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UNCLAS SECTION 01 OF 03 NEW DELHI 002482 
 
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 PINR EFIN EINV EAID ECIN EIND ELTN ETRD IN
SUBJECT: New Delhi Weekly Econ Office Highlights for the Week of 
December 7, to December 11, 2009 
 
¶1. Below is a compilation of economic highlights from Embassy New 
Delhi for the week of December 7, to December 11, 2009, including 
the following: 
 
-- New Chief Economic Advisor 
-- GOI Seeks Additional Funds from Parliament 
-- GOI Drafts New Postal Legislation 
-- GDP Growth on Path Towards Recovery 
 
 
 
 
 
 
New Chief Economic Advisor 
--------------------------- 
 
¶1. (U) On December 8, well-known economist Kaushik Basu, 57, 
replaced Dr. Arvind Virmani as the new Chief Economic Advisor at the 
Ministry of Finance (MOF).  Prior to this position, Dr. Basu was the 
Carl Marks Professor of International Studies and Professor of 
Economics and Director at Cornell University. 
 
¶2. (U) Dr. Basu was given the Padma Bhushan Award, one of the 
country's highest civil honors, in 2008.  He has held visiting 
positions at Princeton University, Louvain-la-Neuve, the London 
School of Economics, MIT, and Harvard.  In 1992, Dr. Basu founded 
the Centre for Development Economics at the Delhi School of 
Economics and was the Centre's first Executive Director till 1996. 
 
 
¶3. (U) Dr. Basu has a Ph.D degree in Economics (under the Nobel 
laureate Amartya Sen) from the London School of Economics.  He has 
published numerous papers in the areas of game theory, development 
economics, child labor, and political economy.  He is an editor of 
the Oxford Companion to Economics in India, published by the Oxford 
University Press in 2007.  He is a playwright and paints in his 
spare time. 
 
¶4. (U) Upon assuming his new role as Chief Economic Advisor, Dr. 
Basu advocated for further financial reforms, saying that the 
government's role is to evolve new policies which regulate financial 
sector behavior without stifling enterprise and innovation.  Dr. 
Basu also opined that the high growth achieved in recent years must 
not be compromised and that ten percent growth is an achievable 
target.  He indicated that while some of the fiscal deficit was a 
natural consequence from the necessary fiscal stimulus, the deficit 
needs to be reduced in the medium term.  He believes that India must 
cut down on bureaucratic hurdles and corruption in order to energize 
the economy. 
¶5. (SBU) Comment: The Prime Minister appointed Dr. Basu and gave him 
the rank of Secretary, a higher level than that of his predecessor, 
indicating the importance and influence Dr. Basu may have within the 
government.  If true, Dr. Basu could be a welcome addition to the 
GOI's economic team as his reformist ideas may be the push needed to 
get proposed economic reforms back on track.    End comment. 
 
GOI Seeks Additional Funds from Parliament 
-------------------------------------------- 
 
¶6. (U) Finance Minister Pranab Mukherjee asked Parliament to approve 
an additional $6.6 billion in a supplemental budget request for 
spending in the final quarter (January - March, 2010) of the current 
fiscal year.  The Finance Minister said the supplemental spending 
would not require additional borrowing but would be paid for through 
cost savings, proceeds from the anticipated 3G spectrum auction 
(septel), tax revenues and the expected return of funds by 
Ministries, which normally occurs each year as the Ministries are 
not able to spend all the money allotted during the year. The 
Finance Ministry anticipates the fiscal deficit to be 6.8 percent of 
GDP at the end of the fiscal year. 
 
¶7. (U) The total request was for $6.6 billion, of which $638 million 
and $736 million would be used for fertilizer and food subsidies, 
respectively, to mitigate the impact of this year's drought. An 
 
NEW DELHI 00002482  002 OF 003 
 
 
additional $255 million would be spent on drought and flood relief 
programs.  Approximately $1.4 billion would be targeted for pensions 
of defense personnel and central government employees required by 
the implementation of the Sixth Pay Commission report. 
Infrastructure companies involved in projects for next year's 
Commonwealth Games would receive $213 million and metro projects 
across the country would get an additional $430 million. 
Approximately $668 million would be transferred to the National 
Investment Fund for social sector schemes.  The government also 
expects to infuse $170 million into the loss-making National 
Aviation Company of India, which runs Air India.  Other public 
sector projects and child development programs would receive the 
remaining amount of money. 
 
GOI Drafts New Postal Legislation 
--------------------------------- 
 
¶8. (SBU) On December 2, express delivery representatives from the 
United States and Europe, including UPS and FedEx, and EconOff met 
in Mumbai with drafters of the new postal law for India.  In 
October, the GOI commissioned the Administrative Staff College of 
India (ACSI) to rewrite the 1898 postal law within nine months. 
ACSI plans to hold discussions with key industry members, both in 
the express delivery and courier sector, the Department of Posts 
(DoP) and the Ministry of Finance (MoF) before formulating the final 
draft of the legislation. 
 
¶9. (SBU) The legislation will address how to pay for a universal 
service obligation, financial self-sufficiency of the postal system, 
and regulation of the three different industry sectors - post 
office, courier services, and express delivery services.  The final 
draft will be reviewed by the Department of Posts and submitted to 
the Cabinet before the legislation is presented to Parliament. 
Members of UPS and Fed Ex are concerned that ACSI has not reached 
out to economic and trade officials to ask for their input into the 
legislation and the final draft may head to the Cabinet without 
adequate representation.  They suggest that the U.S. and EU form a 
joint delegation of economic, trade and commercial officials to 
engage the proper GOI officials in the early stages of the draft 
postal legislation and ensure the final product represents the 
interests of all vested parties before it is presented to the 
Cabinet. 
 
GDP Growth on Path Towards Recovery 
------------------------------------ 
 
¶10. (U) The economy grew 7.9 percent in the second quarter 
(July-September) of FY 2009-10, much higher than the consensus 
estimates of 6.3 percent. The better-than-expected result was 
primarily due to the agriculture sector, which most analysts 
expected to decline sharply due to the delayed monsoon rains from 
June to September but actually grew slightly less than one percent 
in the second quarter.  Current speculation now is that impact of 
the poor monsoon will be felt in the third quarter of FY09/10. 
 
¶11. (U) In addition to agriculture, on the supply side, services and 
industry grew 9.3 and 8.3 percent, respectively.  Within services, 
trade, transport and communications were up 8.5 percent, while 
community services grew 12.7 percent, largely due to payment of back 
pay to the public sector.  For industry, manufacturing led the way, 
growing 9.2 percent, primarily driven by growth in consumer durables 
and the automobile sector as low interest rates drove the demand for 
manufactured goods. 
 
¶12. (U) On the demand side, the rise in GDP during July-September 
was led by private consumption, up 5.6 percent due to stimulus 
measures, government spending, up 27 percent, and investment, up 7.3 
percent, reflecting increased traction in ongoing investment 
projects due to better availability of finances. 
 
¶13. (U) Easing industry concerns, Planning Commission Deputy 
Chairman Montek Ahluwalia announced that stimulus measures would 
likely continue through the end of March 2010, despite the strong 
growth over the second quarter.  Meanwhile, the Prime Minister's 
Economic Advisory Council (PMEAC) announced that it will consider 
 
NEW DELHI 00002482  003 OF 003 
 
 
revising the overall economic growth forecast upwards from 6.5 
percent for the current fiscal year.  While the chairman of the 
PMEAC, C. Rangarajan told reporters the rate might be as high as 
seven percent, Ahluwalia commented to media that the revised growth 
projection may actually fall anywhere between 6.5 and seven percent. 
 Ahluwalia also noted to the press that India's economy could grow 
at 7.5 percent in FY 2010-11. 
 
¶14. Visit New Delhi's Classified Website: 
http://www.state.sgov/p/sa/newdelhi. 
 
 
ROEMER