VZCZCXRO8350
RR RUEHAST RUEHBI RUEHCI RUEHDBU RUEHLH RUEHPW
DE RUEHNE #0826/01 1141413
ZNR UUUUU ZZH
R 241413Z APR 09
FM AMEMBASSY NEW DELHI
TO RUEHC/SECSTATE WASHDC 6344
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 000826 
 
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 
APRIL 20 TO APRIL 24, 2009 
 
¶1. (U) Below is a compilation of economic highlights from Embassy 
New Delhi for the week of April 20-24, 2009, including the 
following: 
 
-- India's Outward FDI Plans Up, But Actual Flows Down 
-- RBI Cuts Interest Rates In Its Monetary Policy 
-- ......And Lowers Growth Estimates 
-- Retail Food Inflation Still High 
-- India Among World's Top Manufacturers 
-- U.S. Specialty Retailer Discusses Doing 
Business with Indian Suppliers 
 
 
India's Outward FDI Plans Up, But Actual Flows Down 
--------------------------------------------- ----- 
 
¶2.  (U) The Reserve Bank of India's (RBI)data reveals that the 
government cleared about 2828 proposals worth $16.6 billion for 
investments abroad by Indian companies in joint ventures and wholly 
owned subsidiaries during the first nine months (April-December 
2008) of FY 2008-09, versus 1595 proposals worth $18.4 billion 
cleared during April-December 2007.  The number of proposals 
recorded a rise of 77 percent over the previous year (despite the 
global financial crisis) whereas the magnitude 
of investment proposals indicate a fall of 11 percent.  The 
manufacturing sector accounted for 57 percent of the investment 
proposals, followed by non-financial services at 9 percent, trading 
at 6 percent and the balance in "others" category such as real 
estate, films and oil exploration.  During the period under review, 
Netherlands, Singapore and the UK together accounted for 54 percent 
of the proposals for outward FDI of $5 million and above.  Further, 
the RBI data shows that the actual outward FDI in joint ventures and 
wholly owned subsidiaries during the first three quarters of FY 
2008-09 stood at $11.3 billion, resulting in a drop of 15 percent 
over the investment of $13.3 billion made during the same period of 
the previous year.  About 79 percent of the investments were in the 
form of equity and the remaining 21 percent was contributed by 
loans. 
 
RBI Cuts Interest Rates In Its Monetary Policy 
----------------------------------------- 
 
¶3.  (U) The Reserve Bank of India (RBI) in its annual monetary 
policy review on April 21 cut its benchmark lending and borrowing 
rates by 25 basis points each.  The repo rate (the rate that banks 
pay on funds borrowed by the RBI) has been revised to 4.75 percent 
and the reverse repo rate (the rate RBI pays to banks on the funds 
parked with it) now stands at 3.25 percent.  The policy review, 
noting that RBI's rates have come down amidst a significant increase 
in liquidity, but that banks have been slow to follow, exhorted 
banks to lower their commercial lending rates. 
 
¶4.  (U) As a response, ICICI Bank reduced its benchmark prime 
lending rate to 16.25 percent and deposit rates by 25-50 basis 
points with effect from April 24.  HDFC Bank also lowered its 
deposit rates.  Leading public sector banks such as State Bank of 
India, Canara Bank and Indian Bank are expected to cut rates in the 
coming weeks.  However, as banks are saddled with high cost 
deposits, lending rates may only soften gradually as the deposits 
mature over the next three to four months. 
 
¶5.  (SBU) Comment: The cuts surprised some market analysts, as the 
RBI's most recent rate cuts have been done outside of scheduled 
policy reviews.  Citi still expects an additional 50 to 75 basis 
point cut in the coming months.  Other economists, however, viewed 
the very modest 25 basis point reduction as a signal from the 
central bank that it was going to move very slowly on more rate 
cuts, given the measures it has already taken to date and the 
timelag in monetary policy effect.  End comment. 
 
......And Lowers Growth Estimates 
----------------------------- 
 
 
NEW DELHI 00000826  002 OF 003 
 
 
¶6.  (U) The RBI in its policy review also lowered its estimate of 
GDP growth for FY 2008-09 to the range of 6.5-6.7 percent, against 
the Central Statistical Organization's estimate of 7 percent.  The 
central bank forecasts GDP growth for FY 2009-10 to be around 6 
percent.  The RBI said that any upturn in the growth momentum is 
unlikely in view of the projected fall in global demand during 2009. 
 The median forecast by the professional forecasters survey done by 
the RBI expects real GDP to grow by 5.7 percent.  The IMF has taken 
a conservative view in its most recent downgrade and has scaled down 
India's growth projections to 4.5 percent in 2009 and expects the 
economy to recover to 5.6 percent in 2010.  The slowdown, according 
to the IMF, is due to weaker investment, reflecting tighter 
financing conditions and a turn in the domestic credit cycle. 
 
¶7.  (U) Meanwhile, the RBI put on hold the review of the second 
phase of the roadmap to increase foreign banks' presence in India 
and has decided to continue with the current policy and procedures 
for governing the presence of foreign banks in India.  The policy 
review was due for April 2009 but the RBI wants to wait until there 
is greater stability in the global financial markets and "shared 
understanding on the architecture of regulation" around the world. 
 
 
Retail Food Inflation Still High 
------------------------------- 
 
¶8.  (U) Annual headline inflation measured by the wholesale price 
index (WPI) rose by 0.26 percent for the week ended April 11 versus 
0.18 percent for the previous week.  It was 7.89 percent in the 
corresponding week a year earlier. Though the inflation rate showed 
an upward move, RBI Governor Subbarao in its annual review said that 
WPI inflation would enter into a negative territory for only a brief 
period in the early part of FY 2009-10 - on a year-on-year basis, 
the central bank projects inflation to be around 4 percent by 
end-March 2010.  Meanwhile, consumer prices of essential commodities 
such as cereals, vegetables pulses and sugar continue to remain 
high.  There is some expectation that, given the base effect and new 
crop coming in, that the predicted near-normal monsoons will result 
in the CPI moderating to 5-6 percent levels in the coming months. 
(Note: Food articles comprise 14 percent of the WPI but their 
weightage in the CPI is 57 percent.  End note.) 
 
India Among World's Top Manufacturers 
------------------------------------- 
 
¶9.  (U) The latest edition of the International Yearbook of 
Industrial Statistics, released by the United Nations Industrial 
Development Organization (UNIDO), highlighted that the developing 
world's contribution to value-added manufacturing output has almost 
doubled since 1990.  UNIDO attributed this to the relocation of 
production bases and outsourcing of services from developed 
countries.  During this 18 year span, the developed countries have 
achieved a 30% increase in their cumulative manufacturing output, of 
which Asian countries accounted for nearly 75% of the total 
manufacturing output.  China alone produced 42% of this output.  For 
India, the growth rate of manufacturing increased from 6.9% percent 
in 2000 to 12.3% in 2007, which comprised nearly 15% of its gross 
domestic product (GDP).  According to the UNIDO report, India now 
ranks among the top 12 producers in the world in manufacturing 
value-added.  As for specific sectors, India's manufacturing output 
is ranked fourth in textiles; fifth in electrical machinery and 
apparatus; sixth in the basic metals category; seventh in chemicals; 
and twelfth in machinery and equipment and motor vehicles. 
 
U.S. Specialty Retailer Discusses Doing 
Business with Indian Suppliers 
-------------------------------- 
 
¶10.  (SBU) In an interaction with Embassy staff, the CEO of Cost 
Plus World Market ("Cost Plus"), a U.S. home goods retailer with 
about $1 billion in annual revenues, discussed the impact of the 
recession on its procurement of Indian handicrafts for their 
specialty stores in the U.S.  While the company's total worldwide 
 
NEW DELHI 00000826  003 OF 003 
 
 
purchases for last year dropped by 48 percent, Indian suppliers to 
Cost Plus only witnessed a 12 percent cut in orders.  Indian 
handicrafts, including jewelry items, textiles, brass and pottery 
items, and floor coverings, account for about 50 percent of Cost 
Plus's total product mix.  According to retail chain 
representatives, Indian market prices continue to be competitive and 
the market for Indian artisan crafts is growing.  Cost Plus sources 
goods from a total of 50 countries, including China, from which Cost 
Plus sources mass-produced products in order to appeal to more 
cost-conscious U.S. consumers. 
 
¶11.  (SBU) Although Cost Plus has worked with several of its vendors 
for as long as 20 years, representatives stated that it is a 
continuing challenge to educate vendors on the requirements and 
standards that must be met to export goods to the U.S.  Since many 
of the Indian handicraft suppliers are cottage or home-based units, 
the vendors often have difficulties meeting rising U.S. standards 
for quality control.  Cost Plus representatives specifically cited 
that suppliers from China and India are struggling to meet new 
standards set by Proposition 65 in California.  Credit freezes have 
also presented a challenge to doing business in India.  Cost Plus 
representatives noted that their suppliers have recently experienced 
difficulty acquiring packing credit from banks supported by the 
Export Credit Guarantee Corporation (ECGC), an agency established by 
GOI which for makes credit and insurance available for exporters. 
The Cost Plus representatives hoped to address this issue with G.K. 
Pillai, Secretary of Commerce, during their visit in New Delhi. 
 
¶12.  (U) Visit New Delhi's Classified Website: 
http://www.state.sgov/p/sa/newdelhi. 
 
BURLEIGH