VZCZCXRO5864
RR RUEHAST RUEHBI RUEHCI RUEHDBU RUEHLH RUEHNEH RUEHPW
DE RUEHNE #1096/01 1491329
ZNR UUUUU ZZH
R 291329Z MAY 09
FM AMEMBASSY NEW DELHI
TO RUEHC/SECSTATE WASHDC 6770
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 02 NEW DELHI 001096 
 
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/FERUS 
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 MAY 
26 TO MAY 29, 2009 
 
¶1. (U) Below is a compilation of economic highlights from Embassy 
New Delhi for the week of May 26-29, 2009, including the following: 
 
-- Indian Telecom Major Bharti Airtel and MTN of South Africa Back 
in Merger Negotiations 
-- Government Aims to Present Budget by Early July 
-- Bharti Wal-Mart to Open First Store in Amritsar 
-- Moody's Warns Indian Government of High Fiscal Deficit 
-- Government Pressures Public Banks to Lower Rates 
 
 
 
 
 
Indian Telecom Major Bharti Airtel and MTN 
of South Africa Back in Merger Negotiations 
-------------------------------------------- 
 
¶2. (U) India's leading private telecom operator Bharti Airtel and 
South Africa's largest telecom company MTN Group Limited recently 
revived merger talks, which had broken off in mid-2008.  The 
cross-ownership deal, if it goes through, would create a mobile 
giant spanning across Africa, India and the Middle East, with more 
than 200 million subscribers and over US$20 billion in combined 
annual revenues.  Several problems had stymied previous talks, 
including: a regulatory hurdle in India for Bharti as its foreign 
ownership stake would have risen above the 74.5% limit stipulated by 
Indian regulations (Bharti is now partly owned by Singapore 
Telecommunications and UK-based Vodafone); and MTN's apparent 
miscalculation of control over the new entity as MTN had proposed 
that Bharti become its subsidiary, which was not acceptable to the 
Indian telecom major. 
 
¶3.  (U) By terms of the proposal now under negotiation, Bharti 
Airtel would get a 49% stake in MTN and the South African telco 
would get a 36% economic interest in Bharti Airtel.  Under the 
proposed $23 billion transaction, each company would pay cash and 
equity for a stake in the other.  Bharti would pay a net US$4bn-$5bn 
in cash to acquire its stake in MTN and would then be given 
substantial participatory and governance rights allowing it to 
consolidate MTN into its accounts.  Deutsche Bank and BofA Merrill 
Lynch are advising MTN while Standard Chartered Bank is advising 
Bharti.  Both the companies issued individual statements with a 
mandatory caution that the discussions are at an early stage and may 
or may not lead to any transaction.   If it were to go through, 
however, the merger would create one of the ten largest telephone 
companies in the world. 
 
Government Aims to Present Budget by Early July 
------------------------------------------- 
 
¶4.  (SBU) Newly sworn-in Finance Minister Pranab Mukherjee indicated 
this week that his ministry will strive to have the budget ready for 
submission to Parliament by the first week of July, in accordance 
with the Congress Party Manifesto promise to complete the budget 
within 45 days of forming the government.  The Ministry also faces a 
deadline for passage of the full year budget by July 31, the date at 
which the interim budget authorizations expire.  Mukherjee told 
journalists this week that the budget will focus on inclusive growth 
and social programs for the "common man", as well as use reforms to 
stimulate the economy.  He has also signaled that industry sectors 
most hardhit by the global economic downturn, such as textiles and 
IT, may get special help.  The government is fiscally constrained - 
last fiscal year, the central deficit hit 8% and the interim budget 
forecast 6.5% deficit for the current fiscal year.  One partial 
revenue solution, which could be announced in the new budget, is to 
re-start the government's divestment program, which stalled under 
Left opposition.  The Congress Manifesto noted that while the 
government should keep majority control of public companies, 
minority shares could be sold off.  Mukherjee stated that the 
government had to temporarily set aside fiscal deficit targets in 
the last year in order to prop up the economy, but expects fiscal 
consolidation to restart in the next two to three years. 
 
NEW DELHI 00001096  002 OF 002 
 
 
 
Bharti Wal-Mart to Open First Store in Amritsar 
--------------------------------------------- -- 
 
¶5.  (U) The opening of Bharti Wal-Mart's first store in the city of 
Amritsar, Punjab was delayed earlier this week due to unrest in the 
state related to the attack on a Sikh temple and the death of a Sikh 
leader on May 24 in Vienna.  The store, named Best Price Modern 
Wholesale, will be the first of 10 to 15 stores the retail chain 
hopes to open in India over the next three years, which will employ 
approximately 5,000 people.  Although Wal-Mart has planned its entry 
into the Indian market for several years, local media has perceived 
the launch to be a sign of foreign investor confidence since the UPA 
government was re-elected two weeks ago.  While FDI in multibrand 
retail is still not permitted in India, the Bharti Wal-Mart joint 
venture has provided an indirect conduit for Wal-Mart to enter the 
market as a wholesaler. 
 
 
Moody's Warns of High Fiscal Deficit 
------------------------------------- 
 
¶6.  (U) Moody Investors Service in its report on India released on 
May 28 said that the Congress-led coalition is a good development 
for the India's economy, as the government need no longer to rely on 
'obstructive left parties for parliamentary support'.  Moody's sees 
the development as providing scope for the government to rationalize 
spending, implement fiscal reforms and push forward with 
disinvestments of public sector enterprises. Moody's emphasized that 
the government has to quickly come up with a credible program for 
reducing its consolidated (center and states) fiscal deficit, which 
crossed 9 percent of India's GDP in FY 2008-09.  The report also 
blames the growing subsidies and price controls for the government's 
present fiscal and debt positions. 
 
¶7.  (U) India's stable outlook recently appeared threatened, mainly 
due to substantial deterioration in the fiscal position amid a rise 
in India's dependence on foreign capital flows to drive its 
investment 
 cycle. Moody's report said that India's credit rating may come 
under pressure if the government is not able to push ahead with 
fiscal reforms and rein in the widening budget deficit.  Although 
its ratings outlook for foreign currency (Baa3) and local currency 
(Ba2) is stable, Moody's perceives that the country faces various 
challenges in the macroeconomic management and a backlog of 
structural reforms. 
 
Government Pressures Public Banks to Lower Rates 
--------------------------------------------- --- 
 
¶8.  (SBU) Markets responded favorably this week to remarks from 
Finance Minister Mukherjee that he would be meeting with the heads 
of India's public sector banks to persuade them to lower interest 
rates.  Mukherjee observed that loosened monetary policy has 
improved liquidity significantly since December, but that banks have 
still not appreciably brought down their lending rates.  Most Indian 
businesses have seen their financing options evaporate since last 
October, with banks in India regularly charging 12-14% for corporate 
lending.  A local business chamber, primarily made of small and 
medium sized businesses, also cheered the government signal that it 
would lean on public banks, which still own about two-thirds of 
banking assets. 
 
 
¶9. (U) Visit New Delhi's Classified Website: 
http://www.state.sgov/p/sa/newdelhi. 
 
BURLEIGH