 
WHITE