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FM AMEMBASSY NEW DELHI
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UNCLAS SECTION 01 OF 04 NEW DELHI 002528 
 
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 EAID ECIN EIND ELTN ETRD IN
SUBJECT: NEW DELHI WEEKLY ECON OFFICE HIGHLIGHTS FOR THE WEEK OF 
DECEMBER 14 TO DECEMBER 18, 2009 
 
Ref: A. NEW DELHI 02515 
 ¶B. NEW DELHI 02486 
 
¶1. (U) Below is a compilation of economic highlights from Embassy 
New Delhi for the week of December 14, to December 18, 2009, 
including the following: 
 
-- All's Quiet in Parliament on the Economic Reform Front 
-- Unbundling Electricity in Tamil Nadu 
-- U.S. Firm Azure Power Opens India's First Grid Solar Plant 
-- Mobile Tariff War: Consumers Win, Government & Industry Lose 
-- Figures Confirm Indian Railways on Recovery Path 
-- Rule Changes for International Borrowing 
-- Moody's Upgrades Local Currency Debt Rating 
 
All's Quiet in Parliament on the 
Economic Reform Front 
-------------------------------- 
 
¶2. (U) Parliament's winter session, which began on November 19, 
intended to consider a number of economic bills.  However, with only 
one day remaining in the session, it appears that Parliament will 
take up none of the financial sector bills, as it spent considerable 
time debating political issues and the rise in food prices (see 
Reftel A). 
 
¶3. (U) As the GOI faced dissent from some key members within the 
coalition government, it decided against bringing to Parliament key 
economic bills such as the Insurance Laws (Amendment) Bill, the 
Pension Fund Regulatory and Development Authority Bill, the Land 
Acquisition (Amendment) Bill, and the Banking Regulation (Amendment) 
Bill in this session.  While the Insurance Bill is already pending 
in Parliament with the Standing Committee's report, the three other 
bills still must be introduced as each bill expired at the time of 
the May elections. 
 
¶4. (U) Other bills that Parliament failed to take action on included 
the Foreign Contribution Regulation Bill, which seeks to prevent 
"misuse" or diversion of foreign funds received by the 
non-governmental agencies (to avoid money laundering), and the goods 
and services tax (GST).  It is now unlikely that the GST will be in 
place by April 1, 2010, as was the GOI's original plan.  The Draft 
version of the Direct Tax Code received much criticism and Finance 
Minister Mukherjee promised to revisit several contentious clauses. 
Finally, Parliament failed to take action on the pending "Food 
Security Act," which had been a campaign promise of the UPA 
government.  Instead, the draft right-to-food legislation was put on 
the backburner. 
 
¶5. (U) Parliament did pass the Competition (Amendment) Bill 2009, 
which transfers all cases and investigations relating to unfair 
trade practices to the Competition Appellate Tribunal and curbs 
monopolistic abuses.  Parliament changed pricing for sugarcane 
through an ad hoc amendment.  The price of sugar will now be based 
on "fair and remunerative price" instead of the earlier "minimum 
price." 
 
Unbundling Electricity in Tamil Nadu 
------------------------------------ 
 
¶6. (SBU) Tamil Nadu's new electricity transmission corporation 
(Tantransco) began functioning on December 15, bringing to an end 
the Tamil Nadu Electricity Board's (TNEB) 52-year reign of absolute 
control over electricity generation and transmission in the state. 
This reform will bring Tamil Nadu closer to compliance with the 
Electricity Act of 2003, which obliges states to "unbundle" the 
functions of electricity generation and transmission into separate 
organizations.  (Note: The state has been receiving extensions from 
the central government for years to prolong TNEB's existence while 
working out arrangements for its successor. End Note.) 
 
¶7. (U) Tamil Nadu's government approved in October 2008 the 
reorganization of TNEB into three separate, government-owned 
entities:  Tantransco, which will own and manage transmission over 
the state's power grid; Tangedco, which will produce electricity; 
 
NEW DELHI 00002528  002 OF 004 
 
 
and TNEB Ltd., a holding company for the other two entities.  The 
government approved Tantransco's Board of Directors on December 11, 
paving the way for the official inauguration of the company on 
December 15. 
 
¶8. (SBU) The Energy Secretary told Consulate General Chennai that 
TNEB's powerful unions, always suspicious of anything they believe 
may dilute their negotiating power, have resisted the reforms to 
TNEB and that there were reports of some union members protesting 
near the Tantransco inauguration ceremony.  The Energy Secretary 
said, however, that he is fully supportive of unbundling, 
emphasizing that doing so would help attract much-needed investment 
to help Tamil Nadu cope with its electricity shortage. 
 
U.S. Firm Azure Power Opens India's 
First Grid Solar Plant 
------------------------- --------- 
 
¶9. (U) On December 15, U.S.-based Azure Power launched the first 
privately-operated, utility-scale solar power plant in India.  The 
plant, inaugurated by Dr. Farooq Abdulla, Union Minister of New and 
Renewable Energy in Amritsar, will provide electricity to 
approximately 42 villages under a 30-year power purchase agreement 
with Punjab State Electricity Board.  The plant will provide power 
to 4,000 rural homes for nearly 20,000 people.  The passive solar 
plant eliminates carbon emissions and optimizes cooling through 
natural ventilation.  The plant's power is transmitted directly to a 
substation in the local community, reducing transmission and 
distribution losses.  The plant was commissioned in a record time of 
six months with an investment of USD four million, including project 
finance support from the U.S. Overseas Private Investment 
Corporation (OPIC) and policy support from the U.S. Foreign 
Commercial Service. 
 
Mobile Tariff War: Consumers Win, 
Government and Industry Lose 
--------------------------------- 
 
¶10. (U) India has about 14 telecom service providers compared to the 
world average of three to five operators per country.  India's 
telecom market, which has reached a phenomenal 500 million 
subscribers, is still growing at a rate of about 10 million new 
subscribers every month.  The telecom sector has been one of the key 
drivers of India's economic growth in recent years. 
 
¶11. (U) Indian operators have been offering the lowest tariff rates 
compared to anywhere in the world, thanks to the robust competition. 
 Prices began to drop even further earlier this year as the first 
round in the current price war was fired by Tata DoCoMo when it 
introduced per second billing, which was quickly followed by 
Reliance, Airtel, MTS and others. The Mahanagar Telephone Nigam 
Limited (MTNL), a public sector company, sent a shock wave earlier 
this month by offering customers calls for as little as half a paisa 
(100 paisa in a rupee) a second - or just over one hundredth of a US 
cent per second. 
 
¶12. (U) While a low tariff regime has certainly been welcomed by 
consumers, plunging call rates have led telecom to become the worst 
performing sector in India's stock market.  Down by 27 percent this 
year compared with double and triple-digit rises in other 
industries, industry experts are increasingly questioning whether 
Indian mobile operators themselves can afford the vicious price war 
that has shaken their industry in recent months.  It is expected 
that the tariff competition will further intensify as more new 
players enter the already unsustainable market.  Overall, the 
telecom industry in India has too many operators chasing a market 
with a high subscriber base, but with very low ARPU's (average 
revenue per user/subscriber). 
 
¶13. (U) A devalued telecom market, fierce competition, a significant 
drop in tariffs, lower per-user revenues, and regulatory uncertainty 
provides a disincentive for telecom companies to participate in the 
upcoming 3G auction as does the potential USD 745 million payment 
for a pan-India 3G license and the related hefty capital investment 
needed to operate a 3G system.  These factors strongly suggest that 
 
NEW DELHI 00002528  003 OF 004 
 
 
the 3G auction (Reftel B) will generate lower than the expected USD 
seven billion in revenues.  Reportedly, the Ministry of Finance has 
already revised the projected revenues down to about USD five 
billion. 
 
Figures Confirm Indian Railways 
on Recovery Path 
-------------------------------- 
 
¶14. (U) Indian Railways increased overall earnings nearly nine 
percent for the April-November 2009 period (transported goods and 
passenger bookings).  Total earnings for the period were USD 11.8 
billion compared to USD 10.8 billion during the same period last 
year.  Total goods earnings went up from USD 7.3 billion to USD 7.9 
billion, an increase of almost eight percent.  Approximate numbers 
of passengers booked during this period were 4937.73 million 
compared to 4717.56 million the previous year, up 4.67 percent. 
Passenger revenues during the first eight months of financial year 
2009-10 total USD 3.3 billion compared to USD 3.07 billion during 
the same period the previous year, an increase of 8.01 percent. 
 
¶15. (SBU) Comment: Indian Railways first saw signs of a positive 
turnaround under the leadership of the previous Railway Minister 
Lalu Prasad Yadav (Rashtriya Janta Dal party).  However, after 
elections in April, Lalu's party could not retain the Ministry in 
the coalition government.  The post was allotted to Lalu's arch 
rival Trinamool Congress Chief Mamata Banerjee, who claimed Lalu had 
fudged figures to show growth, allegations that Prasad vehemently 
denied.  These latest positive growth figures support Lalu's denials 
and lend credence to his claim that Banerjee's allegations were 
without support and politically motivated. End Comment. 
 
Rule Changes for International Borrowing 
---------------------------------------- 
 
¶16. (U) In a December 8 notification, the Reserve Bank of India 
(RBI) said it would withdraw some temporary concessions on external 
commercial borrowings (ECB) for Indian firms introduced during the 
global crisis but would loosen some rules for the infrastructure and 
telecom sectors.  Beginning January 1, 2010, the interest rate 
ceiling for Indian companies borrowing abroad would return to LIBOR 
plus 300 basis points for three to five year loans and LIBOR plus 
500 basis points for loans maturing after five years. 
 
¶17. (U) Non-banking finance companies (NBFCs), which lend 
exclusively to infrastructure projects, will now be able to borrow 
from international banks with RBI approval.  Previously, 
infrastructure NBFCs could only borrow from multilateral and 
regional financial institutions and government-owned financial 
institutions.  The GOI hopes this will increase the availability of 
funds for the infrastructure sector.  In addition, Indian companies 
are now permitted to borrow on international markets in order to 
participate in the proposed 3G auction (see reftel B).  Other 
borrowing measures, including the $500 million limit per borrower 
per fiscal year, remain unchanged until December 2010. 
 
Moody's upgrades Local Currency Debt Rating 
------------------------------------------- 
 
¶18. (U) On December 15, Moody's Investors Service (MIS) upgraded 
India's outlook on India's local currency sovereign bond rating to 
positive from stable, while retaining the rating at Ba2. The rating, 
however, is still below investment grade and below the rating given 
by S&P/Fitch.  Moody's also raised its foreign currency bank 
deposits rating to Ba1 from Ba2 to better reflect the robust 
external position of the country.  MIS's outlook on the government's 
foreign currency bond rating remained stable at Baa3, the lowest 
investment grade that the agency assigns. 
 
¶19. (U) According to Moody's press release, the change in outlook 
was due the India economy's demonstrated resilience to the global 
financial crisis and MIS's expectation that India will resume its 
high growth rates. 
 
¶20. (U) Visit New Delhi's Classified Website: 
 
NEW DELHI 00002528  004 OF 004 
 
 
http://www.state.sgov/p/sa/newdelhi. 
 
¶21. (U) This is the last weekly Econ Section highlights cable for 
¶2009.  Our next highlights cable will be January 8.  Happy Holidays 
and wishing everyone a healthy and prosperous new year! 
 
ROEMER