VZCZCXRO3535
RR RUEHAST RUEHBI RUEHCI RUEHLH RUEHNEH RUEHPW
DE RUEHNE #0150/01 0231216
ZNR UUUUU ZZH
R 231216Z JAN 09
FM AMEMBASSY NEW DELHI
TO RUEHC/SECSTATE WASHDC 5174
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 000150 
 
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 20 TO JANUARY 23, 2009 
 
¶1. (U) Below is a compilation of economic highlights from Embassy 
New Delhi for the week of January 20-23, 2009, including the 
following: 
 
-- Montek Ahluwalia on 2009: "Brace Yourselves" 
-- Canadian FIPA/BIT Still Being Scrubbed 
-- GOI May Relax SEZ Norms Due to Low Export Demand 
-- Tourism in Bhutan Suffering from Economic Slowdown 
-- Coca Cola Moves Forward with $250 Million Investment 
-- South India Scores Well in World Bank Study of State Investment 
Climates in India 
 
 
Montek Ahluwalia on 2009: "Brace Yourselves" 
-------------------------------------------- 
 
¶2.  (U) Planning Commission Deputy Chairman Montek Singh Ahluwalia 
spoke to the CII's annual Partnership Summit January 20 and warned 
that the current global economic crisis is far from over.  He 
observed that when the G-20 was convened last September, the sense 
both then and at the actual November Summit itself was that measures 
currently being taken would turn around the financial markets.  Yet, 
the markets still have not stabilized, nor is it clear when they 
will, Ahluwalia posited.  Best-case scenarios point toward a 
possible stabilization of financial markets by mid-2009.  He 
compared the state of today's world economy with the Great 
Depression, and asserted that the first seven months of the 
Depression were as bad as current conditions.  The one big 
difference between then and now, however, is that governments from 
every major economy, including Germany (which in November was 
skeptical) have agreed on the necessity of implementing major 
stimulus packages. 
 
¶3.  (U) With such "concerted" (as opposed to "coordinated") 
collective efforts, Ahluwalia predicted the world may see a 
turnaround in the real economy by the 4th quarter of 2009.  In any 
case, he stressed, "It's going to be a bad year, and everybody 
should brace themselves for that."  Airtel CEO Sunil Mittal echoed 
Ahluwalia's description of the dire conditions in the financial 
markets.  Mittal, speaking from the prospective of both a CEO and as 
a board member of Standard Chartered Bank, said that "Serious 
businesses are finding it impossible to raise serious capital".  He 
backed the call for a stimulus package.  Speaking on domestic 
policy, Ahluwalia said that Prime Minister Singh has put economic 
revival at the top of his agenda.  Inflation, he added, is within an 
acceptable range and will likely continue to fall.  He stated that 
any next government will have to present a new budget that continues 
to push for further fiscal and monetary stimulus measures.  In the 
interim, Ahluwalia clarified that he had been misquoted recently 
when he said there would be no third stimulus package before the 
elections.  What he had said was that there would be no further tax 
rate changes between now and the next budget.  He made this 
clarification so that people did not withhold major purchases in 
anticipation of any more tax cuts in the near future. 
 
¶4.  (SBU) Comment: India's "code of conduct" does not permit new 
government spending or tax relief measures to be implemented after 
election dates have been called.  Thus, the window for any 
additional fiscal measures is likely to last through the end of 
February, when elections are expected to be announced.  Since fiscal 
measures will then most likely not be available from March to the 
end of May/early June, market analysts are expecting the central 
bank to delay further interest rate reductions for now, to hold 
monetary policy in reserve for the months ahead when fiscal policy 
will not be available to respond to any new adverse conditions.  End 
comment. 
 
Canadian FIPA/BIT Still Being Scrubbed 
------------------------------------- 
 
¶5. (SBU) MEA Joint Secretary Gaitri Kumar told EconCouns earlier 
this week that the Canadian-India Bilateral Investment Treaty 
(called a FIPA by the Canadians and a BIPA by the Indians) has 
 
NEW DELHI 00000150  002 OF 003 
 
 
undergone 12 rounds of negotiations, with the 13th round taking 
place this week with the visit of Canada's Trade Minister.  A senior 
trade officer of the Canadian High Commission disputed that 
characterization, stating that the two sides had completed talks in 
July 2007.  India and Canada were now in the process of "scrubbing" 
the text to put it in legally operative language.  The official 
attributed Kumar's comment to some confusion over the trade 
minister's visit, where a number of economic issues were discussed. 
 
 
GOI May Relax SEZ Norms Due to Low Export Demand 
--------------------------------------------- -- 
 
¶6. (U) At a Conference on Special Economic Zones (SEZs) in Gujarat, 
Commerce Secretary G.K. Pillai announced his ministry's plans to 
relax SEZ norms for export sectors that have been adversely affected 
by the economic slowdown.  The incentive package will include 
relaxing foreign exchange earning obligations and permit units in 
SEZs to sell in domestic markets without paying customs duty on a 
percentage of their finished products.  However, the stimulus 
package will be limited to a period of one year. 
 
¶7. (U) The announcement of new fiscal measures came against a 
backdrop of government estimates that exports from SEZs are expected 
to fall 25 percent short of the targeted USD 25 billion for 2008-09. 
 According to Pillai, as of December 2008, exports from SEZs were 
USD 14 billion and total exports from these zones were likely to be 
about USD 20 billion for 2008-09, USD 5 billion short of the 
targeted amount. 
 
Tourism in Bhutan Suffering from Economic Slowdown 
--------------------------------------------- ------ 
 
¶8. (U) Mr. Khandu Wangchuk, Minister of Economic Affairs for the 
Government of Bhutan, spoke at a CII Summit in Delhi last week on 
the impact of the global economic slowdown on Bhutan's economy. 
Wangchuck asserted that the country's tourism industry in particular 
has been affected.  Local media reports that the Association of 
Bhutanese Tour Operators (ABTO) asked the government for measures 
including deferment of the planned tariff revision, which at present 
requires tourists to pay $200 per day and was planned to increase to 
$250 in 2009.  The government recently agreed to defer the tariff 
revision to a later date.  Last year, tourism tariffs generated $40 
million for the Bhutanese government.  The government also agreed to 
provide discounts on the tariff in the amount of $20 during the peak 
season and $15 during the off season, after the ninth night of stay 
in Bhutan.  Tour operators have criticized the discount, saying that 
on average, tourists spend only six nights in Bhutan, making the 
discount irrelevant and not conducive to reviving the industry.  As 
additional measures to help the tourism sector, the Hotel 
Association of Bhutan, which typically increases rates by 10 percent 
each year, agreed to not raise room rates and Druk Air agreed to 
resume low season discounts and to reduce surcharges. 
 
Coca Cola Moves Forward with $250 Million Investment 
--------------------------------------------- -------- 
 
¶9. (U) Coca Cola announced its intent to move forward with plans to 
invest $250 million in India, despite the economic slowdown. 
Through the quarter ended in September 2008, Coca Cola posted growth 
for nine consecutive quarters, six of which were double digit.  The 
investment is intended for expansion of Coca-Cola's businQ over 
the next three years, including the introduction of new products to 
the Indian market.  Coca Cola is also supporting several corporate 
social responsibility initiatives (CSR) soon plans to launch a Coca 
Cola India Foundation to support CSR projects.  Coca Cola currently 
collaborates with an NGO on water harvesting projects in 39 villages 
and funds potable drinking water for schools in Chennai and West 
Bengal. 
 
South India Scores Well in World Bank 
Study of State Investment Climates in India 
------------------------------------------- 
 
NEW DELHI 00000150  003 OF 003 
 
 
 
¶10. (SBU) The World Bank released a study on January 19 rating the 
investment climate in 16 Indian states.  Not surprisingly, South 
India did well in the survey, with three of the South's four states 
taking three of the top four places.  What was surprising, however, 
was that communist-governed (and investment-poor) Kerala came in at 
number two, while Tamil Nadu -- generally proud of its prowess at 
attracting foreign investment -- was relegated to an embarrassing 
ninth place.  Karnataka was first, Andhra Pradesh fourth, and 
Gujarat (the only non-South-Indian state to make the top four) was 
third.  The survey assessed both perceptions and more objective 
measures of institutions and "inputs" like labor costs and access to 
finance to reach its conclusions. 
 
¶11. (SBU) While quibbles can always be made with rankings of this 
sort (the data used, for example, is quite old, having been 
collected in 2005), the survey is a stark and useful reminder of the 
impediments that poor infrastructure and poor governance pose on the 
economic performance of many Indian states.  The report specifically 
identifies the feeble condition of power and transportation 
infrastructure, tax regulations, and theft as the most important 
"bottlenecks" to improving the business environment in India's 
states, with infrastructure being the most important.  States that 
fail to get infrastructure right, the report notes, consistently 
"show low levels of domestic investment and GDP growth." 
 
¶12. (U) Visit New Delhi's Classified Website: 
http://www.state.sgov/p/sa/newdelhi 
 
WHITE