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UNCLAS SECTION 01 OF 02 NEW DELHI 000301 
 
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 EFIN EIND EINV ECIN IN
SUBJECT: New Delhi Weekly Econ Office Highlights for the Period 
February 1 to February 15, 2010 
 
¶1. (U) Below is a compilation of economic highlights from Embassy 
New Delhi for the period of February 1 to February 15, 2010, 
including the following: 
 
-- GOI Releases MSME Task Force Report 
-- Industrial Production Continues to Grow 
-- PayPal No Friend of the RBI 
-- Inflation Running Fast and Furious 
 
GOI Releases MSME Task Force Report 
----------------------------------- 
 
¶2. (U) The Task Force on Micro, Small and Medium Enterprises (MSMEs) 
on January 30 presented its action plan to Prime Minister Manmohan 
Singh recommending immediate relief for the MSMEs hit by the 
economic downturn.  The Prime Minister (PM) reportedly stressed the 
importance of swift implementation of the report's recommendations 
and asked the MSME Minister Dinsha Patel to accelerate reforms in 
the small scale industry sector.  The PM also underscored that India 
needs thriving, vibrant, and strong enterprises in the MSME sector 
in order to achieve its economic development goals.  India's MSME 
sector, employing about 42 million people, contributes almost 45 
percent of India's total manufactured output and 40 percent of 
exports. 
 
¶3. (U) The Prime Minister formed the MSME Task Force in September 
2009 to suggest steps to help the sector blunt the impact of the 
global economic slowdown.  Headed by T.K.A. Nair, Principal 
Secretary to the PM, the MSME Task Force included the MSME Minister, 
a Planning Commission member, Secretaries of concerned government 
departments, a Reserve Bank of India Deputy Governor, the Small 
Industries Development Bank of India Chairman & Managing Director, 
and representatives of MSME associations.  According to Minister 
Patel the task force report is based on recommendations submitted by 
seven sub-committees, which were constituted to look into different 
areas that impact MSMEs, such as credit, infrastructure, taxes, and 
labor laws.  The report recommends that MSMEs receive more 
accessible bank funding, preferential procurement by public sector 
enterprises, and tax concessions.  An executive summary of the MSME 
Task Force Report is available at 
http://pib.nic.in/release/release.asp?relid=5 7553. 
 
Industrial Production Continues to Grow 
--------------------------------------- 
 
¶4. (U) Growth in industrial production continued to rise, increasing 
a much better than expected 16.8 percent in December, and is now up 
8.6 percent for the fiscal year beginning April 1, 2009. 
Manufacturing, which accounts for 80 percent of the industrial 
production index, grew 18.5 percent, the highest increase since 
¶1995.  Manufacturing was led by machinery and equipment (up 44.6 
percent) and chemical products (up 29 percent), which combined 
accounted for almost half of the increase in industrial production. 
Production in food products was the only sector showing negative 
growth, down seven percent in December and 7.4 percent for the first 
nine months of the fiscal year. 
 
¶5. (U) All five use categories - basic goods, capital goods, 
intermediate goods, consumer durables, and consumer non-durables - 
had positive growth in December.  Capital goods and intermediate 
goods were up 38.8 percent and 21.7 percent respectively. 
 
¶6. (U) Analysts were expecting 12.4 percent growth in industrial 
production for December and the strong demand has potential policy 
and economic implications.  The GOI may be more inclined to begin to 
phase out economic stimulus measures enacted to improved demand such 
as lower excise taxes, which the GOI had implemented in response to 
the global economic crisis. GDP growth for the fiscal year (ending 
March 31, 2010) may also be better than expected as industrial 
production may compensate for any negative results from agriculture 
due to the erratic monsoon season. 
 
PayPal No Friend of the RBI 
--------------------------- 
 
¶7. (U) The Reserve Bank of India (RBI) has suspended electronic 
 
NEW DELHI 00000301  002 OF 002 
 
 
payment gateway PayPal's operations in India as the RBI reviews 
PayPal licensing requirements.  PayPal has reported that it has 
temporarily stopped making local bank transfers and personal 
payments to and from India and has responded to RBI questions 
regarding PayPal remittance services.  PayPal uses Deutsche Bank 
Singapore for its Indian transactions as it does not have a presence 
in India.  Despite the lack of presence, the RBI enforced its 
decision by asking Deutsche Bank India to suspend their operations 
with PayPal. 
 
¶8. (U) According to PayPal employees, PayPal does not offer 
remittance services but had mistakenly advertised remittance 
services in India on their website.  Two months after agreeing to 
remove the offending advertisement, the RBI ceased PayPal 
operations, presumably because the offending advertisement for 
remittance services could still be found on the PayPal website. 
Post has offered PayPal assistance in resolving this issue and 
Consulate Mumbai plans to meet with the RBI in order to discuss the 
RBI's concerns. 
 
Inflation Running Fast and Furious 
---------------------------------- 
 
¶9. (U) January wholesale price index (WPI) rose 8.56 percent, the 
highest rate in 14 months, higher than analysts' expectations and 
above RBI's projection of 8.5 percent by March 2010 and its 
near-term inflation target of 4-4.5 percent.  Manufactured products, 
which accounts for 63.7 percent of the WPI, rose 6.55 percent in 
January, accounting for half of the rise in the WPI.  Food articles, 
which rose 17.4 percent, were the other main contributor to the rise 
in the WPI. 
 
¶10. (U) With demand strong as evidenced by the growth in industrial 
production and inflation rising, debate now centers on when the RBI 
will react and by how much it will raise borrowing rates.  The RBI 
will most likely not react prior to the Ministry of Finance's fiscal 
year 2011 budget on February 26 as the GOI's plan to address its 
fiscal deficit will be a factor in any RBI decision on borrowing 
rates.  RBI has taken a decided turn towards greater and clearer 
communication in the last policy review January 29, including a 
shorter policy statement, a subsequent conference call with the 
public.  On February 11, Deputy Governor Subir Gokarn announced that 
there will be no further RBI moves until the next review unless the 
Budget or external factors bring unexpected shocks to the economy. 
This represents a definitive increase in transparency of monetary 
policy. 
 
¶11. (U) Visit New Delhi's Classified Website: 
http://www.state.sgov/p/sa/newdelhi. 
 
ROEMER