VZCZCXRO7263
RR RUEHNEH
DE RUEHNE #0872/01 1211133
ZNR UUUUU ZZH ZDF
R 011133Z MAY 09
FM AMEMBASSY NEW DELHI
TO RUEHC/SECSTATE WASHDC 6402
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 000872 
 
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/FERUS 
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: INDIAN ECONOMY SHOWING SIGNS OF RECOVERY 
 
NEW DELHI 00000872  001.2 OF 003 
 
 
¶1.  (SBU) Summary: The Indian economy is showing some signs of 
recovery from the current slowdown, with many analysts predicting 
that the downward cycle is expected to bottom out in the second half 
of FY 2009-10 (October-April).  The core sector (including power, 
cement, and steel) and automobiles, telecom, port traffic and retail 
sales are already showing signs of increased activity.  The rural 
demand for goods and services appears quite robust and the outlook 
of the agricultural sector looks optimistic, as "near" normal 
monsoons are predicted.  Hiring in sectors such as banking is also 
showing some signs of increase.  However, it is too early to 
conclude that this is the start of a next broad-based expansion. 
Many industries such as manufacturing, small and medium enterprises, 
real estate, tax collections and exports remain in the red. India's 
structurally broad industrial base suggests that industrial growth 
will need more time to get back to normal.  Although the IMF 
recently downgraded India's growth projection to 4.5% in calendar 
year (CY) 2009, these recent signs of recovery suggest the 
possibility of above-5 percent growth.  Even with the IMF's lower 
estimate, it still pegs as one of the fastest growing economies in 
the world, after China.  End Summary. 
 
Some Sectors Showing Glimmers of Hope 
----------------------------------- 
 
¶2.  (SBU) Planning Commission Deputy Chairman and de facto Finance 
Minister Montek Singh Ahluwalia has said that the stimulus packages 
and duty cuts announced by the government to revive the economy in 
the past five months have started paying dividends, as evidenced by 
growth in key sectors noted below.  He expects the economy to start 
showing definite signs of recovery in the second half of the FY 
2009-10, that is, from October onwards.  This week, Swiss Bank, UBS 
AG, Barclays, Capital and Marquarie Bank also observed that the 
Indian economy seems to be improving, and that the slump in emerging 
Asia is over. Economists also point out that revival might be around 
the corner, driven by interest rate cuts by the Reserve Bank of 
India, a recovery in the Chinese economy, and a strong growth in the 
outsourcing sector.  The following positive trends also suggest a 
turnaround is more probable than not later this year: 
 
--The capital goods sector showed a healthy growth of 10.4 percent 
in February compared to February 2008.  The core sector, consisting 
of output of steel, cement, electricity, coal, and oil products, 
which together comprise 26.7 percent of the index of industrial 
production (IIP), is also back on the track.  It grew by 2.9 percent 
in March, the highest year-on-year growth since September 2008.  The 
biggest surprise was power generation which touched a 13-month high 
at 5.9 percent in March.  The availability of coal has improved and 
the coal units that were commissioned last year are working well, 
resulting in higher generation of power, according to news reports. 
 
 
--Cement output registered buoyant growth of 10.1 percent in March, 
showing healthy construction levels.  Dispatches were also robust in 
March, due to restocking, and strong rural demand.  Mutual funds 
have increased their exposure in leading cement firms, suggesting 
they expect sustained demand.  The 212 million ton-cement industry 
may add around 30 million tons of new capacities this fiscal year. 
 
--Steel output, which had declined from September through November 
last year, showed some recovery in December and January this year. 
However, it declined by 2.6 percent in March. According to the World 
Steel Association, India is the only economy whose steel consumption 
is expected to grow by more than 5 percent in 2009 due to high 
spending on various construction and infrastructure projects.  The 
construction industry, which has a multiplier effect, is responding 
to higher government expenditures and lowering of interest rates for 
private borrowers. 
 
--The auto industry recovered in March 2009, with total automobile 
production exceeding total sales for the first time in seven months. 
Cars and two-wheelers growth was aided by the four percent cut in 
central excise tax from the December stimulus package and from 
discounts.  The increase in government salaries, coupled with the 
better credit availability and the launch of new models (including 
Tata's Nano), could result in sustained trends in the coming months. 
 
NEW DELHI 00000872  002.2 OF 003 
 
 
 
 
-- Many retailers have continued their expansion plans in the past 
12 months and are banking on latent rural demand and aggressive 
promotional discounts to boost growth. 
 
--India continues to be the fastest-growing telecom market in the 
world, adding 15.64 million wireless subscribers in March, and 
taking the total number of subscribers to 391.76 million. Declining 
tariffs and innovative services have resulted in wireless 
technologies becoming the preferred mode of communication in rural 
markets. 
 
--Port traffic at 12 major ports seems to have improved modestly in 
March.  It remained negative at 7 out of 12 ports in March 2009, 
versus 9 ports in February 2009.  Though trends in air passenger 
traffic remain weakened in 2009, the low fares and some reduced 
surcharges could result in positive growth in traffic in FY 2009-10. 
 
 
--New gas facilities became operational in April.  Taking into 
account lower oil prices and new hydrocarbon discoveries by 
Reliance, Cairn, and the state-owned Oil and Natural Gas 
Corporation, Citi projects that India's net oil imports this fiscal 
year could be $30 billion lower than last fiscal year. 
 
--Foreign Institutional Investors (FIIs) turned net 2009 buyers in 
the Indian markets in April, after being net sellers in January to 
March of $1.3 billion.  FIIs sold $13 billion worth of equities in 
¶2008.  The Sensex was the top performer among leading global indices 
in April 2009 with returns of 17.7 percent in dollar terms. 
 
More Jobs Coming Up 
------------------- 
 
¶3.  (SBU) Oscar Fernandes, Labor Minister, recently indicated that 
half a million jobs had been lost in India due to the slowdown. 
However, media is reporting in recent weeks that firms started 
hiring again in April 2009.  Headhunters have seen a 50 percent rise 
in the number of queries issued by companies in the past weeks, led 
mainly by health and pharmaceutical sectors.  Other sectors driving 
up the hiring exercise include life sciences, infrastructure and 
manufacturing.  Public sector banks plan to hire 30,000 employees in 
2009-10, due to new opportunities in the banking sector owing to 
branch expansion.  A recent survey by Hewitt says that 60 percent of 
Indian companies are still hiring.  Corporate employees expect their 
salaries to increase by 8 percent this year. 
 
...But Things Still Not Back to Normal 
------------------------------------ 
 
¶4.  (SBU) While positive data are trickling in, it is too soon to 
call it a "recovery".  A number of indicators are a cause of 
concern.  Manufacturing declined by 1.4 percent in February.  With 
exports also estimated to have declined by 30 percent in March, 
industrial growth may remain weak in the coming months and may only 
recover gradually.  However, the fall in India's industrial 
production has been less when compared to other Asian economies 
primarily because India is not heavily dependent on exports. 
 
¶5.  (SBU) Falling real estate prices, coupled with low transaction 
volumes are also a cause of worry.  Despite lower property prices, 
growth in outstanding housing loans, used as a proxy for residential 
transaction volumes/demand remains weak.  House buyers, though in 
small numbers, have started returning to the market after developers 
cut property prices between 25-40 per cent for new bookings.  But a 
majority of the buyers are said to be still waiting for a further 
correction in prices. 
 
Comment 
------ 
 
¶6.  (SBU) The recent monthly numbers are not sufficient to conclude 
that the economy has fully turned the corner and is recovering. 
Individually, none of the indicators are hugely powerful, but 
 
NEW DELHI 00000872  003.2 OF 003 
 
 
collectively they should drive a recovery later this year which is 
likely to gain momentum in 2010.  They also demonstrate the strength 
of the domestic market, including a lot of healthy purchasing power 
in the rural sector.  Exports, a main channel of manufactured 
products, will have to wait for economic revival in the US and 
Europe.  However, other areas of industrial growth, along with 
sustained demand for services, and some good agricultural output, 
can maintain a healthy level of economic growth and employment, that 
suggest India will experience a V-shaped recovery in the latter half 
of the year. 
 
BURLEIGH