VZCZCXRO1464
OO RUEHAST RUEHBI RUEHCI RUEHDBU RUEHLH RUEHNEH RUEHPW
DE RUEHNE #0187/01 0291339
ZNR UUUUU ZZH
O 291339Z JAN 10
FM AMEMBASSY NEW DELHI
TO RUEHC/SECSTATE WASHDC IMMEDIATE 9330
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 000187 
 
SIPDIS 
 
USDOC FOR ITA/MAC/OSA/LDROKER/ASTERN/KRUDD, USPTO 
DEPT OF ENERGY FOR A/S KHARBERT, TCUTLER, CZAMUDA, RLUHAR 
DEPT PASS TO USTR MDELANEY/CLILIENFELD/AADLER 
TREASURY FOR OFFICE OF SOUTH ASIA MKAPLAN 
TREASURY PASS TO FRB SAN FRANCISCO/TERESA CURRAN 
USDA PASS FAS/OCRA/RADLER/BEAN/FERUS 
 
E.O. 12958: N/A 
TAGS: ECON ECPS EFIN EIND EINV ECIN EMIN ENRG IN
SUBJECT: NEW DELHI WEEKLY ECON OFFICE HIGHLIGHTS FOR THE WEEK OF 
JANUARY 25 TO JANUARY 29, 2010 
 
¶1. (U) Below is a compilation of economic highlights from Embassy 
New Delhi for the week of January 25 to January 29, 2010, including 
the following: 
 
-- India to Build More Fast Breeder Reactors 
-- External Commercial Borrowing Norms Relaxed For 3G Spectrum 
Auctions 
-- Coal Still King for India's Energy Mix 
-- Confusion Reigns Supreme on 3G Auction 
-- Debt Management Office Coming to Delhi 
-- Corporate Bond Market Opening Slowly 
 
India to Build More Fast Breeder Reactors 
----------------------------------------- 
 
¶1. (SBU) Officials at the Indira Gandhi Centre for Atomic Research 
(IGCAR) announced plans on January 26 to add two additional fast 
breeder reactors (FBR) of 500 megawatts each to their facility in 
Kalpakkam, Tamil Nadu (40 miles south of Chennai) by 2020. 
Currently, IGCAR is working on an indigenous prototype constructed 
by Bharatiya Nabhikiya Vidyut Nigam Ltd (Bhavini), which IGCAR 
officials claim is nearing completion but has yet to undergo a 
series of safety tests.  IGCAR aims to have the prototype 
functioning by October 2011.  IGCAR's Head of Technical Coordination 
and Public Awareness confirmed to Consulate General Chennai the 
intention to add the reactors, but noted that this was contingent 
upon the success of the prototype currently under construction. 
(Comment:  The GOI built the Kalpakkam facilities, where there are 
several different types of reactors located on site, without any 
foreign partnership, and the expansion of capacity announced this 
week is similarly planned to occur without foreign partnership.  End 
Comment.) 
 
¶2. (SBU) India hopes that FBR technology will help India become more 
self-reliant as this type of reactor can use a thorium cycle to 
extract nuclear fuel.  India has thorium in abundance, in contrast 
to uranium, which is scarce in India and generally must be imported. 
 A former director of the Madras Atomic Power Station (MAPS) told 
Consulate General Chennai that international sanctions following the 
1998 nuclear tests limited uranium availability, bringing the MAPS's 
plant load factor down to 25 percent.  He noted that the fast 
breeder technology would take India away from the uranium-based fuel 
cycle toward a plutonium-thorium cycle, making it less vulnerable to 
international pressure. 
 
External Commercial Borrowing (ECB) 
Norms Relaxed for 3G Spectrum Auctions 
-------------------------------------- 
¶3. (U) On January 25, the Ministry of Finance (MoF) allowed 
prospective bidders for 3G spectrum auction to raise short-term 
rupee funds from the domestic market, which could be in turn 
refinanced through ECBs in 12 months time.  Department of Telecom 
(DoT) guidelines require successful bidders to pay 25 percent of the 
bid amount within five days of the close of the auction and the 
remainder within the next 10 days.  As 15 days is not an adequate 
amount of time for raising funds through the ECB route, the MoF has 
allowed bidders to raise short term rupee funds, which can in turn 
be refinanced through ECBs within 12 months from the date of full 
payment of the bid amount to the government.  The MoF, however, has 
prohibited domestic banks from providing any guarantee to bidding 
companies.  The new policy will improve the bidding entity's ability 
to raise funds from foreign markets at much lower rates and enable 
them to better manage and schedule payment obligations.  Further, it 
is also likely to increase competition for 3G auctions and thus 
enhancing the prospects of the Government raising at least US $760 
million through this auction. 
Coal Still King for India's Energy Mix 
-------------------------------------- 
 
¶4. (U) At the 3rd Asian Mining Congress in Kolkata on January 22, 
Minister of State for Coal Mr. Shriprakash Jaiswal and Coal India 
Chairman Mr. Partha S. Bhattacharya confirmed coal's primacy in 
India's energy mix for the coming decades, while acknowledging the 
increasing use of nuclear and renewable energy sources.  Jaiswal 
also highlighted the increasing difficulty of land acquisition for 
mining operations, the importance of adequate rehabilitation and 
 
NEW DELHI 00000187  002 OF 003 
 
 
resettlement policies for those displaced by mining projects, and 
minimizing mining's impact on the environment.  Land acquisition, 
whether for mining or industrial projects, is a concern in several 
of the states in Eastern India where agriculture, mining, and 
industry often have competing interests. 
 
Confusion Reigns Supreme on 3G Auction 
-------------------------------------- 
¶5. (U) Considerable amount of confusion and uncertainty prevails 
within the Department of Telecom (DoT) regarding the timing and 
modality of the upcoming 3G auction.  Consequently, media reports on 
any given day often conflict with their own accounts from previous 
days.  In a most recent media release, Union Communications Minister 
¶A. Raja announced that the 3G auctions and subsequent process will 
be completed by March 31, 2010.  According to the Minister, the 
notice inviting applications (NIA) will be issued this week. 
¶6. (U) The NIA is likely to include new terms for the 3G auction. 
Earlier reports had suggested that the first-time winners of 3G 
auctions would be required to purchase Universal Access Service 
(UAS) license priced at $367 million, which would include the 2G 
start-up spectrum for which 343 applicants are already waiting.  Due 
to potential legal action, DoT may renege on its promise to allow 
winning bidders to jump a two-year-old queue and get access to 
low-frequency airwaves ahead of the 343 waiting applications.  If 
so, foreign operators will have no incentive to bid given that their 
ability to compete will diminish without the 2G spectrum. 
Debt Management Office Coming to Delhi 
-------------------------------------- 
 
¶7. (U) Ministry of Finance Director T. Rabi Shankar told U.S. 
Treasury Attache and Econoff that the GOI's plans to create an 
independent debt management office (DMO) were moving forward 
although the GOI is taking a slow approach.  Shankar said debt 
management, done by Treasury's Bureau of Public Debt in the U.S., is 
currently housed with the Reserve Bank of India (RBI).  The key 
issue to be decided is the future relationship between an 
independent DMO and the RBI as the DMO will have to rely on the RBI 
and there must be a system in place for a real time exchange of 
information between the two.  Shankar said the GOI is studying 
closely how the United States and Canada handle this relationship 
since both countries have strong coordination between its central 
bank and its equivalent of the Finance Ministry. 
 
¶8. (U) Shankar thought it would take a minimum two years to 
completely set up a functioning DMO.  Demand for such services is 
currently high due to the high fiscal deficit, leaving no room for 
novice mistakes.  Although there were no plans to slow down the 
creation of the DMO, neither is there a rush to take debt management 
from the RBI until the deficit declines.  Currently, Shankar is 
building up the capabilities of the DMO Middle Office, which has a 
staff of three, two of which are seconded from the RBI, but he hopes 
to add six to eight more in the next 12 months.  The Middle Office 
currently works in parallel with the RBI on the debt issuance 
calendar, cash management tools, risk management, and linking 
systems to create a comprehensive debt database. 
 
Corporate Bond Market Opening Slowly 
------------------------------------ 
 
¶9. (U) As of March 1, the Reserve Bank of India (RBI) will allow for 
repurchase agreements ("repo") in corporate debt securities provided 
the corporate debt is double-A rated or above and has a maturity of 
at least one year.  Most financial institutions, such as commercial 
banks except for rural and local area banks, primary dealers, 
non-banking financial corporations, mutual funds, and insurance 
companies will be able to participate in repo transactions although 
the RBI excluded foreign institutional investors as eligible 
participants. 
 
¶10. (U) The move is expected to improve liquidity in the corporate 
bond market as corporate debt can now be used as collateral to 
borrow funds from the repo market.  The improved liquidity also may 
result in slightly lower interest rates for corporations.  Some 
restrictions such as a no rollover option and a minimum 25 percent 
margin may limit their use.  Banks will be required to include 
amounts received as time and demand deposits and, therefore, subject 
 
NEW DELHI 00000187  003 OF 003 
 
 
to the cash reserve requirements, which determine the amount of cash 
a bank must have on deposit with the RBI, and the statutory 
liability ratio, which determines the amount of cash a bank must 
have on-hand. 
 
¶11. (U) Reform of the corporate debt market to improve growth and 
increase liquidity has been a key objective of the financial 
services sector.  Allowing repo transactions is one of several 
recommended changes in the corporate debt market that the RBI has 
made in the past year.  Other improvements made include expanding 
the foreign exchange futures market to include the Euro, the 
Japanese Yen, and the British Pound, allowing for trading in 
interest rate futures, and providing a clearance and settlement 
mechanism.  Although many more changes remain to be adopted, it is 
now hoped that the capital markets will expand and provide better 
diversification options and more efficient means to manage capital, 
and help the GOI meet its infrastructure goals. 
 
¶12. (U) Visit New Delhi's Classified Website: 
http://www.state.sgov/p/sa/newdelhi. 
 
ROEMER