VZCZCXRO4799
RR RUEHAST RUEHBI RUEHCI RUEHDBU RUEHLH RUEHNEH RUEHPW
DE RUEHNE #0368/01 0581226
ZNR UUUUU ZZH
R 271226Z FEB 09
FM AMEMBASSY NEW DELHI
TO RUEHC/SECSTATE WASHDC 5547
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 06 NEW DELHI 000368 
 
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 23 TO FEBRUARY 27, 2009 
 
¶1. (U) Below is a compilation of economic highlights from Embassy 
New Delhi for the week of February 23-27, 2009, including the 
following: 
 
-- UPA Government's Last Relief Package to Exporters 
-- UPA Sneaks in Another Last Minute Vote Sweetener 
-- Government Attempts Clarification of FDI Policy 
-- Inflation Continues to Drop 
-- Some Signs of Industrial Revival 
-- Rupee Falls to Record Low 
-- Parliament Passes Legislation for Protecting IPR of "Special 
Products" 
-- India Reacts to US Move to Withdraw Tax Breaks 
-- Delhi Airport Gets New Terminal 1D 
-- The Green Friendly Delhi Metro 
-- Tata Motors Set to Launch Nano 
-- Up to 20,000 Indians Return After Losing Jobs Abroad 
-- Ranbaxy and Daiichi Hope to Resolve Issues from FDA  Finding 
-- Thousands of Rooms Still Needed for 2010 Commonwealth  Games 
-- Indian Government Entities Good Customers for CAT 
 
UPA Government's Last Relief 
Package to Exporters 
---------------------------- 
 
¶2.  (U) Commerce Minister Kamal Nath on February 26 announced the 
interim Foreign Trade Policy, offering a relief package to exporters 
in the face of the current global slowdown.  The package included 
some of the usual suspects, such as fiscal incentives and trade 
facilitation through the simplification of procedures.  Focusing on 
employment intensive sectors, such as leather, textile, gems and 
jewelry, and food products, the Minister announced a special fiscal 
package worth a modest Rs. 3.25 billion ($65 million) including 
service tax refunds, extension of duty drawbacks to May 2009, 
extension of income tax exemption for 100 percent Export Oriented 
Units for another one year, and a 5-percent duty credit for the 
export of handmade carpets under the Focus Product Scheme, compared 
with 3.5 percent given earlier.  Other procedural simplifications 
include faster clearances of export benefits, fast settlement of 
duty credits and extension of such duty credits for import of 
restricted items, such as hot-rolled coil after payment of duty. 
Under the Export Promotion Capital Goods (EPCG) scheme, the export 
obligation for exporters facing a decline in the export of their 
products by more than 5 percent, has been reduced proportionately. 
All these measures will be implemented from April 1, 2009. 
 
¶3.  (U) While recapping export performance for the last few years, 
Commerce Minister Kamal Nath stated that exports were $162 billion 
in 2007-08 and will reach $175 billion for the fiscal year ending 
March 31, 2009.  In the face of decreased external demand from the 
global slowdown, the Indian government has decreased the current FY 
export target to $175 billion from the earlier target of $200 
billion.  The GOI is now targeting $200 billion in exports for the 
next fiscal year, 2009-2010.  Generally, India releases its Foreign 
Trade Policy for five years in April with annual supplements; 
however, this time it will be announced by the new government after 
national elections in May 2009.  Despite the current slowdown, Nath 
reiterated the GOI still sees India's share of world trade reaching 
5 percent by 2020, from under 2 percent at present.  In announcing 
the package, Minister Nath stated, "I am confident that with the 
stimulus packages announced by our government as well as the 
packages announced by developed countries, there would be a pick-up 
in demand and exports will again begin to grow." 
 
Government Attempts Clarification of FDI Policy 
--------------------------------------------- -- 
 
¶4.  (SBU) The Commerce Ministry's Department of Industrial Policy 
and Promotion issued what it called a policy clarification through a 
new "Press Note", seeking to address the speculation that Press Note 
2, issued several weeks back, allowed "back door" foreign investment 
in sectors currently closed to FDI, especially multi-brand retail. 
The new press note, Press Note 4, issued on February 26, describes 
 
NEW DELHI 00000368  002 OF 006 
 
 
the guiding principle of Press Note 2 to be "what can be done 
directly can be done indirectly under same norms."  That statement, 
combined with the further language that foreign companies must 
comply with "relevant sectoral conditions on entry route, 
conditionalities and caps with regard to the sectors in which such 
companies are operating" suggests the government's intent is to keep 
previously restricted sectors offlimits.  However, given the initial 
confusion and still turgid language of the new press note, Post will 
continue to report on the interpretations and implications of the 
press note, as they unfold.  The press note can be found at 
http://siadipp.nic.in/policy/changes/pn4_2009 .pdf. 
 
UPA Sneaks in Another Last Minute Vote Sweetener 
--------------------------------------------- --- 
 
¶5.  (SBU) The Cabinet Committee for Economic Affairs (CCEA) 
announced yesterday that it had approved a 6% increase in the cost 
of living allowance given to central government employees and 
pensioners.  Expected to reach over eight million employees and 
retirees, the approval will cost roughly $1.2 billion over the next 
14 months. 
 
Inflation Continues to Drop 
--------------------------- 
 
¶6.  (U) In line with expectations, wholesale price inflation took 
another dip, with year on year inflation for the week ended February 
14 dropping to 3.36%, last seen in December 2007.  Economists 
attributed the recent decline to the domino effect of the earlier 
fuel price cut on manufactured products.  In addition, inflation for 
food articles, which had been near a 10-year high, dropped along 
with lower prices for fuel.  The newly announced reduction in the 
excise duty from 10% to 8% is expected to push inflation down 
further in the weeks to come.  The already high expectations for 
interest rate reductions were bolstered by the further fall in 
inflation. 
 
Some Signs of Industrial Revival 
-------------------------------- 
 
¶7.  (U) After sharp contractions in production in October and 
November, some industrial sectors seem to be rebounding in December 
and January.  Media reports noted that cement and steel growth had 
returned to positive territory in December and January compared to 
the two months before.  Likewise, passenger vehicle sales grew 32% 
in January over December, while sales of commercial vehicle climbed 
23% in the same time period.  Both of these may have been spurred by 
the government's reduction in the excise duty from 14% to 10% in 
early December (and may receive more of a boost from the further 
reduction in the excise duty to 8% announced in Parliament on 
February 24).  In addition to these larger industrial sectors, 
nondurable consumer goods have maintained buoyant growth.  Also 
called fast-moving consumer goods (FMCG), this sector registered 
record growth of 26% in the fourth quarter of 2008 year on year, 
while food and beverages, reflecting the hospitality sector, 
experienced a record 28% growth during the same period year on year. 
 
 
Rupee Falls to Record Low 
------------------------- 
 
¶8.  (U) A combination of end-month and other factors pushed the 
rupee down to a record low of 50.46 on February 26.  High dollar 
demand by importers to clear monthly invoices, joined with the 
impact of the Standard & Poor sovereign outlook downgrade, new 
capital outflows, and some arbitrage in outside currency future 
markets, led to the decline.  Some economists now expect the rupee 
to fall to 51 or 52 to the dollar by the end of 2009.  In contrast, 
Citi's India economist, Rohini Malkini, projects a rangebound value 
of 48.5 to the dollar, plus or minus two rupees.  She notes that oil 
import costs should decline in the wake of cheaper global prices and 
some planned refinery expansions due to come online in 2009. 
 
 
NEW DELHI 00000368  003 OF 006 
 
 
Parliament Passes Legislation for 
Protecting IPR of "Special Products" 
------------------------------------- 
 
¶9.  (U) The Indian Parliament on February 16, 2009 passed an 
amendment Bill ('Agricultural and Processed Food Products Export 
Development Authority (APEDA) (Amendment) Bill 2008'), which inter 
alia, provides intellectual property rights (IPR) protection to 
agricultural and processed food products included in the proposed 
Second Schedule to the APEDA Act.  Basmati rice is the first such 
product.  The legislation empowers APEDA, which operates under the 
Commerce Ministry's umbrella, to undertake measures for IPR 
registration and protection of special products both inside and 
outside of India.  Trade sources reportedly said that drafting a 
common definition of basmati for the purposes of a geographic 
indication (GI) was complex as states like Madhya Pradesh, 
Rajasthan, and Karnataka have also started growing the variety. 
Since the concept of a GI extends to a delimited geographic area, 
which for basmati has been clearly defined as the Himalayan 
foothills, the government wanted to provide protection to newly 
growing basmati states for their basmati crop.  The new law will 
also strengthen India's GI claim over basmati rice jointly with 
Pakistan which also grows the rice on its side of the Himalayan 
foothills.  India and Pakistan were exploring the possibility of a 
joint GI and had made considerable progress in this regard when the 
Mumbai terror attacks of November 26 put discussions on hold. 
 
India Reacts to US Move to Withdraw Tax Breaks 
--------------------------------------------- - 
 
¶10.  (U) Reacting to President Obama's statement on ending tax 
breaks for companies that outsource, the Federation of Indian 
Chambers of Commerce and Industry (FICCI - a prominent trade and 
industry chamber in India) expressed concern, saying that the 
protectionist measures could accelerate the prevailing economic 
slowdown.  While FICCI could not yet ascertain the likely impact of 
the new policy, it cited as evidence for the mutual benefit of 
information technology-enabled services (ITES) a study by the US 
Chamber of Commerce that reportedly shows that American companies 
capture the majority of economic gains from outsourcing. 
 
¶11.  (U) Commerce Minister Kamal Nath in a statement to the press 
indicated that US actions against outsourcing may be contested in 
the World Trade Organization (WTO) if the move is not 
WTO-compatible.  "We have to ensure what [the US] is doing is WTO 
compatible when we are talking about trade, movement of goods, 
movement of people and movement of services," Nath emphasized.  He 
also said the GOI would take up the issue of outsourcing with the US 
administration. 
 
Delhi Airport Gets New Terminal 1D 
---------------------------------- 
 
¶12.  (U) On February 26, Civil Aviation Minister Praful Patel, Delhi 
Chief Minister Sheila Dikshit Delhi, and senior airport officials 
inaugurated the new departure terminal 1D at Indira Gandhi 
International (IGI) Airport in New Delhi.  The new terminal will 
commence operations at the end of March and is expected to 
eventually handle all outbound domestic traffic.  The new terminal 
was developed by Delhi International Airport Limited (DIAL), a GMR 
Group-led consortium, with an investment of approximately USD 5 
billion.  It is located between the existing domestic arrivals and 
departure terminal (1A), covers an area of 35,000 square meters, and 
is equipped with four-level in-line baggage handling system and 72 
check-in counters across eight rows. 
 
¶13.  (U) Airport officials have pointed out that security clearance 
should be smoother at the new terminal with 16 channels equipped 
with metal detectors and baggage scanners.  The new terminal will 
also offer a variety of restaurants and food stalls, lounges, and a 
wi-fi internet zone.  DIAL Chairman and Group Chairman of the GMR 
Group G.M. Rao said the new terminal is expected to become fully 
operational by early April, though some operations will gradually be 
 
NEW DELHI 00000368  004 OF 006 
 
 
shifted from terminal 1B to 1D.  From April onwards, all airlines 
will operate from terminal 1D for at least a year until the proposed 
integrated terminal (T3) comes online sometime in 2010.  Also, in an 
effort to help ease traffic leading to the new terminal, a flyover 
is under construction. 
 
The Green Friendly Delhi Metro 
------------------------------ 
 
¶14.  (U) The Delhi Metro Rail Corporation (DMRC) has become the 
first railway project anywhere in the world to be registered for 
obtaining carbon credits from the United Nations (UN).  The DMRC has 
avoided emission of over 90,000 tons of carbon dioxide since the 
beginning of 2007, according to a Germany-based validation company 
TUVNORD in their annual audit of carbon savings which was conducted 
on behalf of the UN Framework Convention on Climate Change (UNFCCC). 
 With the adoption of regenerative braking systems on Delhi metro 
trains, this has helped reduce overall power consumption by 112,500 
megawatt hours.  In 2008, the Delhi metro registered a savings of 
39,000 tons of carbon emissions and this figure is estimated to 
increase to 100,000 tons per year once the phase two expansion of 
the metro project is complete.  The DMRC can claim approximately 
400,000 carbon credits for a ten year crediting period starting from 
2007, when the metro project was first registered by UNFCCC. 
 
¶15.  (U) According to DMRC officials, with the sale of these carbon 
credits, the money will be applied towards offsetting additional 
investment and operation costs for the metro.  Other funds will also 
be invested towards research and development activities to reduce 
emission of green house gases and training for train operators for 
more optimum regeneration. 
 
Tata Motors Set to Launch Nano 
--------------------------------- 
 
¶16.  (U) The maker of the Nano, which will be the world's cheapest 
car with a sticker price of $2,000, has announced that the vehicle 
will go on display on March 23 and be available for sale mid-April. 
As the new Nano plant in Sanand, Gujarat is not expected to be 
finished until the end of 2009, Tata Motors plans to manufacture a 
limited number of the first Nanos at its plants located in Pune near 
Mumbai and Pantnagar in Uttarakhand.  According to news sources, the 
company is planning a "grand launch" in hopes of rebuilding the hype 
that originally surrounded the Nano, which has since been dampened 
by the controversy surrounding the land dispute over Tata Motor's 
originally planned production site in West Bengal.  The car will be 
marketed as the "people's car" and be driven and showcased at 
temples and shrines around the country prior to the launch. 
 
¶17.  (U) The Nano enters the market at a time when total automobile 
sales in India have experienced significant decreases.  Auto-makers 
are hopeful that tax cuts, economic stimulus measures, and interest 
rate cuts will provide for a turnaround in sales.  The success of 
the new car will be essential to Tata Motors, which announced a $54 
million quarterly loss on January 30 and is facing a debt of $2.3 
billion used to finance the company's purchase of Jaguar and Land 
Rover last year. EconOff spoke with Jalaj Gupta, Regional Manager of 
Tata Motors, who was hopeful that the Nano launch would "kickstart 
the turnaround story" for the auto sector.  When asked about the 
ability of Tata to supply the anticipated demand, Gupta admitted he 
expects the wait for a new Nano may be as long as one year. 
However, the company is concerned that the already 15-month lapse 
since the car's unveiling is already too long.  Tata would rather 
launch and not be able to supply demand immediately than risk losing 
enthusiasm for the car or consumers to competitors.  The Nano, Gupta 
noted, will draw heavier traffic to showrooms and attract customers 
to more expensive cars as well, which is where Tata anticipates it 
will profit during the initial months of the launch. 
 
Up to 20,000 Indians Return 
After Losing Jobs Abroad 
---------------------------- 
 
 
NEW DELHI 00000368  005 OF 006 
 
 
¶18.  (U) Overseas Indian Affairs Minister Vyalar Ravi announced that 
between 16,000 and 20,000 Indians have returned home after losing 
their jobs overseas, particularly in the Gulf area, due to the 
economic slowdown.  While the impact of the workers' return is still 
unknown, the state of Kerala is expected to be particularly hit: 
over half of the five million Indians working in the Gulf are from 
the southern state.  Chacko T. Varghese, general secretary for the 
Kerala Manpower Exporters Association, a group that connects 
recruiting agencies to Gulf-based employers, calculates that 500,000 
workers will return to the state in the next several months.  The 
Government of India estimated there were 25 million Indians living 
abroad in 2006, one of the largest diasporas in the world. 
 
Ranbaxy and Daiichi Hope to Resolve 
Issues from FDA Finding 
------------------------------- 
 
¶19.  (U) Indian generic drug maker Ranbaxy, majority-owned by 
Japan-based Daiichi Sankyo, formed a team to resolve the issues 
highlighted by the FDA in its decision this week to invoke the 
Application Integrity Policy (AIP) to ban previously approved 
pharmaceuticals produced at Ranbaxy's Paonta Sahib plant.  Daiichi 
Sankyo, which owns 64 percent of Ranbaxy, underlined on February 26 
that it "takes the issue very seriously, and both Daiichi and 
Ranbaxy have already formed a team to solve this issQ" 
Separately, Ranbaxy stated that it would work to protect against 
revenue impacts, emphasizing that "[n]o effort or action will be 
spared to timely protect key Abbreviated New Drug Applications 
(ANDAs) from Paonta Sahib, which include some First to File 
applications."  (Comment:  Ranbaxy/Daiichi's initial response this 
week to the FDA invoking the AIP reflects a welcome and mature 
problem-solving attitude on the part of the drug companies.  This 
likely reflects Daiichi's now controlling stake in Ranbaxy and 
majority representation on the board of directors, after the 
completion of a tender offer in November 2008.  End comment.) 
 
Thousands of Rooms Still Needed for 
2010 Commonwealth Games 
---------------------------------- 
 
¶20.  (U) Earlier this week, a Parliamentary Standing Committee 
reported Delhi is far from ready for the Commonwealth Games, and a 
primary concern is the serious shortage of hotel rooms in the city. 
The committee estimated that 30,000 rooms will be require, against 
the existing 10,500 rooms in the National Capital Region.  According 
to a survey conducted by the Delhi Police and the Pusa Institute of 
Hotel Management, only 1,250 hotels (licensed and unlicensed) 
currently exist.  This number includes starred and no star hotels 
and guesthouses, 715 of which are licensed, 215 unauthorized, and 
320 in the process of obtaining licenses.  The Parliamentary 
Standing Committee also reported, of the 39 hotel sites auctioned by 
the Delhi Development Authority since January 2006, work is only 
going on at 19 sites.  The Committee further stated if work 
continued at the current rate, Delhi will find itself thousands of 
rooms short of the 30,000 needed. 
 
Indian Government Good Customers for Caterpillar 
--------------------------------------------- -- 
 
¶21.  (SBU) Demand for mining equipment from Indian government-owned 
entities like Coal India Limited, National Aluminum Company, and 
Hindustan Copper have proved a boon for U.S.-owned 
heavy-equipment-maker Caterpillar India (CAT) for the past two 
(generally difficult) quarters.  A CAT executive told Consulate 
General Chennai that these companies turned to CAT as GOI-owned 
Bharath Earth Movers (BEM) Limited proved unable to meet the needs 
of the Indian mining industry.  Not only was the quality of BEM 
products not up to snuff, he said, but BEM's product line also fails 
to included the type of products -- especiQy large (100+-ton) 
vehicles -- needed by miners. 
 
¶22.  (SBU) The CAT executive also told us that India's credit 
squeeze was hurting privately owned mines' ability to buy CAT 
 
NEW DELHI 00000368  006 OF 006 
 
 
products.  He said that these companies favored smaller equipment 
(backhoes and 35-ton trucks, for example), but were having to cut 
back on orders because of their inability to obtain credit.  He 
noted that GOI policies prohibit CAT's finance arm from operating in 
India, preventing the company from using its own financing capacity 
to spur local demand.  He also noted that drops in demand for CAT's 
large (300-ton) trucks in Indonesia and Malaysia are causing the 
company to decelerate its plans to expand its Chennai facility. 
 
¶23.  (U) Visit New Delhi's Classified Website: 
http://www.state.sgov/p/sa/newdelhi. 
 
WHITE