VZCZCXRO9189
RR RUEHAST RUEHBI RUEHCI RUEHLH RUEHNEH RUEHPW
DE RUEHNE #0191/01 0301215
ZNR UUUUU ZZH
R 301215Z JAN 09
FM AMEMBASSY NEW DELHI
TO RUEHC/SECSTATE WASHDC 5240
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
RUEHRC/DEPT OF AGRICULTURE WASHDC

UNCLAS SECTION 01 OF 02 NEW DELHI 000191 
 
SIPDIS 
SENSITIVE 
 
STATE FOR SCA/INS AND EEB 
USDOC FOR ITA/MAC/OSA/LDROKER/ASTERN/KRUDD 
DEPT PASS TO USTR MDELANEY/CLILIENFELD/AADLER 
DEPT PASS TO TREASURY FOR OFFICE OF SOUTH ASIA MNUGENT 
TREASURY PASS TO FRB SAN FRANCISCO/TERESA CURRAN 
 
E.O. 12958: N/A 
TAGS: EAGR ECON EFIN EINV ETRD IN
 
SUBJECT: INDIA: MODEST LIBERALIZATION OF INVESTMENT NORMS IN WAKE OF 
FINANCIAL CRISIS 
 
REF A) SECSTATE 04706 B) NEW DELHI 174 
 
¶1.  (SBU) Summary.  In response to reftel A, Post reports that India 
has not adopted nor indicated plans to restrict sovereign wealth 
fund (SWF) investments generally, although media reports that part 
of the government may wish to restrict Singapore's two SWFs in 
India.  More broadly, India has not erected any new investment 
barriers; in contrast, it has liberalized some investment channels 
since the financial crisis hit, hoping to mitigate the loss of 
portfolio capital inflows.  For India, foreign investment flows have 
been seen as critical to maintaining infrastructure development 
momentum as well as helping support the rupee.  This has prompted 
the government and regulators to consider more liberalization, not 
less.  End summary. 
 
MODEST INVESTMENT LIBERALIZATION 
-------------------------------- 
 
¶2.  (SBU) Unlike its trade stance (reftel B), India has moved 
several times in recent months to liberalize foreign investment 
flows, as it tries to mitigate the downward pressure on the rupee 
wrought by the net outflow of portfolio investment through most of 
¶2008.  In October last year, the Securities and Exchange Board of 
India (SEBI) reversed the year-old ban it had placed on certain 
offshore derivative portfolio investments, known as participatory 
notes.  Further, in October 2008 and January 2009, the central bank, 
the Reserve Bank of India (RBI), relaxed the limits on foreign 
institutional investment allowed in corporate debt bonds, raising 
the ceiling from $3 billion to $15 billion. 
 
¶3.  (SBU) Meanwhile, the GOI has allowed planned foreign investment 
in the slowly opening pension sector to go forward: recent 
guidelines invited fund management bids from private sector 
companies for the first time, including those with 26% FDI (the 
equivalent of the insurance sector).  In December, the Ministry of 
Finance finally introduced its draft insurance bill amendment in 
Parliament, which seeks to raise the FDI cap from 26% to 49%. 
Domestic political considerations and the short timeframe before 
national elections in April-May may delay the bill's passage, but 
our contacts tell us the Ministry of Finance is squarely behind the 
bill. 
 
¶4. (SBU) In addition to these actions, different ministries have 
proposed, for Cabinet approval, further FDI relaxations in different 
sectors, including civilian airlines and single and multi-brand 
retail.  Although the Cabinet has not passed these proposals for 
consideration, the proposals reflect that several ministries, 
including the Ministry of Commerce and Industry (MOCI), are inclined 
to look for liberalized investment in order to enable more capital 
into various sectors, which the financial crisis otherwise blocks. 
For example, the domestic civilian industry is suffering from lower 
demand after a period of rapid expansion, which may necessitate 
foreign capital infusion to keep some airlines going. Finally, in 
late January, MOCI proposed that separate investment caps for 
foreign portfolio investment (what India calls "foreign 
institutional investors" or FII) and direct equity in Indian 
companies be eliminated, so that either type of investment might 
reach a new "composite" ceiling, rather than separate ones for each 
type of investment. This would provide more flexibility to foreign 
investors. 
 
ONE POSSIBLE MOVE AGAINST SWFS 
------------------------------ 
 
¶5.  (SBU) One possible regressive move on investment, and pertaining 
to SWFs specifically, is a recent news report that the Finance 
Ministry has proposed that the government revise its Comprehensive 
Economic Cooperation Agreement (CECA) with Singapore to prohibit the 
two Singapore SWF's, Temasek and GIC, from together exceeding 10% 
investment in a single entity.  Currently, the CECA explicitly 
exempts Temasek and GIC from India's 10% cap on all entities from 
the same owner. 
 
COMMENT 
------- 
 
¶6.  (SBU) Capital-starved domestic companies mainly see foreign 
investment as one of their best options for shoring up expansion 
 
NEW DELHI 00000191  002 OF 002 
 
 
plans - or for the hardest hit, for surviving the economic downturn. 
 The government has been inclined to agree, with the added cushion 
that FDI provides to the strained balance of payments.  All these 
factors have contributed to a continued, if not enhanced, welcome to 
foreign investment in recent months.  While the Cabinet has not 
moved on the FDI liberalization proposals, the fact that the 
government landscape contains almost no calls for investment 
rollback is a positive sign. 
 
MULFORD