VZCZCXRO8682
RR RUEHAST RUEHBI RUEHCI RUEHDBU RUEHLH RUEHNEH RUEHPW
DE RUEHNE #0471/01 0721156
ZNR UUUUU ZZH
R 131156Z MAR 09
FM AMEMBASSY NEW DELHI
TO RUEHC/SECSTATE WASHDC 5738
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 000471 
 
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 
MARCH 9 TO MARCH 13, 2009 
 
¶1. (U) Below is a compilation of economic highlights from Embassy 
New Delhi for the week of March 9-13, 2009, including the 
following: 
 
-- Industrial Index Declines Again 
-- Foreign Direct Investment High Through December 
-- Inflation Continues To Soften 
-- Characteristics of Service Sector Enterprises 
-- India Puts on Hold FTA Negotiations Till May-end 
-- GOI Decides to Lift Ban on Wheat Exports, But to Continue Ban on 
Rice Exports 
-- Diamond Sector Troubles Gain Attention 
 
Industrial Index Declines Again 
------------------------------- 
 
¶2.  (U) The government-maintained index of industrial production 
(IIP) declined for a second month in a row in January, although 
falling just 0.5 percent.  The decline was mainly due to shrinking 
output by the manufacturing (-0.8 percent) and mining (-0.4 percent) 
sectors, as compared to a robust 6.2 percent growth achieved in 
January last year. Electricity generation registered a growth of 
just 1.8 percent.  The surprise element was the 15.1 percent growth 
recorded in the capital goods sector which can partially be 
attributed to the base effect.  Moreover, consumer durables 
production grew by 2.5 percent, moving into a positive zone after 
three months of fall, on the back of high growth in automobile 
sales.  Cumulative industrial growth for April-January FY 2008-09 
works out to three per cent as compared to a growth of 8.7 percent 
over the corresponding period of last year.  Meanwhile, the IIP for 
December was revised upwards, from the provisional 2 percent 
announced earlier to just 0.6 percent, which could lead to an upward 
revision of the third quarter GDP figure.  Several economists expect 
the January figures to be revised upwards as well, and see the 
healthy capital goods growth as a sign of revival in consumer 
demand. 
 
Foreign Direct Investment High Through December 
--------------------------------------------- - 
 
¶3.  (SBU) According to the Ministry of Commerce and Industry, 
foreign direct investment inflows into India recorded an increase of 
67 percent during April-December 2008 to reach $21.2 billion versus 
$12.7 billion in the corresponding period of last year.  Investment 
from three Asian countries - Mauritius, Singapore and Japan 
-contributed more than 55 percent of the total inflows during the 
period.  For the year to date, Singapore surpassed the U.S. as the 
largest source of long-term investment into India, excluding 
Mauritius which is a tax haven used by other countries.  Investment 
from the U.S. continued to grow, totaling about $1.3 billion during 
April-December 2008 versus $1.1 billion for the full fiscal year 
2007-08. 
 
Inflation Continues To Soften 
---------------------------- 
 
¶4.  (U) Wholesale price index (WPI) inflation year on year for the 
week ending February 28 fell to a six year low of 2.43 percent. It 
was 6.21 percent in the corresponding week a year ago.  The WPI has 
declined due to the low prices of non-food commodities and 
manufactured products such as metals, textiles, chemicals and 
batteries, experiencing a fall in demand and easing prices of 
inputs.  Prices of food items such as pulses, dairy products and 
edible oil also softened during the week.  The index for fuels 
remained unchanged for the second consecutive week.  Economists 
expect WPI inflation to fall temporarily to zero percent in the next 
2-3 months following January and February cuts in excise duties, 
reduced aviation turbine fuel prices and the high base effect. 
However, the Consumer Price Index for industrial workers, which is 
more representative of an urban household consumption basket, but 
whose data collection is less comprehensive than for the WPI, 
continues to be high at 10.5 percent for January 2009, indicating 
that retail price inflation faced by consumers remains high. 
 
NEW DELHI 00000471  002 OF 003 
 
 
 
Characteristics of Service Sector Enterprises 
--------------------------------------------- 
 
¶5.  (SBU) The services sector has been the prime driver of India's 
accelerated growth in recent years as it contributes to more than 
half of the country's gross domestic product and is second only to 
agriculture in terms of employment generation.  A recent survey 
conducted by the National Sample Survey Organization (NSSO) on the 
operational characteristics of enterprises (a sample of 190,282 
units) in the services sector shows that an estimated 16.5 million 
service sector units were in operation in the country in FY 2006-07, 
employing about 33.5 million people.  About 60 percent of the 
enterprises were in rural India versus 40 percent in urban sector. 
The survey found that 81 percent of the working owners were literate 
with some formal education, with the number as high as 77 percent in 
the rural areas.  Roughly one-third of the enterprises were operated 
within a personal residence, and nearly 90% were 
self-proprietorships, reflecting the large number of self-employed 
in India.  The largest proportions of workers were found in 
"transport, storage and communication" at 25 percent; "financial 
intermediation" with 17 percent of workers; "hotels and restaurants" 
employing 15 percent, followed by "other community, social and 
personal services activities" at 15 percent, and "education" at 12 
percent of workers in the service sector. 
 
India Puts on Hold FTA Negotiations Till May-end 
--------------------------------------------- --- 
 
¶6.  (U) According to media reports Prime Minister Manmohan Singh has 
directed all the ministries not to pursue free trade agreements with 
any nation until a new government is formed by May-end.  This would 
result in delay in signing of the India-ASEAN (Association of 
Southeast Asian Nations) and India-South Korea free trade pacts, 
which are reportedly ready otherwise.  The decision is considered 
significant in light of Commerce Minister Kamal Nath's earlier 
statements that a comprehensive economic cooperation agreement 
between India and ASEAN could be signed in April, 2009.  Five phased 
general elections in India are scheduled from April 15 and the new 
government is likely to be in place by late May 2009. 
 
GOI Decides to Lift Ban on Wheat Exports, But to 
Continue Ban on Rice Exports 
--------------------------------------------- --- 
 
¶7.  (U) The Government of India (GOI) is likely to lift the ban on 
wheat/wheat product exports in the coming months after the new 
government is in place.  The Indian cabinet has taken the decision 
in principle to allow wheat exports up to two million tons after the 
general elections in view of the piling up of wheat stocks in 
storage houses.  However, the Cabinet clarified that there is no 
plan to lift the curbs on the export of non-basmati rice.  The GOI 
had banned the export of wheat in February 2007 and that of 
non-basmati rice in April 2008 to boost domestic supply and contain 
price rise. 
 
Diamond Sector Troubles Gain Attention 
-------------------------------------- 
 
¶8.  (U) Diamond workers in the diamond hub of Surat and several 
other diamond-processing areas located in the state of Gujarat have 
been receiving increased media and political attention.  Due to the 
economic downturn, exports of diamonds have decreased resulting in 
the closure of diamond-processing units and job losses.  According 
to the Gem and Jewelry Export Promotion Council, India's diamond 
exports are down by approximately three percent for this fiscal year 
(which began in April 2008).   As the sector is largely unorganized, 
accurate data on the number of factories and workers is not 
available; however, estimates range from 500,000 to 800,000 workers 
in the state and 6,000 to 10,000 factories and workshops.  Local 
media sources estimate that over 4,000 diamond units have closed and 
over 400,000 workers have lost their jobs.  Local media also claims 
that between 40 and 70 diamond workers have committed suicide, 
 
NEW DELHI 00000471  003 OF 003 
 
 
intensifying attention on the sector. 
 
¶9.  (U) Surat, the most well-established industry hub, is estimated 
to have lost 200,000 jobs, which accounts for approximately 14 
percent of the total number of voters in the city, although a 
percentage of those workers have likely migrated to other areas in 
search of employment.  Diamond worker associations are urging their 
members to boycott both the Congress and BJP party in upcoming 
elections.  In response, Rahul Gandhi met with Surat diamond workers 
in February and blamed the state government for the situation.  In 
turn, Gujarat's Chief Minister Narendra Modi of BJP criticized the 
Congress-led government for not supporting the workers and announced 
a relief package that would provide training and a stipend of Rs 100 
per day for the unemployed. 
 
¶10.  (U) Visit New Delhi's Classified Website: 
http://www.state.sgov/p/sa/newdelhi. 
 
WHITE