VZCZCXRO4634
OO RUEHAST RUEHBI RUEHCI RUEHDBU RUEHLH RUEHNEH RUEHPW
DE RUEHNE #2209/01 3031323
ZNR UUUUU ZZH
O 301323Z OCT 09
FM AMEMBASSY NEW DELHI
TO RUEHC/SECSTATE WASHDC IMMEDIATE 8425
INFO RHEHAAA/WHITE HOUSE WASHDC IMMEDIATE
RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RHEHNSC/NSC WASHDC
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 002209 
 
SENSITIVE 
SIPDIS 
 
USDOC FOR ITA/MAC/OSA/LDROKER/ASTERN/KRUDD 
DEPT OF ENERGY FOR A/S KHARBERT, TCUTLER, CZAMUDA, RLUHAR 
DEPT PASS TO USTR MDELANEY/CLILIENFELD/AADLER 
TREASURY FOR OFFICE OF SOUTH ASIA MNUGENT 
TREASURY PASS TO FRB SAN FRANCISCO/TERESA CURRAN 
USDA PASS FAS/OCRA/RADLER/BEAN/FERUS 
EEB/CIP FSAEED, KDUNNE, AGIBBS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV ENRG ETRD ECPS BEXP PHUM PINR TSPA
IN 
SUBJECT: New Delhi Weekly Econ Office Highlights for the Week of 
October 23-29, 2009 
 
¶1. (U) Below is a compilation of economic highlights from Embassy 
New Delhi for the week of October 23-29, 2009, including the 
following: 
 
-- Central Bureau of Investigation Raids Department of Telecom 
    Offices 
-- The RBI Takes A Bow 
-- Economic Advisory Council Expects Better Days Ahead 
 
 
 
CBI Raids Department of Telecom Offices 
--------------------------------------- 
 
¶2. (U) Pursuant to a recommendation by the Central Vigilance 
Commission (CVC), the Central Bureau of Investigation (CBI) raided 
the Wireless Planning Cell (WPC) at the Department of Telecom (DoT) 
on Thursday, October 22, 2009.  The raid is the result of a CVC 
investigation of alleged irregularities in the allocation of 2G 
spectrum by the DoT.  DOT has been accused of allocating 4.4 MHz of 
pan-India startup 2G spectrum to Swan Telecom and Unitech Wireless 
through a first-come-first-serve process in January 2008 for 
approximately US$ 340 million.  There was no competitive bidding. 
Both the licensees, without even rolling out services, sold their 
equity stake to Telenor and Etisalat for roughly US$ 1.8 billion to 
US$ 2.1 billion, six to eight times the price at which they had 
purchased the spectrum from the government.  This has allegedly 
resulted in a gross under pricing of spectrum, causing a loss of 
almost U.S. $10.5 billion to the Government. 
 
¶3. (U) Under the first-come-first-serve process, DoT allegedly 
hand-picked companies, even though it could have easily chosen the 
global auction route, as has now been prescribed for 3G.  Under this 
process, spectrum was allocated to a select 120 companies against 
575 applications.  Minister Raja was also accused of arbitrarily 
deciding on a cut-off date and favoring only companies that had 
applied on or before September 25, 2007, instead of October 1, 2007 
as was originally announced.  Raja had argued that he had done so to 
be in line with the recommendations of the Telecom Regulatory 
Authority of India (TRAI), which has denied making any such 
recommendations.  Former TRAI chairman Misra in turn accused the DoT 
of cherry- picking portions of TRAI's recommendations instead of 
taking a holistic view.  Telecom Minister Raja is also accused of 
giving away 2G spectrum to Reliance and Tata out of turn under the 
cross over technology license.  DoT allowed these CDMA operators to 
make the necessary payments and complete all formalities for 
allocation of spectrum, bypassing the queue of the GSM operators who 
had applied earlier. 
 
¶4. (SBU) The opposition led by the Bharatiya Janata Party has termed 
the allocation process as one of the largest scams, and has demanded 
Telecom Minister Raja's resignation.  Despite allegations and the 
opposition's demand, Prime Minister Manmohan Singh has spoken in Mr. 
Raja's defense as the Telecom Minister represents the Dravida 
Munnetra Kazhagam (DMK) party of Tamil Nadu, a key coalition ally in 
the ruling United Progressive Alliance (UPA) led by the Congress. 
In the UPA's regime, the Telecom portfolio has historically been 
reserved for the DMK party. 
 
The RBI Takes A Bow 
------------------- 
 
¶5. (U) The Reserve Bank of India (RBI) congratulated itself in its 
mandatory annual report on India's Banking Sector, stating that 
Indian banking is a success story thanks to the regulatory 
environment in place, and after the global financial crisis, has 
many practices worth emulating.  The banking system was relatively 
immune from the global economic recession as the RBI's 
counter-cyclical regulatory framework, both during the credit boom 
as well as during the slowdown, proved successful.  (Note: The 
complete report can be read in the Publications section of the RBI 
website: www.rbi.org.in. End Note.) 
 
 
NEW DELHI 00002209  002 OF 003 
 
 
¶6. (U) The annual report claims that Indian banks avoided the worst 
of the recession due to their negligible exposure to subprime 
mortgages and their minimal exposure to equity investments.  The RBI 
notes that India's scheduled commercial banks showed tremendous 
resilience for the twelve month period ending June 2009 (FY09) 
despite the ongoing global liquidity crisis.  As proof of this, the 
RBI gave several indicators including: 
 
-- overall capital to risk-weighted assets ratio (a measure of the 
capacity of the banking system to absorb unexpected losses) improved 
to 13.2 percent, remaining far above the stipulated nine percent 
minimum; 
 
-- leverage ratio in India (tier 1 capital as a percent of total 
adjusted assets) remained high and rose to 6.3 percent; 
 
-- Indian banks gross non-performing assets (NPAs) ratio to gross 
advances ratio remained unchanged from a year ago at 2.3 percent, 
much better than other developing countries; 
 
-- return on assets remained unchanged at 1.0 per cent from a year 
ago indicating no deterioration in efficiency with which banks 
deployed their assets; and 
 
-- Indian banks return on equity increased to 13.3 per cent, showing 
increased efficiency with which capital was used by Indian banks. 
 
¶7. (U) According to the annual report, Indian banks were not immune 
to the global economic recession.  The report noted slower growth in 
the banks' balance sheets, income, and profitability during FY09. 
Net profits were less due to the rising costs of deposits coupled 
with a declining return on investments.  The balance sheet of 
private sector banks and foreign banks grew at a slower pace, while 
public sector banks maintained their high growth rates.  Growth in 
credit slowed as banks became more cautious and deposits grew at a 
slower rate during FY09. 
 
Economic Advisory Council Expects Better Days Ahead 
--------------------------------------------- ------ 
 
¶8. (U) On October 20, the Prime Minister's Economic Advisory Council 
(EAC) released its economic outlook for fiscal year 2009-10 (FY10, 
beginning April 2009 and ending March 2010), forecasting the economy 
to grow 6.5 percent, with a range of 6.25 percent to 6.75 percent. 
The EAC expects industry to grow 8.2 percent, up from 3.9 percent in 
FY09, led by growth in construction activity, services to grow 8.2 
percent, versus 9.7 percent in FY09, and the agriculture sector to 
decline two percent as erratic monsoon rains have adversely affected 
cultivation and farm output. Investment and savings should continue 
at 36.5 percent and 34.5 percent, respectively, of GDP. (Note:  The 
complete report can be read at the Economic Advisory Council 
website: http://eac.gov.in/index.html. End note.) 
 
¶9. (U) The EAC outlook states that managing inflation, particularly 
food price inflation, is the biggest challenge to policy makers. 
The wholesale price index (WPI) is likely to rise to six percent by 
March 2010 due in part to the drought and expectations of lower 
supply.  Although the EAC believes there is an adequate supply of 
food grains in public stocks, the GOI will have to invest 
considerable effort and resources to protect the winter crop and 
focus on the public distribution system so that food grains reach 
different markets and locations. 
 
¶10. (U) Although recognizing that the large government deficits for 
the past two years were unavoidable, the EAC recommends that the GOI 
have an exit strategy and return to fiscal consolidation, as the 10 
percent of GDP consolidated central and state fiscal deficit is not 
sustainable over the long term.  The EAC noted that the increase in 
fiscal deficit was not due to the stimulus package but rather due to 
subsidies, increased salaries for government employees, loan 
waivers, and broader coverage of the National Rural Employment 
Guarantee Act.  The EAC said the fiscal deficit could decrease 1.5 
percent of GDP in FY11 if spending on various social welfare schemes 
 
NEW DELHI 00002209  003 OF 003 
 
 
are kept constant in nominal terms. 
 
¶11. (U) The EAC complimented policy makers for their response to the 
financial crisis and the regulatory framework, especially in 
financial services, that helped India avoid the worst of the 
financial crisis.  It warned that the economy is constrained by 
physical infrastructure, specifically electricity.  As the 
government is the largest player in production, transmission, and 
distribution of power, better government intervention is necessary 
for India to return and sustain eight to nine percent growth.  EAC 
recommends more private investment in power generation, diversifying 
fuel sources, developing natural gas and nuclear energy based power 
plants, and leveraging the U.S. - India Nuclear Agreement to rapidly 
enhance India's nuclear power generating capacity. 
 
¶12. (U) Visit New Delhi's Classified Website: 
http://www.state.sgov/p/sa/newdelhi. 
 
 
ROEMER