NEW DELHI WEEKLY ECON OFFICE HIGHLIGHTS

UNCLAS SECTION 01 OF 02 NEW DELHI 003312 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 E.O. 12958: N/A TAGS: EAGR EFIN EINV ETRD IN SUBJECT: NEW DELHI WEEKLY ECON OFFICE HIGHLIGHTS ¶1. (U) Below is a compilation of Economic highlights from Embassy New Delhi for the week of July 16 - 20, 2007. Chidambaram Signals Continued Tight Monetary Policy -------------- -- ¶2. (U) Finance Minister Chidambaram on July 19 stated that the government will maintain a "fairly tight" monetary policy because of continued concerns about inflation stemming from domestic fuel and food prices. Market observers felt he was preparing the market to expect the central bank, the Reserve Bank of India (RBI),to continue current interest rate levels at the end of the month during its quarterly policy review. Prior to Chidambaram's comments, market observers had hoped the RBI might lower rates, as inflation has come down to a 13-month low in recent months and credit growth has slowed. However, even though inflation has moderated, some of it is due to the base effect (high prices last year at this time mean less of a year on year rise),which analysts expect to wear off by the end of 2007, suggesting inflation, especially in food and fuel prices could rise again. High food prices were blamed for several state election losses by the ruling coalition earlier this year. India Growing Into Middle-Income Country Ranks -------------- ¶3. (U) The Prime Minister's Economic Advisory Council (EAC) has projected per capita income will reach $1021 in the current fiscal year, which would be a 25 percent increase over per capita income levels last year, according to the Business Standard. The EAC bases its projection on anticipated 9 percent GDP growth this year, which would make for an unprecedented three years of above-nine percent growth. Exceeding $1000 in per capita income would graduate India from the World Bank's category of low-income countries, with individual incomes below $905 in 2006, into the lower middle-income ranks, where incomes ranged from $906 to $3595 in 2006. While some of that increase is attributable to the rupee's appreciation, the World Bank's lead economist in India was quoted as attributing most of the effect to higher GDP growth. India still needs to address the challenges of income disparities that often temporarily increase during periods of rapid economic growth. Jet Begins Service to US In August -------------- ¶4. (SBU) During a meeting with Econoff on July 19, Jet Airways (India) Executive Officer Saroj Datta reviewed the airline's plans for service to the US and future expansion plans. On August 5, Jet will launch its Mumbai-Brussels-Newark route, marking the first US destination for a private Indian airline. Then, in October, pending slot availability at JFK Airport, Jet will introduce a Mumbai-Brussels-New York flight. Also, this September, the airline will begin service on its Mumbai-Brussels-Toronto route. Jet was also considering a Mumbai-Shanghai-San Francisco route but commercially viable slots are not available at the busy Shanghai Airport. When asked why Brussels was chosen as Jet's primary routing point through Europe, Datta explained that while other cities were also in the running, the Belgium government provided some very attractive concessions. Jet will also work with Brussels-based Sabena flight academy to train pilots and take advantage of the diamond trade passenger traffic from India to Belgium. ¶5. (SBU) When asked about the airline's plans to join one of the major alliances, Datta noted that Jet is open to bilateral code share opportunities and has agreements with Quantas, a South African airline, and ANA. In the future, there may also be arrangements with Air Canada and United but nothing has been formalized. Datta also explained Jet Chairman Naresh Goyal's comments about working with Air India to provide complementary/supplementary services to the growing Indian aviation market: while India's two leading carriers are competitors, Goyal believes there are still areas for cooperation to promote Indian aviation vis-a-vis other international airlines. As for futre growth plans, Jet envisions tremendous NEW DELHI 00003312 002 OF 002 potential in freight traffic and hopes to use its wide-body Boeing 777s to introduce a related business in the next 12-18 months. Datta expressed Jet's gratitude for Ex-Im Bank's support in financing the purchase of the Boeing 777s. GOI Grateful for US Efforts at June FATF Plenary -------------- --- ¶6. (SBU) The Executive Forum Assessment Team visited New Delhi from July 9-13 to hold consultations for an ATA Counterterrorism Training course for GOI officials in September 2007. As part of their discussions, they met with Ministry of Finance Joint Secretary (Capital Markets) KP Krishnan who provided useful suggestions in the areas of combating money laundering and terrorism financing. Krishnan also discussed his recent participation at the FATF plenary in Paris in late June 2007. He was very pleased with what he described as the US's intervention to recommend the Asia-Pacific Group's (APG) Mutual Evaluation for India be conducted earlier than late 2008. Krishnan noted that India must undergo a successful APG mutual evaluation to transition from being a FATF observer to a full member. ¶7. (SBU) Krishnan further explained that FATF members will now determine when India's next evaluation will take place, and he believes that it is likely in the next six to eight months. Krishnan also informed the delegation that the GOI is hoping to introduce amendments to the Prevention of Money Laundering Act (PMLA) during the monsoon season of Parliament; after which, the amendments are likely to be referred to a standing committee. Krishnan pledged his government's commitment to amending the PMLA by the end of 2008 to include some of the FATF recommendations but noted that the Ministry of Finance does not have final say. (Note: Post understands from Treasury that Krishnan's understanding of the Plenary decisions is not accurate. Most importantly, it has not yet been decided when India's Mutual Evaluation (ME) would take place. Further, an APG ME would not substitute for a FATF ME, which must take place within the two-year observership period. Post will continue to engage with Treasury to monitor and report on next steps in India's efforts to meet core FATF recommendations and changes to its AML/CFT regime. End note.) ¶8. (U) Visit New Delhi's Classified Website: http://www.state.sgov/p/sa/newdelhi WHITE