VZCZCXRO4737
RR RUEHAST RUEHBI RUEHCI RUEHLH RUEHNEH RUEHPW
DE RUEHNE #0230/01 0371050
ZNR UUUUU ZZH
R 061050Z FEB 09
FM AMEMBASSY NEW DELHI
TO RUEHC/SECSTATE WASHDC 5301
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 000230 
 
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 
FEBRUARY 2 TO FEBRUARY 6, 2009 
 
¶1. (U) Below is a compilation of economic highlights from Embassy 
New Delhi for the week of February 2-6, 2009, including the 
following: 
 
-- India Largest Recipient of Worker Remittances 
-- Government Anticipates 1.5 million Job-loss by March Due to 
Global Downturn 
-- India's FY2008 Investment and Savings Rates Hit New Highs 
-- Pending Economic Legislation 
-- IT Industry Export Earnings Likely to Decline 
-- Economic Downtown Torpedoes India's Biggest Land Deal 
-- Infosys to cut jobs in the US 
-- Federal Government Committee Clears West Bengal's Proposal for 
Chemical Hub Investment 
 
India Largest Recipient of Worker Remittances 
--------------------------------------- 
 
¶2. (SBU) Despite the ongoing global recession, India is expected to 
witness record inward remittances for the second year with early 
indications suggesting upwards of $40 billion in calendar year 2008, 
much more beyond the World Bank's projection of $30 billion. 
According to the Reserve Bank of India, India already received 
$39.14 billion during the first nine months of 2008, thanks to the 
Indian diaspora, estimated at 25 million.  India mostly gets its 
remittances from the US, the Gulf Countries and Europe, with the US 
surpassing the Gulf since the 1990s' boom in IT.  India emerged as 
the number one recipient of worker remittances in 2007, with flows 
of $27 billion, followed by China with flows of $25.7 billion. 
Factors responsible for the high growth of remittances in India 
include the diminishing role of unofficial channels after 9/11, 
shifting emigration patterns to high-skilled technology jobs, 
greater competition in the money transfer market and the strength of 
the Indian economy.  A World Bank official noted recently that 
India's remittance levels in 2009 are expected to remain steady or 
only dip marginally, ensuring a critical ballast to the country's 
balance of payments. 
 
Government Anticipates 1.5 million Job-loss by March Due to Global 
Downturn 
--------------------------------------------- ------ 
 
¶3. (U) The global trade slowdown is taking its toll on India, with 
the government projecting as many as 1.5 million people in the 
exporting sector losing their jobs by end-March.  The Commerce 
Ministry estimates about 700,000 to 1 million job losses since the 
global recession began in August 2008.  (Note: The Labour Ministry 
estimates there were 500,000 job losses from October - December. End 
note.)  Commerce Secretary G.K. Pillai stated in an interview to 
NDTV that if the slowdown, especially in the U.S., Europe and Japan 
continues, another 500,000 people might be unemployed by March, 
especially in export-intensive industry units and the retail sector. 
 While exports account for less than 20 per cent of the country's 
GDP, the sector employs approximately 60.5 million workers.  After 
an impressive average growth of over 30 per cent in the first six 
months of 2008-09, India's export growth turned negative in the last 
quarter of 2008.  Pillai anticipates that exports could fall far 
short of the government's original $200-billion export target, and 
may even elude the revised $170 billion target. 
 
¶4. (SBU) Alarmed by the continuing slowdown in destination markets, 
the Indian exporting community has repeatedly asked the government 
for a stimulus package.  While the government in the last two months 
has announced several relief packages with special provisions for 
the export sector, government officials have signaling that the 
government is not prepared to come out with further sector-specific 
concessions.  In a meeting with Econoff this week, Commerce Ministry 
Director of Export-Oriented Units, Mr. T. Sirnidhi, claimed that the 
government is not able to provide further assistance due to fiscal 
constraints, despite heavy lobbying by different industry groups. 
While there are concerns within the government circles about the job 
losses, Mr. Sirnidhi expressed hope that the export sector might 
revive in the short run. 
 
NEW DELHI 00000230  002 OF 004 
 
 
 
India's FY2008 Investment and Savings Rates Hit New Highs 
--------------------------------------------- ----- 
 
¶5. (U) The government's Central Statistical Organization's latest 
data shows that both investments and savings touched record highs of 
39 percent and 37.7 percent of GDP in FY 2007-08 as compared to 37 
percent and 35.7 percent of GDP in the previous year.  The highest 
increase in investment levels was in the manufacturing sector, 
followed by the transport, storage and communication sectors.  The 
household sector contributed about 65 percent of total savings, 
followed by the private sector at 23 percent and the public sector 
at 12 percent.  The higher growth in savings and investment over the 
past five years resulted in GDP growth averaging 8.8 percent during 
fiscal years FY 2004-08.  (Note: Indian economists estimate that an 
investment-to-GDP level of 32% sustains an 8-percent growth rate, 
while investment levels of 36% enable a 9-percent growth rate.  End 
note.) 
¶6. (U) However, this fiscal year, both investments and savings are 
expected to decline, since foreign financing dried up in September 
and corporate profits were hit by costlier retail financing hitting 
consumer durable sales.  Although public sector investment, which 
constitutes about 9 percent of GDP may hold, private investment 
which is about 28.5 percent of GDP will most likely show a fall, due 
to the rising cost of debt, lower profits and negative cash flows. 
Government and corporate savings are also likely to decline due to 
higher revenue deficits on the bank of reduced taxes and increased 
spending. 
¶7. (U) The Prime Minister's Economic Advisory Council, in its 
mid-term review in January 2009, also projected that the investment 
rate will be lower due to a combination of financing constraints 
facing Indian firms, a sharp downturn in investor confidence and 
general business conditions.  The Planning Commission had estimated 
in 2007 that investment and savings rates would reach 36.7 percent 
and 34.8 percent of GDP respectively by 2012.  These rates were 
expected to sustain an 8 percent GDP growth each year in the 
eleventh five year plan (2007-12).  India seems to have crossed the 
projected savings and investment rate for the end of the plan period 
five years early.  The Council says that if the investment rate 
drops to 32 percent in FY 2009-10, the economy has enough potential 
to withstand the shocks. 
Pending Economic Legislation 
---------------------------- 
 
¶8. (SBU) The budget session scheduled for February 12-26 - the last 
of the current government - is not expected to see the introduction 
of many new bills, although the government will try to clear some of 
the pending legislation.  Over 78 bills are pending, which have 
either been passed in the upper house, the Rajya Sabha, or the Lok 
Sabha, the lower house, while some have been referred to the 
Standing Committees. The key economic bills that Post will be 
tracking are: the Insurance Bill, which recommends increasing the 
FDI limit in the sector to 49 percent from the present 26 percent, 
the Banking Regulation (Amendment) Bill, which seeks to increase the 
voting rights for foreign stakeholders in private banks to be 
proportionate to equity levels; amendments to the Prevention of the 
Money Laundering Act 2002; the Forward Contracts (Regulation) 
Amendment Bill, and the Pension Fund Regulatory and Development 
Authority Bill, 2005. 
 
IT Industry Export Earnings Likely to Decline 
--------------------------------------------- 
 
¶9. (U) The Indian information technology (IT) industry has been 
growing at an annual rate of 28% to 30% for the past few years.  The 
industry's export earnings posted a growth of 29% for FY 2007-08 
totaling $40.4 billion.  However, the global economic downturn is 
also impacting this sector.  This week, India's National Association 
of Software and Service Companies (NASSCOM) projected a decline in 
revenue growth from software and service exports (IT and business 
processes outsourcing (BPO)) for the second half of 2008-09 fiscal 
(Oct 1, 2008 to March 31, 2009).  IT and BPO exports growth has been 
revised with projected growth at 16% to 17% as against an earlier 
 
NEW DELHI 00000230  003 OF 004 
 
 
forecast of 21 to 24%.  The banking and financial services sector 
accounts for almost 40% of revenues for the IT and BPO sector.  In 
the current scenario, companies have either shelved or deferred 
expansion and investment plans.  NASSCOM has revised its figures 
downwards from the earlier USD 50 billion to USD 47 billion for 
software exports for FY 2009.  The industry group now expects 
overseas revenues to earn USD 60 to 62 billion by March 2011, a year 
later than earlier predictions. 
 
¶10. (U) Despite the slowdown, however, NASSCOM strongly believes 
that the Indian IT industry will remain a net employer in the 
current fiscal year and will continue to be the fastest growing IT 
industry in the world.  NASSCOM also projects that direct employment 
in the Indian IT and BPO sectors will reach nearly 2.23 million by 
2011 and lead to approximately 8 million indirect jobs. 
 
Economic Downtown Torpedoes India's Biggest Land Deal 
------------------------------------------ 
 
¶11. (U) In March of 2008, after a hard fought battle against larger 
rivals, realty entity Business Parks and Town Planners (BPTP) 
purchased a ninety-five acre commercial plot in Noida for 
approximately USD 1.2 billion, making it India's biggest and most 
expensive land deal.  Less than a year later, BPTP seeks to 
surrender the land because it cannot complete payment on the 
transaction.  So far, BPTP has paid about USD 320 million of the 
total amount that was scheduled to be paid in installments over a 
period of eight years.  However, BPTP, in the midst of a severe 
liquidity crunch, was unable to make the scheduled payments and had 
sought and extension of its second payment that was due in September 
of 2008. 
 
¶12.  The Uttar Pradesh government's recent announcement of a new 
policy that gives developers the option of rescheduling their 
payment plans and seek the benefit of a moratorium, or surrendering 
their plots after paying a penalty of ten percent of the amount 
already paid, couldn't have come at a better time for BPTP.  Shortly 
after the announcement, BPTP applied to the New Okhla Industrial 
Development Authority (Noida Authority) to surrender its ninety-five 
acre plot and are currently awaiting a decision.  If the application 
is approved, BPTP will not be able to recover the USD 320 million 
already paid but will be given alternative land at a square meter 
rate yet to be determined.  While this is the, at one time, most 
valuable plot of land ever sought to be surrendered in India, it is 
unlikely to be the last.  According to media reports, the Noida 
Authority believes more developers in UP may follow in BPTP's 
footsteps as the market value of land purchased in the last couple 
of years has decreased so dramatically and the sale and purchase of 
land in Noida and Greater Noida have almost come to a standstill. 
 
Infosys to cut jobs in the US 
----------------------------- 
 
¶13. (SBU) Infosys expects to cut nearly five percent of its 
U.S.-based workforce in the next quarter, a high-level executive 
told Consulate General Chennai.  He noted that the company would 
look first at those visa-holding employees (i.e., not American 
citizen employees) in the United States who had completed a project 
and are awaiting a new assignment.  Although the numbers laid off 
would not be particularly large (Infosys has around 2000 U.S.-based 
employees), the cost-savings would be significant because these are 
some of the company's highest-costing workers.  In addition, he said 
that the company would comb through its marketing team to eliminate 
poor performers.  These workers tended to be Indians, he said.  He 
also emphasized that the company is following performance 
requirements more stringently. 
 
Federal Government Committee Clears West Bengal's Proposal for 
Chemical Hub Investment 
------------------------------------- 
 
¶14. (U) On February 2, the federal government's High Powered 
Committee on Chemicals and Petrochemicals cleared West Bengal's 
 
NEW DELHI 00000230  004 OF 004 
 
 
proposal to set up a Petroleum, Chemical and Petrochemical 
Investment Region (PCPIR) in East Medinipore district in West 
Bengal.  The project awaits final clearance (considered to be 
proforma) from the Cabinet Committee on Economic Affairs.  The West 
Bengal relocated the project from Nandigram to the Nayachar Islands 
after significant civil unrest, where it will be adjacent to 
existing petrochemical industries and the port of Haldia.  A joint 
venture between West Bengal Industrial Development Corporation, the 
Indonesia based Salim Group and Delhi based Unitech group will 
develop the chemical hub and related infrastructure.  According to 
press statements by the West Bengal Industry Secretary, the 
project's total investment is USD 20 billion and will be supported 
by the federal government under its PCPIR policy. 
 
¶15. (U) Visit New Delhi's Classified Website: 
http://www.state.sgov/p/sa/newdelhi 
 
MULFORD