VZCZCXRO9663
RR RUEHAST RUEHBI RUEHCI RUEHDBU RUEHLH RUEHNEH RUEHPW
DE RUEHNE #0937/01 1281248
ZNR UUUUU ZZH
R 081248Z MAY 09
FM AMEMBASSY NEW DELHI
TO RUEHC/SECSTATE WASHDC 6498
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 000937 
 
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 
4 TO MAY 8, 2009 
 
REF: NEW DELHI 01832 
 
¶1. (U) Below is a compilation of economic highlights from Embassy 
New Delhi for the week of May 4-8, 2009, including the following: 
 
-- Indian IT Industry Reactions to U.S. Tax Plan 
-- Indo-Pak Border Trade Increases to About $80M 
-- New Chief of National Aviation Company of India Limited (NACIL) 
-- Bhutan's Economic Ministry Pushes for WTO Membership 
 
Indian IT Industry Reactions to U.S. Tax Plan 
--------------------------------------------- - 
¶2.  (U) Pursuant to the Obama Administration's plan to introduce a 
bill seeking to remove tax incentives for the overseas operations of 
U.S. companies, several India-based U.S. multinational firms and 
Indian outsourcing companies have expressed concerns.  While Indian 
IT companies such as TCS, Wipro, and Infosys have stated they can 
cope with any of the changes currently envisioned for U.S. tax laws, 
large U.S. firms see the move as adversely impacting their expansion 
plans.  Top U.S. firms, including Citigroup, derive nearly half of 
their revenues from foreign markets due to lower costs.  However, 
the CEO of India's second-biggest software exporter Infosys, which 
serves customers such as American Express and Bank of America, has 
reportedly said that "Right now, we do not see any impact on our 
business".  Despite this, President Obama's reference to Buffalo and 
Bangalore in his speech announcing the plan has reportedly caused 
some angst among Indian IT businesses.  The Indian IT industry has 
been closely monitoring President Obama's approach on outsourcing 
and job losses in the U.S. since the time he began his presidential 
campaign. 
¶3.  (U) National Association of Software and Service Companies 
(NASSCOM) President Som Mittal stated in a media interview that the 
new tax plan has nothing to do with India in particular, but could 
marginally impact global companies in India which are subject to an 
Indian corporate tax rate of 33.9 percent, roughly equivalent to 
U.S. corporate tax rates.  Commenting on the move, he further said 
"protectionism is always responded to by protectionism.  The fact is 
that economies across the world, including the U.S., have gained 
enormously by reaching out to the markets outside, so, I think there 
will be lot of rhetoric on protectionism, but most of the Bills get 
diluted at the end." 
Indo-Pak Border Trade Doubles to About $80M 
--------------------------------------------- 
¶4.  (U) Bilateral trade between India and Pakistan through the 
Attari-Wagah land route grew significantly in 2008-09, despite 
tension between the two countries following the Mumbai attacks in 
November 2008.  According to the Indian Customs Department, total 
exports from India through the land route grew by 136 per cent to Rs 
4.10 billion (approximately $80 million) in 2008-09, compared with 
the 2007-08 level.  Analysts attribute this surge in trade growth to 
the introduction of cross-border movement of commercial trucks since 
¶2007.  Nevertheless, the three-digit growth rate is also 
attributable to the base effect.  India primarily exports potato, 
onion, tomato, garlic and maize through the Attari-Wagah border. 
Imports from Pakistan through the land route, however, grew only 2.5 
per cent to Rs 0.54 billion by the end of 2008-09 (approximately $11 
million). 
¶5.  (U) In 2007, India and Pakistan started cross border movement of 
trucks after a gap of 60 years from the Attari border crossing near 
Amritsar.  Prior to 2007, trucks were only allowed up to the border, 
from where porters had to carry the cargo across on foot to trucks 
waiting on the other side.  While the road trade has more than 
doubled, rail-based trade has slightly improved in 2008-09 compared 
to the previous year.  India used railcars to export dyes, soybean, 
and tires worth Rs 8.92 billion ($182 million) in 2008-09 and 
imported cement and dry fruits through trains worth Rs 0.46 billion 
($9 million) in 2008-09 compared to Rs 0.45 billion in the previous 
year. 
¶6.  (U) Traders envisage greater trade volumes if more barriers are 
lifted.  According to some Indian traders, a dedicated cargo lane as 
well as an increased time window for clearing goods could push up 
business volume.  The Attari-Wagah check post only allows movement 
of vehicles until 2PM every day in order to prepare for the daily 
 
NEW DELHI 00000937  002 OF 003 
 
 
border ceremony in the evening.  Traders also mention the lack of 
warehouses and other infrastructure as barriers to trade growth in 
the region. 
¶7.  (U) Separately, local media reported on the May 6 signing of the 
Pakistan-Afghanistan Agreement on Transit Trade in Washington. 
Trade analysts expect it could potentially benefit India in 
exporting goods to Afghanistan via the Attari-Khyber Pass land 
route, which passes through Pakistan.  However, Indian media were 
quick to cite a remark by a Pakistan foreign ministry spokesperson 
in Islamabad reportedly stating that any agreement to allow Indian 
goods through this route would have to be "separate". 
New Chief of National Aviation 
Company of India Limited (NACIL) 
-------------------------------- 
 
¶8.  (U) On May 4, Arvind Jadhav became the Chairman and Managing 
Director of NACIL, replacing Raghu Menon, for a term of three years. 
 NACIL is the holding company which oversees the merged Air India 
and Indian Airlines' operations.  Jadhav belongs to the 1978 group 
of Indian Administrative Service (IAS) officers from the state of 
Karnataka.  In his previous assignment, as the principal secretary 
of the infrastructure development department in the Karnataka state 
government, he was instrumental in introducing the public-private 
partnership (PPP) model to develop the Bangalore International 
Airport, Ltd. 
 
¶9.  (U) The change in leadership of NACIL comes in the wake of Air 
India's loss of market share to private carriers like Jet Airways, 
Kingfisher and others, as well as mounting losses, including $800 
million in 2008-09.  Former Chairman Menon was also criticized for 
not handling the numerous merger challenges of Air India and Indian 
Airlines.  Despite these problems, Air India is going through a 
major fleet expansion program and plans to add 111 new Boeing and 
Airbus aircraft over the next few years.  To finance this fleet 
expansion, NACIL has also requested $500 million in the form of 
equity and soft loans from the GOI. 
 
Bhutan's Economic Ministry Pushes 
for WTO Membership 
--------------------------------- 
 
¶10.  (U) The Bhutanese Ministry of Economic Affairs has reportedly 
submitted a proposal to the Prime Minister and Cabinet advocating 
for Bhutan to complete its membership process for joining the WTO. 
(Note: The Government of Bhutan requested WTO membership in 1999. 
End note.)  According to Bhutanese media, the report asserts the 
country should join the WTO now while the organization's environment 
is more open and friendly to the needs of least developed countries 
as a result of the Doha round.  The report suggests Bhutan could 
accede by the end of 2009 or early 2010 and that further delay in 
the process may damage the country's reputation as a committed and 
serious negotiator.  If Bhutan continues to postpone the accession 
process, the report argued it may also face more demanding terms to 
join at a later date.  The report also asserts that joining the WTO 
would complement Gross National Happiness (GNH) and not have any 
adverse impact on the Bhutanese agricultural sector since the 
country maintains high duties on agricultural imports.  Markets 
would likewise avoid a flood of consumer goods due to high duties 
and the absence of any form of internal VAT tax.  (Note: Although 
Bhutan would receive certain exemptions as a less developed country, 
WTO membership requires conformity to certain levels of industrial 
tariffs that are likely to be lower in some instances than their 
current tariff structure.  End note.) 
 
¶11.  (SBU) Econoff spoke with Tenxin Rondel Wangchuk, Counselor at 
the Bhutanese Embassy in New Delhi, regarding the media report. 
Wangchuk also thought that it would make more sense for Bhutan to 
accede while conditions appear favorable, since there otherwise is 
no strong incentive to join the WTO.  The report will be circulated 
for input from the Center for Bhutan Studies and the GNH Commission 
(formerly the Bhutan Planning Commission) before the Cabinet will 
come to a decision.  Wangchuk opined that Bhutan would eventually 
have to join the WTO, but unless the report pushes the government to 
 
NEW DELHI 00000937  003 OF 003 
 
 
proceed, he felt moving forward with the accession process still 
required a compelling new reason.  Comment: Wanghchuk's response 
suggests there is lingering ambivalence in the government regarding 
the net benefits to be gained from WTO membership.  See reftel for 
more.  End comment. 
 
¶12.  (U) Visit New Delhi's Classified Website: 
http://www.state.sgov/p/sa/newdelhi. 
 
BURLEIGH