VZCZCXRO3910
RR RUEHAST RUEHBI RUEHCI RUEHDBU RUEHLH RUEHNEH RUEHPW
DE RUEHNE #1284/01 1701147
ZNR UUUUU ZZH
R 191147Z JUN 09
FM AMEMBASSY NEW DELHI
TO RUEHC/SECSTATE WASHDC 7080
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
RHMCSUU/FAA NATIONAL HQ WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE WASHDC

UNCLAS SECTION 01 OF 03 NEW DELHI 001284 
 
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 
June 15 to June 19, 2009 
 
¶1.  (U) Below is a compilation of economic highlights from Embassy 
New Delhi for the week of June 15-19, 2009, including the 
following: 
 
-- Inflation Hits Negative Territory 
-- India Imposes Restrictions on Chinese Mobiles, 
Extends Tight Norms on Toys and Dairy 
-- Panel Advises Increase in Support Price for Rice 
-- Rise of ATF Prices Lowers Airlines' Thin Profit Margins 
-- CCI First Entree - State of Competition Conference 
-- IT Industry Developing in Bhutan 
 
Inflation Hits Negative Territory 
--------------------------------- 
 
¶2.  (U) Government data for the week ending June 6 shows wholesale 
price inflation (WPI) was negative for the first time in 30 years. 
The WPI registered -1.61% for the first week of June, compared to 
the same period the year before.  Economists were expecting the WPI 
to move into negative territory, given the high base effect of June 
2008, due to the record high commodity prices at the time.  The 
negative inflation is expected to last 3-6 months, depending on the 
extent to which the government decontrols energy prices and how much 
the extraordinary monetary easing around the world translates into 
inflationary pressures in the months ahead.  Some economists expect 
India's WPI inflation to hit 6-7% by March 2010.  The last time 
India experienced deflation was in the mid-1970s because of the oil 
crisis. 
 
India Imposes Restrictions on Chinese Mobiles, 
Extends Tight Norms on Toys and Dairy 
-------------------------------------------- 
¶3.  (U) The Commerce Ministry's Directorate General of Foreign Trade 
(DGFT) imposed a ban on June 18, effective immediately, on imports 
of Chinese mobile handsets without the international mobile 
equipment identity number (IMEI).  The move, according to press, is 
a result of concerns raised by certain security agencies.  Since 
many sets without any 15-digit IMEI number have reportedly been 
entering the Indian market from China, the authorities are said to 
find it difficult to track the sale or usage of these cheap 
unbranded sets.  According to industry estimates, there are 
approximately 30 million such phones in use in the country. 
¶4.  (U) In another precautionary measure, the GOI extended an 
existing ban on import of dairy products from China for another six 
months effective June 24, 2009.  The import of milk and milk 
products from China was banned in September 2008, following reports 
of contaminated shipments to other Asian and African countries.  The 
DGFT notification specifies that dairy products include milk 
chocolates and chocolate products and candies/ confectionary/ food 
preparations with milk or milk solids as an ingredient.  India does 
not import milk/milk products from China as of now. 
¶5.  (U) The DGFT also banned until January 2010, in general, all 
import of toys that do not meet international safety standards and 
norms.  India imposed a ban on Chinese toys in January on health 
hazard grounds; however, the ban was later eased upon Beijing's 
challenge on account of discriminatory treatment.  The DGFT has now 
amended and extended the March 2009 notification to include imports 
of toys not carrying health safety certificates from all countries. 
The move is expected to hit Chinese suppliers the most as more than 
half of total toy imports by India are sourced from China. 
According to the amended rules, the ban will not be applicable to 
toys that come with a certificate from laboratories accredited to 
the International Laboratory Accreditation Cooperation. 
Panel Advises Increase in Support Price for Rice 
--------------------------------------------- 
¶6.  (U) An official advisory panel, The Commission for Agricultural 
Costs and Prices (CACP), has recommended increasing the minimum 
support price (MSP) for unmilled rice and other grains for the 
upcoming summer crop.  CACP has recommended an MSP in the range of 
Rs 950-980 per quintal (100kg), an increase of 5 percent over the 
level in the previous year.  MSP is the base price at which the 
government procures grains from farmers to resell it to the poor at 
subsidized rates through the public distribution system; MSP also 
 
NEW DELHI 00001284  002 OF 003 
 
 
sets the base price for private traders.  The advisory agency has 
also recommended higher MSPs for pulses and other grains as well. 
Farmers in Punjab and Haryana, accounting for one-third of the 
government's total rice procurement, have reportedly been 
complaining of rising input costs.  The move, if implemented, may 
please farmers but it would increase the GOI's sizeable food subsidy 
bill.  In the previous fiscal 2008-09, the rice MSP was raised 20 
percent to Rs 900 per quintal for common varieties and Rs 980 per 
quintal for grade A varieties.  Panel recommendations will be 
considered by the Indian Cabinet in the coming weeks although they 
are not binding on the government. 
¶7.  (U) Agriculture trade experts are divided on these 
recommendations.  The Head of Agriwatch (a prominent research body 
on commodities) has been quoted in media as saying that "There is no 
need for MSP to rise," since the government achieved record 
procurement last year at Rs 850 a quintal.  However, the chief 
economist at the National Commodity and Derivatives Exchange (NCDEX) 
has commented that "an upward revision is required, especially when 
the Consumer Price Index for agricultural labor for 2008-09 has 
risen by 9.5 percent over the last year." 
Rise of ATF Prices Lowers 
Airlines' Thin Profit Margins 
----------------------------- 
¶8.  (U) With the rise in crude oil prices to a seven month high of 
$72 a barrel, government-owned oil companies (Indian Oil, Bharat 
Petroleum and Hindustan Petroleum) have raised the price of aviation 
turbine fuel (ATF) by 33% since March 2009.  ATF prices have gone up 
from $665 per kiloliter to $747 per kiloliter.  Recovering from last 
year's oil shocks, when crude oil peaked at $147 a barrel, air 
carriers lowered their fares at the end of 2008 and into 2009 to 
attract passengers and improve load factors.  However, with ATF 
prices spiraling again, most domestic carriers have announced 
another round of fare increases.  These latest moves will impact air 
travel in India, since with higher airline prices, passengers may 
once again shift back to other modes of transport, particularly 
train travel.  The airline industry in India is already battling 
with overcapacity, rising debt, and falling passenger growth, caused 
in part by the global financial slowdown.  While the industry is 
taking measures to bring down operating costs, the rise in ATF 
prices will directly affect airlines and their thin margins given 
that jet fuel costs comprise almost half of airlines' operating 
costs. 
CCI First Entree - State of 
Competition Conference 
-------------------------- 
 
¶9.  (U) The newly operational Competition Commission of India (CCI) 
held its first National Conference on the "State of Competition in 
the Indian Economy" on June 11-12 in New Delhi.  The two day 
conference, organized in collaboration with the World Bank and the 
UK's Department of International Development (DIFD), brought 
together national and international competition policy and law 
experts to discuss a variety of competition issues in Indian 
markets.  CCI organized this conference as part of their competition 
advocacy mandate and to assist in capacity building for research on 
competition issues as well as to enable the Commission to better 
understand the state of competition in different sectors of the 
Indian economy.  Eventually the results of the studies commissioned 
by the Commission will be used for competition advocacy with central 
and state governments and with industry. 
 
¶10.  (U) Inaugurating the conference, the Minister of State for 
Corporate Affairs Salman Khurshid emphasized the GOI's primary 
objective, to promote "growth with equity."  Towards that end, he 
expects CCI to play a crucial role in promoting and ensuring free 
and fair competition in the market.  Khurshid expressed strong faith 
in CCI's work on competition advocacy and in achieving the 
objectives of the 2002 Competition Act.  CCI Chairman Dhanendra 
Kumar reiterated that the function of the Commission is to help 
Indian industry "perform better and create a better environment by 
promoting competition" to benefit all stakeholders, including 
companies and consumers.  While assuring industry that the CCI would 
not act as a roadblock, he clarified that the industry should also 
 
NEW DELHI 00001284  003 OF 003 
 
 
get used to this anti-trust watchdog. 
 
IT Industry Developing in Bhutan 
--------------------------------- 
 
¶11.  (U) Local media report the Bhutanese government has signed an 
agreement with a leading Indian IT company, which it hopes will help 
nurture an IT boom in the small developing country.  On June 8, the 
Bhutanese Government and leading Indian Business Process Outsourcing 
(BPO) firm, Genpact, signed an agreement under which Genpact will 
annually recruit 200 Bhutanese graduates from the Royal University 
of Bhutan (RUB) to be trained and employed in India for two years. 
After training, the students will return to Bhutan to work in 
Genpact BPO centers.  The agreement, along with the establishment of 
a nationwide high speed broadband network and IT park that is 
scheduled to be completed in two years, will help jumpstart an IT 
industry.  The Bhutanese government has prioritized the development 
of its IT industry in hopes that it will alleviate unemployment. 
 
¶12.  (U) Visit New Delhi's Classified Website: 
http://www.state.sgov/p/sa/newdelhi. 
 
BURLEIGH