VZCZCXRO1065
RR RUEHAST RUEHCI RUEHDBU RUEHLH RUEHNEH RUEHPW
DE RUEHBI #0316/01 2121005
ZNR UUUUU ZZH
R 311005Z JUL 09
FM AMCONSUL MUMBAI
TO RUEHC/SECSTATE WASHDC 7358
INFO RHEHAAA/NSC WASHINGTON DC
RUEHBI/AMCONSUL MUMBAI 2583
RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEFHLC/DEPT OF HOMELAND SECURITY WASHINGTON DC
RUEAIIA/CIA WASHDC

UNCLAS SECTION 01 OF 03 MUMBAI 000316 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EINV EFIN ECON PHUM KDEM KWMN PTER IN
SUBJECT: MUMBAI MASALA:  2003 MUMBAI BOMBINGS, RBI KEEPS INTEREST 
RATES ON HOLD, OFFICE DEPOT, AND TRAFFICKING BUST 
 
REF: 09 MUMBAI 305 
 
MUMBAI 00000316  001.2 OF 003 
 
 
¶1. (U) Table of Contents: 
 
 
 
 
 
- Three Convicted for 2003 Mumbai Bombings 
 
 
 
- RBI Keeps Interest Rates on Hold, Expresses Concerns Over 
Inflation 
 
 
 
- Successful Trafficking Bust By Navi Mumbai Police 
 
 
 
- Global Office Equipment Supplier Office Depot Thinks Big But 
Will Tread Cautiously in India 
 
 
 
 
 
 
 
Three Convicted For 2003 Mumbai Bombings 
 
------------------------------- 
 
 
 
¶2. (U) On July 27, a special court convicted three people, Hanif 
Syed, his wife Fehmida, and Ashrat Ansari, of planting bombs 
that killed 52 people in Mumbai in 2003.  The court, convened to 
hear cases under the Prevention of Terrorism Act (POTA), found 
the three guilty of planting RDX-laden bombs at the Gateway of 
India (a tourist destination) and Zaveri Bazar (the diamond 
market).  According to the prosecutor, the plot was originated 
in Dubai by a group calling itself the Gujarat Muslim Revenge 
Force and claimed that the bombings were retaliation for the 
2002 Gujarat riots that killed hundreds of Muslims.  The 
prosecution built its case on the testimony of a taxi driver who 
unwittingly ferried the bombs to the Gateway, and miraculously 
survived, and an alleged co-conspirator who turned state's 
witness.  The convicted bombers will appeal their case to the 
Mumbai High Court. 
 
 
 
RBI Keeps Interest Rates on Hold, Expresses Concerns Over 
Inflation 
 
------------------------------- 
 
 
 
¶3. (U)  On July 27, in its first quarter review of monetary 
policy, India's central bank, the Reserve Bank of India (RBI), 
did not change any key interest rates, which was in line with 
market expectations.  Since October 2008, RBI has reduced the 
cash reserve ratio (CRR), the percentage of deposits which must 
be kept with RBI, by a cumulative 400 basis points to 5.0 
percent.  The RBI has also reduced the repo rate, the interest 
rate at which RBI lends to banks, by 425 basis points to 4.75 
percent, and has reduced the reverse repo rate, the interest 
rate RBI pays to banks for funds deposited with it, by 275 basis 
points to 3.25 percent.  (Note: 100 basis points is the 
equivalent of 1 percent.) Economic observers agree that these 
moves have increased liquidity in the Indian banking system, 
especially after credit lines dried up during in the aftermath 
of the collapse of Lehman Brothers in September 2008, when the 
global financial crisis first reached India's shores. 
 
 
 
¶4. (U)  For the current fiscal year 2009-10, RBI left its GDP 
growth forecast unchanged at 6 percent.  Furthermore, the 
central bank also stated that growth forecasts are more likely 
to be revised upwards than downwards.  However, RBI also 
increased the inflation estimate to 5 percent from the earlier 4 
percent estimate; it also stated that inflation could rise 
beyond these estimates, should GDP growth also increase.  In 
 
MUMBAI 00000316  002.2 OF 003 
 
 
addition, though the RBI reiterated that it will maintain an 
"accommodative stance" until there are "robust signs of 
recovery," it also indicated  that it was formulating an exit 
strategy to reverse the expansionary measures it undertook 
during the height of the financial crisis in order to stave off 
the threat of inflation. 
 
 
 
¶5. (U)  The RBI's monetary policy statement also listed what it 
believed to be the five biggest challenges faced by  the Indian 
economy.  The bank stated that the first and most immediate 
challenge is to maintain a balance between the need for ample 
liquidity in the system to ensure that credit lines are 
available, and the potential for inflation to return.    The 
second challenge is managing record levels of government 
borrowing without crowding out private sector credit demand. 
The RBI promised to return private investment to the 
pre-financial crisis level of 12.9 percent of GDP; this level 
fell to 8.2 percent of GDP in 2008-09 due to the financial 
crisis.  Next, the central bank also warned that the Government 
of India's fiscal deficit needs to be reduced.  Finally, the 
central bank stated that in the next three to five years, India 
needs to improve its investment climate  by initiating financial 
sector and governance reforms that promote financial inclusion, 
deepen financial markets, and strengthen financial institutions. 
 
 
 
 
Successful Trafficking Bust By Navi Mumbai Police 
 
--------------------------------------------- ---- 
 
 
 
¶6. (SBU) International Justice Mission (IJM) reports that on 
July 27, three soliciting agents and several hotel workers were 
arrested in Navi Mumbai for trafficking violations, and five 
minor girls were rescued in the operation.  IJM's Field Office 
Director Jonathan Derby told Congenoff that they were finally 
successful in working on a sting with the Navi Mumbai police 
thanks to the openness of the new police chief and pressure from 
the central government urging police to work with NGOs. 
Previously, IJM had turned to the Central Bureau of 
Investigation when local police were unwilling to act on the 
information provided by IJM investigators (see reftel). 
 
 
 
Global Office Equipment Supplier Office Depot Thinks Big But 
Will Tread Cautiously in India 
 
------------------------------- 
 
 
 
¶7. (SBU)  In a meeting with Mumbai Consul General and ConGenoff, 
Gary Spund, the Project Director of Office Depot in India, 
explained that India's restrictions on foreign direct investment 
(FDI) in retail compelled the global provider of office products 
and services to form three separate companies to operate in 
India.  For business-to-business (B2B) sales and corporate 
contract business, Office Depot partnered with Mukesh Ambani's 
Reliance Retail to acquire eOffice Planet Solutions, a $20 
million dealer of office supplies with an established network 
across India.  Office Depot holds a 51 percent stake and 
Reliance Retail has the remaining 49 percent stake in this 
company, which will eventually be renamed Office Depot.  eOffice 
Planet Solutions is also developing an India-wide catalogue for 
Office Depot products.  Reliance Retail will hold a 100 percent 
stake and control all retail outlets selling licensed Office 
Depot products, as mandated by India's laws on FDI in retail. 
However, Spund emphasized that Office Depot will maintain 
operational and procedural control of each and every retail 
outlet selling its products.  Each retail store will be 2,500 
square feet, and the company plans to launch twelve pilot stores 
across India by the end of the year.  Office Depot's third 
company will handle back-end support services including 
logistics, supply chain management, and merchandizing for all 
Office Depot products and services in India.  Spund said that 
Office Depot's potential stake in this company is still being 
negotiated. 
 
 
 
 
MUMBAI 00000316  003.2 OF 003 
 
 
¶8. (SBU)  Spund believes that FDI will be permitted in retail 
within the next two years.  Nevertheless, he admitted that 
Office Depot would still prefer to enter India with a local 
joint venture partner even if 100 percent FDI is permitted in 
the retail sector.  Partnering with a local who has knowledge of 
local conditions, operations, and procedures is critical to 
obtaining necessary licenses, clearances, and to do the 
preliminary groundwork necessary to initiate business in India, 
he said.  Spund said that the company planned to open 350 stores 
selling Office Depot products within the next 7-8 years.  He 
acknowledged that the company may slow down its expansion plans 
due to the economic slowdown. 
 
 
 
¶9. (SBU)  Spund acknowledged  that Office Depot faces stiff 
competition for corporate customers from small, local 
wholesalers mainly due to the low prices these wholesalers 
offer.  In the retail segment, Spund noted that Office Depot's 
main competition will be from the fabled, local "mom and pop" 
stores selling office products and not from its primary 
international competitor, Staples, who entered the Indian market 
in December 2007.  Positioning of products within a store is 
central to luring customers inside the store, he explained; for 
example, high-tech products are the most attractive and thus 
need to be positioned so that customers can see them from 
outside the store.  Spund noted that the middle class are the 
main consumers of office supplies and stationery.  The real 
challenge is to get the upper class into the store to purchase 
products themselves instead of sending their chauffeurs or 
maids.  Office Depot is also developing its own private brand 
products for India to adapt to local Indian tastes and 
preferences and is also trying to re-train corporate and local 
customers to "buy smart."  Educating the customer requires 
tremendous effort as organized retail is in its infancy in the 
country, he added.  The executive also admitted that enforcing 
Office Depot's international code of ethics and conduct in Asia 
is challenging.  While prohibiting the employment of child labor 
is relatively easy, guaranteeing fixed working hours, payment of 
social security benefits and hygienic and safe working 
conditions similar to those in the U.S. is more difficult to 
enforce abroad, he said. 
FOLMSBEE