VZCZCXRO8723
RR RUEHAST RUEHBI RUEHCI RUEHDBU RUEHLH RUEHNEH RUEHPW
DE RUEHNE #0663/01 0931043
ZNR UUUUU ZZH
R 031043Z APR 09
FM AMEMBASSY NEW DELHI
TO RUEHC/SECSTATE WASHDC 6026
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 000663 
 
SENSITIVE 
SIPDIS 
 
 
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, KBIO, KIPR, KWMN, IN 
 
SUBJECT: NEW DELHI WEEKLY ECON OFFICE HIGHLIGHTS FOR THE WEEK OF 
MARCH 30 TO APRIL 3, 2009 
 
¶1. (U) Below is a compilation of economic highlights from Embassy 
New Delhi for the week of March 30-April 3, 2009, including the 
following: 
 
-- Update on India's External Sector 
-- Indian Carriers Cancel Aircraft Orders 
-- Boeing Opens Research and Technology Center 
-- Bihar Govt Official Comments on Wal-Mart Bharti 
-- KPMG Report Notes Impact of Slowdown on Retail 
-- India's Military Aircraft Producer Gets New Chairman 
 
 
 
Update on India's External Account 
--------------------------------- 
 
¶2. (U) India's balance of payments (BOP) position deteriorated 
sharply in the first three quarters of FY 2008-09 (April-December). 
The current account deficit (CAD) widened to $36.5 billion, as 
against $15.5 billion in the corresponding period a year ago.  For 
the first time in over 10 years, India's capital account balance 
turned negative in the third quarter showing net capital outflows of 
$3.2 billion mainly due to outflows of portfolio capital, banking 
capital, and short term trade credit.  On a cumulative basis, 
capital account inflows during April-December 2008 slowed to $15.3 
billion, down from $82 billion during the same period last year. 
Analysts estimate an overall BOP deficit of $24.6 billion (3.7 
percent of GDP) for the full FY 2008-09, which ended this week (on 
March 31), and expect it to narrow to $23 billion (1.9 percent of 
GDP) in FY 2009-10. 
 
¶3. (U) India's trade deficit narrowed in February 2009 to less than 
$5 billion as the fall in imports at -23 percent was more than that 
of exports at -21.7 percent.  However, the overall merchandise trade 
deficit during April-February 2008-09 rose to $115 billion versus 
$82 billion in April-February 2007 on account of higher growth in 
imports coupled with the slowdown in exports.  Continued lower oil 
prices as well as a decrease in non-oil imports are likely to narrow 
the trade deficit in FY 2009-10. 
 
¶4. (U) In the current account, net invisibles (software, travel and 
tourism income and remittances) ended in a surplus of $68.9 billion 
during April-December 2009 versus $53.8 billion in the same period 
of previous year.  Software exports rose by 26 percent to touch $35 
billion versus $28 billion in the same period of last year. 
Similarly, remittances had inflows of $37 billion during 
April-December 2008 versus $29 billion for last year.  However, some 
remittance flows may be temporarily bolstered by repatriation of 
accumulated wealth by migrant workers who have lost their jobs, 
implying a future decline.  From a BOP accounting standpoint, a 
positive remittance flow offsets negative portfolio and bank capital 
flow. 
 
¶5. (U) In the capital account, in FY 2008-09, foreign institutional 
investors pulled out $9.3 billion from the Indian stock market. 
Notwithstanding the global financial crisis, foreign direct 
investment (FDI) inflows are still growing.  India recorded 65 
percent growth in FDI inflows, receiving $23.9 billion between April 
and December 2008 versus $14.5 billion for the year-over-year 
period. (Note: During FY 2007-08, India's FDI was at a record $32.4 
billion. End note.) The services sector witnessed the highest FDI 
inflow, followed by computer software and hardware, 
telecommunications, housing and construction activities, and the 
automobile sector.  FDI inflows may be backward-looking, reflecting 
commitments made before the global crisis hit in September. 
However, one forward-looking measure is the growing number of 
investment approvals by the Finance Ministry's Foreign Investment 
Promotion Board, which approved 98 cases for the months of January 
and February 2009.  The total investment from these approvals 
aggregates to $752 million (most FDI does not require approval). 
 
¶6. (U) During April-December 2008, foreign exchange reserves 
 
NEW DELHI 00000663  002 OF 004 
 
 
declined by $54 billion to $254 billion.  Financing of the CAD and 
portfolio flows accounted for 38 percent of the fall, with the 
balance due to revaluation of reserves.  On March 27, 2009 total 
outstanding foreign exchange reserves stood at $252.3 billion (about 
2.8 times short-term external debt of $89 billion). 
 
¶7. (U) The Ministry of Finance's data showed that the country's 
outstanding external debt rose marginally to $230.8 billion at 
December 31, 2008, compared with $224.8 billion in March 2008. 
Long-term debt on a residual basis accounted for $140.9 billion or 
61.1 of the total debt during the year, while the remainder, 
short-term debt, stood at $89 billion or 38.9 percent.  Rupee debt 
continued to remain constant at $1.67 billion.  However, the ratio 
of foreign exchange reserves to total external debt declined to 
110.9 percent at end December 2008 from 137.9 percent at end March 
¶2008. 
 
Indian Carriers Cancel Aircraft Orders 
-------------------------------------- 
 
¶8. (U) Indian carriers have pulled back on at least one-third of the 
aircraft orders which were booked with plane manufacturers and 
scheduled for delivery in 2009.  Commercial plane makers Boeing, 
Airbus, and Empresa Brasileira de Aeronautica SA (Embraer) now 
expect to deliver some 57 aircraft to India this year, down from an 
earlier projection of 91 aircraft.  As of July 2008, Indian carriers 
had placed orders for 68 Airbus planes, 22 Boeing aircraft, and one 
Embraer, all of which are scheduled for delivery this year. 
However, by January 2009, these numbers had been reduced to 32 
Airbus and 20 Boeing planes.  Jet Airways has deferred delivery of 
one Boeing 777 and one 737.  The economic slowdown and downturn in 
the aviation sector has had a greater impact on orders of large 
capacity aircraft since orders for Embraer planes have now increased 
to five.  That said, the Embraer order was placed by Paramount 
Airways, predominantly a regional airline that serves south India, 
which experienced a 73 percent increase in capacity between February 
2008 and 2009.  Other smaller airlines like IndiGo and SpiceJet have 
also increased capacity by 13 percent and 8 percent in the same 
period. 
 
¶9. (U) According to The Mint newspaper, Boeing and Airbus are still 
optimistic and are hoping that a global economic recovery by the end 
of 2009 will put the aviation industry back onto a growth 
trajectory.  They also continue to stand by an India market forecast 
which estimates that the country's airlines would buy up to 1,100 
planes over the next 20 years. 
 
¶10. (U) Amid continued overcapacity and slowing economic growth, 
Indian carriers are struggling to fill up seats.  Some analysts 
estimate total losses of about $2 billion when the books are closed 
for the Indian fiscal year which ended on March 31, 2009.  2008 was 
also the first year that air passenger traffic in India fell after 
surging for the last six years.  Last year, there were 40.77 million 
passengers as compared to 43.3 million passengers in 2007.  The 
downturn in aviation was further compounded last year with record 
high jet fuel prices, which prompted airlines in the summer of 2008 
to optimize routes and reduce the number of daily flights.  Last 
year, India's domestic airline capacity shrank by 8% overall, 
including Kingfisher Airlines which reduced capacity by almost 
17.1%, Jet Airways by 6.2%, and Air India by 5.3%.  These three 
leading airlines in India are also witnessing a sharp rise in 
accumulated losses. 
 
Boeing Opens Research and Technology Center 
------------------------------------------- 
 
¶11. (U) Boeing announced on March 31 the opening of its Research and 
Technology-India center which will "help sustain the company's 
competitive technological edge while enhancing India's aerospace 
capabilities," according to the company.  The center marks another 
milestone in Boeing's long-term relationship with India.  This is 
Boeing's third advanced research center outside the US, with the 
 
NEW DELHI 00000663  003 OF 004 
 
 
other two located in Europe and Australia.  The Boeing facility will 
carry out continued collaboration with Indian research and 
development (R&D) organizations, including government agencies and 
private sector R&D providers, universities, and other companies. 
 
¶12. (U) Boeing's research in India will focus on aero structures, 
aerodynamics, and electronic networks and include a team of senior 
researchers, scientists, and engineers.  This R&D center will 
coordinate the work of more than 1500 technologists, including 100 
advanced technology researchers, from across India on projects that 
will help define the future of aerospace.  President of Boeing 
India, Dinesh Keskar, said, "Boeing is defined by its technological 
edge. Working with India's technology leaders helps Boeing 
assimilate new ideas and innovative processes into our products and 
programs.  This also is good for India because it helps grow the 
capabilities of the Indian R&D community to meet the emerging needs 
in country." 
 
Bihar Govt Official Comments on Wal-Mart Bharti 
--------------------------------------- 
¶13. (U) Local media report that a Bihar Government official has 
taken a strong stance against allowing Wal-Mart Bharti to open 
stores in the north-eastern state.  Citing potential job loss 
resulting from organized retail, JDU National General Secretary, 
Arun Kumar Srivastava noted "We have not allowed Reliance, so where 
is the question of allowing Wal-Mart Bharti?"  Srivastava, 
commenting just prior to election polling, also remarked on the UPA 
government's employment record, stating that only 1.6 million jobs 
were created under the UPA government. 
 
KPMG Report Notes Impact of Slowdown on Retail 
--------------------------------------------- -- 
¶14. (U) A study released by KPMG suggests that the economic slowdown 
has affected organized retail penetration in India.  Organized 
retail, which currently makes up only 5 percent of all retail in the 
country, was earlier expected to grow to a 16 percent market share 
by 2012.  As investment into organized retails slows due to the 
liquidity crunch, the study estimates that organized retail will 
likely reach only 10.4 percent of the total retail sector. 
 
¶15. (U) While the slowdown should only be a short-term phenomenon 
for retailers, lasting just 12-18 months, the confidence of Indian 
retailers will have been hit as expansion plans are both temporarily 
and permanently postponed.  Nearly 70 percent of retailers surveyed 
by KPMG noted that their 'footfalls,' or number of customers 
visiting outlets, have dropped.  Retailers have been adversely 
affected by the lack of working capital, cost of finance, and the 
inability to expand stores or spend on advertising.  The slowdown 
does present opportunities, however; as real estate prices drop, 
retailers may be able to more easily expand to tier II and tier III 
cities.  [Comment:  The economic slowdown has caused organized 
retailers, most of which had planned to rapidly expand through 2009, 
to slow expansion and reevaluate their business strategies.  As the 
slowdown continues to affect the sector, there may be greater 
opportunities for foreign companies with capital and capabilities to 
partner with Indian retailers. End Comment.] 
 
India's Military Aircraft Producer Gets New Chairman 
------------------------------ 
 
¶16. (SBU) India's largest producer of military aircraft, Hindustan 
Aeronautics Limited (HAL), got a new boss on April 1, as former 
Managing Director Ashok Nayak took over from Ashok Baweja.  Nayak's 
appointment is something of a departure from past practice for HAL 
-- former chairs tended to have come from departments producing 
Soviet/Russian-origin aircraft, while Nayak's experience has been 
more with Indian- and European-origin designs. 
 
¶17. (SBU) Prior to taking over as HAL's chairman, Nayak was the 
Managing Director of HAL's Bangalore Complex since 2007 where he 
oversaw the mass production of two platforms for the Indian Air 
Force (IAF): the newly developed Dhruv light helicopter and the 
 
NEW DELHI 00000663  004 OF 004 
 
 
recently acquired Hawk trainer aircraft from BAE Systems of the UK. 
Before that, he was General Manager of HAL's Aircrafts Division, 
where he oversaw the upgrading of the IAF's Jaguar fleet.  At HAL, 
he has also overseen the maintenance program for the Mirage 2000 
aircraft and served as assistant general manager of HAL's Aerospace 
division, where he oversaw the development of composite materials 
now used in India's space program.  As the overall Chief of HAL's 
Unmanned Air Vehicle (UAV) program, Nayak has considerable 
experience with USG export license regimes as well as with delays in 
processing visas for HAL employees traveling to the United States, 
both of which he has complained about to Consulate General Chennai 
officers. 
 
¶18. (U) Visit New Delhi's Classified Website: 
http://www.state.sgov/p/sa/newdelhi. 
 
WHITE