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DE RUEHNE #2280/01 3170918
ZNR UUUUU ZZH
O 130918Z NOV 09
FM AMEMBASSY NEW DELHI
TO RUEHC/SECSTATE WASHDC IMMEDIATE 8527
INFO RHEHAAA/WHITE HOUSE WASHDC IMMEDIATE
RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RHEHNSC/NSC WASHDC
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RHMCSUU/FAA NATIONAL HQ WASHINGTON DC
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UNCLAS SECTION 01 OF 03 NEW DELHI 002280 
 
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 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV ENRG ETRD ECPS BEXP TRGY IN
SUBJECT: New Delhi Weekly Econ Office Highlights for the Week of 
November 9-13, 2009 
 
¶1. (U) Below is a compilation of economic highlights from Embassy 
New Delhi for the week of November 9-13, 2009, including the 
following: 
 
-- Buzz Misleads on WTO Government Procurement Agreement 
-- RBI Audits Could Lead to Further Opening of the Banking Sector 
-- Corporate Profits Up, Sales Not So Much 
-- India Trying to Lead by Example in SAFTA 
-- Energy Technology Data Exchange Offers Membership 
 
 
Buzz Misleads on WTO Government 
Procurement Agreement 
-------------------------------- 
 
¶2. (SBU) A November 3 article in the Financial Express indicated 
that the Commerce Ministry had moved a Cabinet note proposing 
observer status in the WTO Government Procurement Agreement (GPA), 
prompting U.S. companies to become hopeful there had been a shift in 
GOI sentiment.  A local Microsoft Director expressed optimism to 
Econoffs that if India were to become a member of the GPA, Microsoft 
would eventually receive equal treatment in bidder selection and 
award of contracts in India's multi-billion dollar government 
procurement market.  On November 9, Ministry of Commerce Director in 
the Trade Policy Division Bipin Menon, who covers GPA under Joint 
Secretary Bharati Sihag, told Econoff that the Cabinet note 
mentioned in the press had been submitted nearly two months ago and 
GOI is now engaged in an elaborate process of consultations, 
including with state governments.  Menon would not confirm whether 
Secretary Khullar submitted the note, adding that he did not think 
India would become an observer for some time, as GPA would not 
benefit all Indians.  Menon added that he believed many governments 
submitted inaccurate reports to the WTO about the true costs of the 
goods they procured, acknowledging the United States was not one of 
those governments.  (Note: The EU, Hong Kong, Chinese Taipei, and 
eleven other countries are currently parties to the GPA, while 
China, Sri Lanka, and 20 other countries are observers, some of 
which are negotiating accession.) 
 
¶3. (SBU) Menon said the United Nations Conference on Trade and 
Development (UNCTAD) began a cost-benefit study of India joining GPA 
more than one year ago and UNCTAD had already submitted preliminary 
findings to GOI.  He noted that the findings would not be made 
public.  He also could not remember how much India stood to reap by 
gaining access to U.S., European and other government procurement 
markets, explaining that he thought these figures were always 
exaggerated.  UNCTAD Senior Economist Rashmi Banga told Econoff on 
November 10 that UNCTAD had provided a report with such statistics 
to the Commerce Ministry, however, the report is supposed to be 
confidential, as there are several sensitive areas involved.  She 
viewed the GOI consultations with the states as a positive move, as 
the states are not very transparent.  However, Banga noted that 
India's nine major federal public sector units are quite transparent 
and procured 60 percent of their purchases from foreign firms. 
Banga explained that one of the major hang-ups for India to become a 
GPA observer is that the WTO has not made clear what conditions may 
be required of observers.  (Comment:  As recently as the October 26 
Trade Policy Forum focus group on Tariff and Non-Tariff Barriers, 
the GOI raised the perceived restrictive nature of "Buy American" 
provisions in the stimulus package, and Menon said the GOI planned 
to consult the WTO on this matter.  The message that joining the GPA 
would solve this problem for the GOI appears to be gaining some 
traction. End Comment.) 
 
RBI Audits Could Lead to Further 
Opening of the Banking Sector 
--------------------------------- 
 
¶4. (U) The media reported that the Reserve Bank of India (RBI) has 
decided to audit the financial operations and the risk-management 
capabilities of the existing 32 foreign banks and its 300 branches 
operating in India.  The RBI will conduct the audit to assess and 
evaluate the transparency of these banks so that they do not pose 
any systemic risk to the banking sector, in view of the ongoing 
global financial crisis. 
 
NEW DELHI 00002280  002 OF 003 
 
 
 
¶5. (SBU) The proposed audits could further hinder the ability of 
foreign banks to open branches in India as it is unlikely that the 
RBI will grant additional branch licenses until the audit is 
complete.  However, Citibank India Managing Director of Corporate 
Affairs and Business Development Ashok Swarup told Econoff that the 
RBI will use the results of these audits to "strengthen its hand" in 
opening the banking sector to foreign banks.  Once the audits are 
complete, Swarup thought the RBI would be able to state that the 
foreign banks follow prudential norms, have sufficient capital, and 
maintain adequate risk controls and, therefore, the foreign banks 
should be allowed to open more branches in India. 
 
Corporate Profits Up, Sales Not So Much 
--------------------------------------- 
 
¶6. (U) Corporate India gave mixed signals for the second quarter 
(June-September) of FY 2009-10 (FY10).  Profits during the period 
were 39 percent higher but sales fell nine percent.  The increased 
profits and decrease in sales led to a sharp improvement in net 
profit margins, which increased to 8.4 percent of sales from 5.6 
percent of sales during the same period of the previous year. 
 
¶7. (U) Higher profit margins were mainly due to a 13 percent 
decrease in expenses from better inventory management, lower 
interest expenses, and reduced raw material costs.  Reduced excise 
duties as part of the government's fiscal stimulus program also 
helped improve margins in some sectors (auto, telecom and cement) 
with companies preferring to keep the savings rather than pass them 
on to consumers. 
 
¶8. (U) Among industry groups, sugar, tea and automobiles performed 
exceptionally well, both in profits and sales during the quarter. 
Sectors with significant sales growth included construction, 
electronics, fast moving consumer goods, and food processing.  A 
decline in sales occurred in aluminum, fertilizers, hotels, 
shipping, steel, and trading firms.  As many as 20 industries 
recorded positive net profit growth during the period with only a 
handful of sectors - aluminum, electricity, fertilizers, hotels, 
paper, shipping and steel - experiencing a decline in net profits. 
 
India Trying to Lead by Example in SAFTA 
---------------------------------------- 
 
¶9. (SBU) Ministry of Commerce Director Babni Lal, who handles South 
Asian Association for Regional Cooperation (SAARC) issues told 
Econoff on November 9 that the member countries committed to 
reducing their sensitive lists and ongoing liberalization of trade 
in goods.  Lal was also part of Minister Sharma's delegation to the 
fourth South Asia Free Trade Agreement (SAFTA) Ministerial Council 
meeting on October 28 in Kathmandu.  Lal said India had moved to 
zero duty on certain products for Least Developed Countries 
(LDCs--Bangladesh, Bhutan, Nepal, and Maldives) a year ahead of 
schedule and was trying to lead by example on many issues, including 
developing an online database with India's SAFTA tariffs and other 
import requirements.  Lal said the SAFTA members also deliberated on 
regional cooperation on trade in services, but it would take 
two-three years to reach agreement due to the lack of data and 
Bangladesh's desire for Small Vulnerable Economy (SVE) status.  Lal 
commented that Pakistan's failure to send ministerial representation 
to the Council meeting (instead sending a Joint Secretary) clearly 
demonstrated lack of interest in regional integration.  She also 
noted that Pakistan's close relationship with China was a major 
factor that prevented Pakistan from granting India most-favored 
nation status. 
 
¶10. (SBU) Lal explained that despite SAFTA implementation in January 
2006, economic integration within SAARC is only 4.5-4.8 percent, 
compared with 28 percent for the Association of Southeast Asian 
Nations.  This is primarily due to political concerns.  However, 
other factors also act as effective barriers to trade, including 
trade in similar products (e.g., textiles and leather) resulting in 
competition rather than comparative advantage; poor infrastructure; 
lack of land customs clearance facilities; and lack of harmonized 
standards.  UNCTAD Senior Economist Rashmi Banga told Econoff on 
 
NEW DELHI 00002280  003 OF 003 
 
 
November 10 that UNCTAD and the Asian Development Bank had just 
completed a study quantifying the benefits of SAFTA that is 
currently only available in hard copy.  Banga is also studying 
supply chains in South Asia.  (Comment:  Hopefully, some of this 
research will convince all SAFTA members of the potential economic 
gains from greater integration. End comment.) 
 
Energy Technology Data Exchange 
Offers Membership 
-------------------------------- 
 
¶11. (U) The International Energy Agency (IEA), under its Networks of 
Expertise in Energy Technology (NEET) initiative, sponsored a 
two-day workshop on renewable energy technologies in New Delhi.  The 
NEET leverages its expertise and network in energy technology to 
"plus 5" countries of Brazil, China, India, Mexico and South Africa. 
 IEA has 42 Implementing Agreements where both IEA member and 
non-member countries can participate in energy-related projects and 
exchanges.  The Ministry of New and Renewable Energy (MNRE) had 
invited representatives from seven of the 42 IEA agreements on Wind, 
Solar, Bio-energy, and Energy Technology Data Exchange (ETDE) to New 
Delhi to explore possibilities for Indian participation/membership. 
Brian Hitson, Chairman and U.S. representative of the Energy 
Technology Data Exchange (ETDE) met with the Indian Ministry of 
Power, MNRE, Bureau of Energy Efficiency, and The Energy Resource 
Institute to encourage membership to ETDE.  The Indian Ministry of 
Power has been the first to show interest in taking up ETDE 
membership.  Benefits to ETDE membership include access to the 
world's largest energy science and technology database, ability to 
jump-start technology research, possible identification of 
experts/partners in other countries, and ability to learn how others 
are dealing with energy and environmental challenges. 
 
¶12. (U) Visit New Delhi's Classified Website: 
http://www.state.sgov/p/sa/newdelhi. 
 
 
ROEMER