VZCZCXRO8878
RR RUEHAST RUEHBI RUEHCI RUEHLH RUEHNEH RUEHPW
DE RUEHNE #0104/01 0161250
ZNR UUUUU ZZH
R 161250Z JAN 09
FM AMEMBASSY NEW DELHI
TO RUEHC/SECSTATE WASHDC 5085
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 03 NEW DELHI 000104 
 
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: ECON EAGR EAIR ECPS EFIN EINV EMIN ENRG EPET ETRD
BEXP, KIPR, KWMN, IN 
 
SUBJECT: NEW DELHI WEEKLY ECON OFFICE HIGHLIGHTS FOR THE WEEK OF 
JANUARY 12 TO JANUARY 16, 2009 
 
¶1. (U) Below is a compilation of economic highlights from Embassy 
New Delhi for the week of January 12-16, 2009, including the 
following: 
 
-- Trade Roundtable with Canada, EU, NZ, Australia 
-- Update on the Pension Sector 
-- FDI Slows in November 
-- Aviation Industry Likely to Fare Better in 2009 
-- Only 37 Foreign Companies Invest in Single-Brand Retail 
-- Shipment of Indian Drugs Seized in the Netherlands 
 
Trade Roundtable with Canada, EU, NZ, Australia 
-------------------------------------- 
 
¶2. (SBU) Econ Couns attended a January 16 lunch roundtable hosted by 
the Canadian High Commission for visiting chief trade negotiator 
(and former Canadian ambassador to the WTO and NAMA chair) Don 
Stephenson where officials discussed their experiences of bilateral 
trade negotiations with the GOI.  Stephenson noted that Canada's CEO 
Roundtable had asked the GOC to look into the possibility of a 
comprehensive FTA with India and he wished to understand how other 
countries had approached trade talks.  The EU is in the midst of a 
FTA negotiation which is taking longer than expected (with an 
original targeted completion in late 2008).  New Zealand and 
Australia are separately conducting Joint Study Groups with the GOI 
on the broad parameters of an FTA. The GONZ  hopes to formally 
launch FTA elections before the Indian national election; althought 
it realizes that may not be possible.  Meanwhile, Canada negotiated 
a FIPA with India in July 2007, but has not managed to exchange 
texts. 
 
¶3. (SBU) All countries present emphasized the significant lack of 
capacity and coordination in the GOI to handle an FTA negotiation, 
especially when faced with multiple, simultaneous talks with 
different countries.  Many officials cited the Indo-ASEAN FTA as 
symbolic of the difficulties of bilateral talks, noting that even 
with strategic Indian interest, and a developing 
country-to-developing country format, it had taken many years to 
come close to completion.  The GOI was very tactical and cautious in 
talks.  GOI trade officials also negotiated in a very defensive 
mode, not focusing on offensive interests and sectors of export 
interest.  Stephenson noted that Canada's Trade Minister would 
arrive next week to hold some exploratory discussions with Commerce 
Minister Kamal Nath. 
 
 
Update on the Pension Sector 
------------------------------ 
 
¶4. (U) The Pension Fund and Regulatory Development Authority (PFRDA) 
continues with its efforts to open the New Pension Scheme (NPS) to 
private sector investors, mainly those in the informal sector, who 
are not covered by the Employee Provident Fund.  Media report that 
the PFRDA has received about 20 applications from various financial 
sector players (mainly life insurance and asset management firms) 
for managing the private retirement funds for individuals on a 
voluntary basis.  The current state-owned fund managers SBI Pension 
Fund, LIC Pension Fund, and UTI Pension Fund have also applied to 
manage the private pension sector business.  The PFRDA is expected 
to shortlist the fund managers for the technical evaluation by 
January 16 and the final selection will be made by end-February. 
Significantly, the application guidelines permit FDI up to 26 
percent in the fund management company, which PFRDA requires to be a 
new, separate company from the parent company.  The government has 
determined that the FDI cap in the pension sector must mirror that 
in the insurance sector.  Should the insurance FDI cap be raised 
from 26 to 49 percent, as pending legislation proposes, the FDI 
ceiling in the pension sector should rise accordingly. 
 
¶5. (U) Newspapers also report that the PFRDA has invited bids from 
banks and regulated non-banking finance companies and institutions 
to be appointed as points-of-presence (PoPs), which will be the 
interface with the investors.  The PFRDA will register designated 
 
NEW DELHI 00000104  002 OF 003 
 
 
branches of PoPs as service providers for five years in the first 
phase.  The PoPs would offer services such as collection of regular 
contributions, changes in subscriber details, switching of schemes 
or fund manager, withdrawal requests and print-outs of account 
statements.  The pension system will be two-tiered with the first 
one being a non-withdrawable pension account and the second one 
being a withdrawable savings account. 
 
 
FDI Slows in November 
--------------------- 
 
¶6. (SBU) New data from the Reserve Bank of India (RBI) shows that 
foreign direct investment (FDI) into India, which was at a new high 
for much of 2008, slowed in November.  Robust FDI flows had soared, 
with April-September FDI up 137 percent compared to the same period 
in 2007.  Analysts credited this to investors' assessment that 
India's long-term growth story was still intact, even as the storm 
clouds regarding the financial and economic slowdown were brewing. 
The FDI surge provided a welcome counterweight to more than $10 
billion in portfolio outflows.  However, the global liquidity crisis 
has now started to bite, with October and November 2008 down roughly 
one-third over the same two months in 2007.  The government had set 
a target of $35 billion for the fiscal year (ending March 2009), 
which it might miss if FDI continues to slow.  April to November 
2008 was still up 81 percent over the same period in 2007. 
 
 
Aviation Industry Likely to Fare Better in 2009 
-------------------------- 
 
¶7. (U) Due to the economic slowdown, higher fixed costs, 
particularly for aviation turbine fuel (ATF), and an increase in 
ticket prices, the year 2008 saw negative domestic passenger growth 
for the airlines.  The GOI stated that passenger traffic declined by 
five percent with 411,000 passengers flying in 2008, compared to 
433,000 in 2007.  Moreover, 2007 was a record year for Indian 
aviation with passenger traffic increasing by 32 percent from 2006 
which witnessed 327,000 passengers.  During most of 2008, airlines 
faced increasing losses due to high fuel prices and excess capacity 
which forced the airlines in turn to keep ticket prices high.  As a 
cost saving measure, airlines reduced capacity, resulting in nearly 
23 aircraft being removed from the registry in 2008.  In 2009, 
analysts predict that India's aviation industry is likely to recover 
from the shocks of 2008 mainly because of significantly lower ATF 
prices.  The Center for Asia Pacific Aviation (CAPA's) Policy 
Outlook 2009 states that while passenger demand will remain low in 
the first half of 2009, it will improve in the later part of the 
year. 
 
¶8. (U) Over the last four years, the aviation industry has incurred 
losses of over US $3 billion.  If oil prices stabilize around $50 
per barrel, airline losses, particularly in India which levies high 
sales taxes on ATF, will come down significantly.  With airlines 
already reducing fares and cutting other costs, air traffic is 
expected to return to the 2007 growth rates. 
 
 
Only 37 Foreign Companies Invest in Single-Brand Retail 
------------------------- 
 
¶9. (U) In an update on FDI in the retail sector, local media report 
that approximately 37 foreign companies have entered the Indian 
market since the GOI allowed 51 percent foreign direct investment in 
single-brand retail in early 2006.  Several well-known brands in 
segments including fashion, apparel, footwear, watches, sports 
equipment and luggage have entered the country either through joint 
ventures or through licensing agreements with local partners.  There 
are reportedly still several brands, including Diesel and Starbucks, 
holding out for a more liberal FDI policy in retail.  Ikea claims to 
be waiting for the policy to change rather than enter the Indian 
market with a local partner.  As real estate costs and rental prices 
in malls and retail locations fall, industry representatives are 
 
NEW DELHI 00000104  003 OF 003 
 
 
hopeful barriers to entry in retail will seem more reasonable and 
attract more single-brand FDI. 
 
 
Shipment of Indian Drugs Seized in the Netherlands 
---------------------------- 
 
¶10. (U) A consignment of drugs from Dr Reddy's Laboratories Ltd 
being shipped from India to Brazil was seized by Dutch customs 
authorities on charges of patent infringement.  The shipment is the 
first from a large Indian company to be seized and has reportedly 
angered Indian commerce officials, who have called the seizure an 
"act of piracy by the European Union."  The event comes amid a 
growing number of shipments from small and medium-sized bulk 
drug-makers being seized in European ports while in route to South 
America and Africa.  Indian pharmaceutical representatives, 
concerned the seizures will cause a standstill in exports, are 
pressuring the GOI to challenge the EU law that allows for seizure. 
Meanwhile, small and medium Indian companies are using different 
routes to avoid EU ports. 
 
¶11. (U) Visit New Delhi's Classified Website: 
http://www.state.sgov/p/sa/newdelhi 
 
 
WHITE