NEW DELHI WEEKLY ECON OFFICE HIGHLIGHTS

UNCLAS SECTION 01 OF 03 NEW DELHI 003034 SIPDIS SENSITIVE SIPDIS USDOC FOR ITA/MAC/OSA/LDROKER/ASTERN/KRUDD DEPT PASS TO USTR DHARTWICK/CLILIENFELD/AADLER DEPT PASS TO TREASURY FOR OFFICE OF SOUTH ASIA ABAUKOL TREASURY PASS TO FRB SAN FRANCISCO/TERESA CURRAN STATE FOR SCA/INS MICHAEL NEWBILL AND EB/TRA JEFFREY HORWITZ AND TOM ENGLE PASS TO FAA THOMAS NASKOVIAK PASS TO DOT DAVID MODESSIT E.O. 12958: N/A TAGS: EFIN EINV EAIR PTER KTFN PREL ENRG ECON IN PK IR GM, UK SUBJECT: NEW DELHI WEEKLY ECON OFFICE HIGHLIGHTS NEW DELHI 00003034 001.2 OF 003 ¶1. (U) Below is a compilation of Economic highlights from Embassy New Delhi for the week of June 25-29, 2007. COMING SOON - EFFORTS TO AMEND THE MONEY LAUNDERING ACT -------------- --- ¶2. (SBU) During a meeting with Econoff on June 29, Joint Secretary of Revenue Mukul Singhal at the Ministry of Finance (who is charged with handling money laundering issues and represents India at the Asia Pacific Group (APG) on Money Laundering) confirmed that his ministry hopes to introduce amendments to the Prevention of Money Laundering Act (PMLA) during the next session of Parliament (expected to begin in mid-July to early August 2007). The amendments are under final review by the legal department and undergoing deliberations between Finance and other ministries. When Econoff asked if the amendments will be in line with FATF recommendations, Singhal replied that FATF is a universal agreement and India is being "guided" by its principles/recommendations. When asked about the likelihood of passing the amendments through Parliament, Singhal said to keep in mind that that the PMLA is "produced by administrators, in the interest of administrators ... and without review by the judiciary." He and his colleagues at the Ministry of Finance are hopeful the legislation will be reviewed by Parliament and not referred to a standing committee, which can add months to legislative passage. When asked about GOI's participation at the upcoming APG Assessment training in Singapore, Singhal confirmed that GOI will send two participants. Econoff encouraged active participation by GOI officials at the APG (through presentations, volunteering to participate in assessment teams, etc.). Post will follow up with Finance contacts for the latest readout on India's participation at the ongoing FATF plenary in Paris. INDIA'S OUTWARD INVESTMENT SET TO EXCEED INBOUND FDI -------------- -------------- ¶3. (U) Two recent studies highlight the noticeable growth in India's outbound investment, an emerging significant source of FDI in the world. A recent joint report prepared by the Federation of Chambers of Commerce and Industry (FICCI) and Ernst & Young on "Direct Investments in the US by Indian Enterprises" notes that India's total outbound equity investments exceeded $15 billion in 2006 and are expected to cross $35 billion in 2007. The outbound forecast in 2007-08 exceeds the inbound FDI equity target of $30 billion that India has set for the year. Another study 'Global Outbound FDI Potential of Indian Companies 2007' conducted by Oxford Intelligence points out that India's share of global outward investment has trebled over the last four years and outbound activity increased by 26% alone in 2006. While Tata's large acquisitions took the headlines, Indian overseas investments were rather broad-based, with small and medium firms in the $20-60 million range making acquisitions in pharma and healthcare, irrigation, electronics, automotives, textiles, telecom, paint, paper and gems and jewelry sectors. ¶4. (U) The FICCI Report also highlighted India and the US' surging bilateral investment flows. US equity investments in India doubled from the year before to hit $856 million in 2006-07; even more striking, Indian companies invested over $2 billion in the US in 2006-07. The information technology (IT) and IT-enabled services sectors accounted for nearly half of India's deals in the US in 2006-07. The study also found that in the business process outsourcing space, Indian companies are now increasingly opening up units in the US, providing opportunities of large-scale employment there, and giving rise to a "reverse outsourcing" trend. FICCI Secretary General Amit Mitra expects that India's cash-rich and SIPDIS highly profitable companies could invest roughly $10 billion in the US by 2010. PLANS TO DEVELOP NEW GREENFIELD AND SMALL AIRPORTS -------------- -------------- NEW DELHI 00003034 002.2 OF 003 ¶5. (U) The Associated Chambers of Commerce and Industry of India (ASSOCHAM) held a National Summit on Aviation Industry Issues on June 27, bringing together 75 participants from industry, NGOs, government, diplomatic missions, and media. Civil Aviation Joint Secretary K N Srivastava stated that given the interest in SIPDIS developing smaller airports, the Airport Authority of India (AAI) and private industry were planning to develop at least six greenfield airports and 50 smaller airports within the next five years in Maharashtra, Gujarat, Karnataka, and Bihar, among others. Plans to build rail links to/from airports for ten major cities, including Delhi, Mumbai, Hyderabad, and Pune, were also highlighted. Other panelists emphasized the need to address consumer concerns, the inadequacy of aviation regulations, the shortage of properly trained ground and cabin personnel, and the industry's need to meet the demands of international clients. CHALLENGES FACING SOUTH ASIA REGIONAL INTEGRATION -------------- -------------- ¶6. (U) Ejaz Ghani, Economic Adviser at the World Bank, on June 27 chaired a multi-country video panel from Washington on the World Bank report "South Asia: Growth and Regional Integration". Participants from India, Pakistan, Afghanistan, Bhutan, and Sri Lanka provided their suggestions and critiques to Ghani on the report. The event emphasized The South Asian Association for Regional Cooperation (SAARC) member countries' overall desire to cooperate economically, although the majority of member countries present at the video conference highlighted political differences, primarily between Indian and Pakistan, as a barrier to growth. ¶7. (U) Ghani stressed the need for regional collaboration in three primary areas - energy, transportation, and water. On energy, he said there is an abundance of clean energy in the region and energy-surplus countries can gain from exporting their supplies. On transportation, he said the cost and difficulty of border crossing and border transfers are among the largest impediments to growth. Ghani highlighted geography and infrastructure as underutilized resources and added that intricate non-tariff barriers, such as indirect supply chains requirements, hinder growth. On water, he said flood control is essential to prevent constant infrastructure damage, which in turn could improve water availability and power generation. One of the greatest advantages of regional cooperation, he emphasized, would be poverty reduction - particularly for states/districts in the outlying areas of a country (among the poorest in India). Ghani noted the political climate for regional integration has improved in recent years and that there is a demand for sub-regional and regional cooperation despite political differences. He also mentioned that the private sector sees regional cooperation as a new opportunity for growth. ¶8. (U) South Asian participants raised a number of issues, mostly political in nature. Pakistani speakers expressed concern that South Asian countries produce many of the same products, which results in more competition than collaboration on both high-value and low-value products. Both Indian and Pakistani members stressed political differences between their countries as barriers to collaboration. The Afghans questioned the potential for regional integration when more than 90 percent of the subcontinent's GDP is constituted by Pakistan and India, resulting in "no real cooperation and no real integration." In addition to overcoming political differences with border countries, they stressed concerns about security and political stability in Afghanistan. ¶9. (U) The Bhutanese recommended multilateral organizations like the World Bank and Asian Development Bank coordinate regional efforts to avoid duplication and accelerate practical regional solutions. They also commented that SAFTA has been a slow process and much more needs to be done on customs procedure, transportation infrastructure, etc. The Sri Lankan delegation worried that economic integration between China and India, which the report NEW DELHI 00003034 003.2 OF 003 promotes, might benefit SAARC member countries in the short run with lower consumer prices, but harm India and its neighbors' competing industries in the long run. The Bangladeshi representative recommended establishing regional authorities for water, energy, and transportation. He was pleased with India's newfound will (as the current SAARC chair) to increase regional and sub-regional cooperation. LALU CONTINUES TO PROMOTE TRANSFORMATION OF THE INDIAN RAILWAYS -------------- ¶10. (U) Railway Minister Lalu Prasad has become a regular featured speaker for student groups. On Thursday, June 28, he addressed a graduating class from the Indian Foreign Service Institute as well as guest diplomats and media about transforming the enormous Indian railway system into a profit making organization. Citing his rural and modest background as an inspiration to making the railways affordable to the "common man," he highlighted the importance of rooting out corruption in an effort to further reduce passenger fares. Fiercely affirming that India has a social responsibility to provide affordable transportation to the masses, he maintained privatization is not the answer (though he invites private sector participation in modernizing the railway system). Unlike many of the European railways which Minister Prasad recently visited, he noted that India's railways are often overcrowded and lack many of the same amenities. Though it will take time, Prasad said, his vision for the railways requires an Indian version and not simply an adoption of Western systems, which will include world class stations, facilities for farmers at stations, and a dedicated freight corridor. ¶11. (U) Visit New Delhi's Classified Website: http://www.state.sgov/p/sa/newdelhi. Mulford