NEW DELHI WEEKLY ECON OFFICE HIGHLIGHTS FOR OCTOBER 15-19,

UNCLAS SECTION 01 OF 03 NEW DELHI 004667 SIPDIS SENSITIVE SIPDIS USDOC FOR ITA/MAC/OSA/LDROKER/ASTERN/KRUDD DEPT OF ENERGY FOR A/S KHARBERT, TCUTLER, CZAMUDA, RLUHAR 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 AND EB/TRA JEFFREY HORWITZ AND TOM ENGLE E.O. 12958: N/A TAGS: EFIN EINV EPET ETRD EAGR ELTN EAID SENV IN SUBJECT: NEW DELHI WEEKLY ECON OFFICE HIGHLIGHTS FOR OCTOBER 15-19, 2007 NEW DELHI 00004667 001.2 OF 003 ¶1. (U) Below is a compilation of Economic highlights from Embassy New Delhi for the week of October 15-19, 2007. INDIA INCREASINGLY AN FDI PLAYER -------------- ¶2. (U) The UN Commission on Trade and Development (UNCTAD) released its annual World Investment Report this past week, highlighting India's growing role as both a recipient and source of foreign direct investment (FDI). The report noted that India had received $17 billion in FDI in 2006, an amount equal to the past three years combined. Multinational companies surveyed about their FDI plans through 2009 identified India and China as their top two global FDI destinations, ahead of the US and Europe. In particular, the next few years are expected to see a significant rise in FDI in India's manufacturing sector. The steel and auto sectors stand out: as much as $12 billion in FDI in steel and $3 billion in the automobile industry have been announced. Private equity has been a significant source of FDI in recent years, accounting for nearly one-fifth of all mergers and acquisitions last year alone. The report cautions that such private equity prominence is a new phenomenon. Since private equity seeks out investments from which it can exit in 2-3 years, private equity-driven FDI may not have the same qualitative impact that more traditional FDI has, nor stay in the country as long. ¶3. (U) India also continues to make its name as a source of outward FDI as well, nearly quadrupling its outward flows to $9.7 billion from 2005 to 2006. Private companies that were "resource-seeking" were the main drivers - whether those resources were created assets such as brands and technologies or energy resources. Indeed, the oil and gas sector played a prominent role, accounting for roughly one-fifth of the outflow in 2006. RELIANCE MOVES TO NEW RETAIL FORMATS AND NEW JVS, WHILE OTHERS GO ON-LINE -------------- ¶4. (U) According to the press, Reliance Retail is turning its attention to non-grocery formats, hastening the roll-out of its planned health-and-wellness, footwear, jewelry, music, and other specialty outlets. Reliance will reportedly include West Bengal, where plans for grocery outlets are on hold due to violent protests and lack of political support, in this expansion. The company, however, does not intend to open stores of any sort in Uttar Pradesh for the time being. The Economic Times also reported that Reliance is working on a joint venture with Volvo for the manufacture of vehicles tailored to Reliance's needs as part of what company head Mukesh Ambani called "an over-arching pan-India transportation warehousing logistics infrastructure." The deal, per the daily, would be the first of its kind anywhere in the world. Reliance has further announced plans for a joint venture with Citigroup to set up a non-banking finance company that will deal mainly in consumer loans and credit cards. ¶5. (U) Subhiksha, Spencer's, and Pantaloon's Big Bazaar are all reportedly moving toward offering an on-line service, where consumers could place orders for delivery, with Subhiksha in the lead and hoping to launch this platform in December. INDIAN SEAFOOD EXPORTERS HOPE WTO RULING WILL EXPAND SALES TO U.S. CONSUMERS -------------- ¶6. (U) India's seafood exporters are hailing a preliminary World Trade Organization (WTO) ruling against the United States. Local media report that a preliminary determination by the WTO's settlement body found that the practice of requiring certain India's shrimp exporters to execute a U.S. customs bond in order to export to the United States violates trade rules. An appeal of the ruling is possible, but India's exporters are optimistic. The president of the Seafood Exporters Association of India told Consulate General NEW DELHI 00004667 002.2 OF 003 Chennai that the bond requirement had made business "unviable" and predicted that the WTO ruling would lead to a doubling of the number of seafood exporters willing to export to the US. He added that U.S. consumers should expect to see more Indian shrimp in grocery stores "before Thanksgiving." OIL AND GAS PIPELINE CONFERENCE: STANDARDS AND REGULATIONS -------------- ¶7. (SBU) The American Society of Mechanical Engineers (ASME) held a four-day conference and technical workshop on Oil and Gas Pipelines with participation from the Government of India's Petroleum and Natural Gas Regulatory Board (PNGRB),Bureau of Indian Standards, and Engineers India Limited. The conference focused on India's evolving regulatory system and Indian adoption of U.S. and international technical and engineering standards (ASME and ISO) for pipeline construction, operation, and maintenance in the context of India's creation of safe, efficient and modern nation-wide natural gas, petroleum, and petroleum product pipeline networks. Embassy Econ First Secretary in an opening address emphasized U.S. industry and USG interest and encouragement of PNGRB promoting time-proven principles of Regulatory Independence, Transparency, and Non-Discrimination for pipelines and of the PNGRB institutionalizing regular consultations with industry on the regulatory framework. ¶8. (SBU) To promote GOI-USG cooperation in oil and natural gas industry regulations and standards, the Ministry of Petroleum and Natural Gas (MPNG) and U.S. Trade and Development Agency (USTDA) are finalizing the request for proposals for a $690,000 feasibility study grant for a national natural gas grid and they are discussing a follow-on scope of work for technical assistance in the oil and gas regulatory area. In the context of the U.S.-India Energy Dialogue, the US Embassy wants to promote bilateral exchanges of information, experience, and best practices on oil and gas pipeline regulatory frameworks between the PNGRB and USG agencies, such as the Department of Transportation and Federal Energy Regulatory Commission. MCDONALD'S PLANS EXPANSION IN SOUTH INDIA -------------- ¶9. (U) Local media reports that McDonald's plans to open 20 new restaurants in South India by the end of next year, expanding its presence in Bangalore and Hyderabad and entering the currently McDonald's-less Chennai market. Currently, the chain's presence in the South is limited to a total of 10 restaurants in Bangalore and Hyderabad. McDonald's is also reportedly exploring the possibility of establishing a distribution center in the South to support this expansion. A small, satellite operation based in Bangalore currently serves the chain's South Indian locations. An expanded distribution center in the South should be a boon for local farmers. Northern farmers, mainly in Punjab and Maharashtra, currently supply much of McDonald's southern restaurants' needs. TWO REGIONAL AIRLINES TO BEGIN OPERATIONS IN JANUARY -------------- ¶10. (U) South India's air travelers should have some new options by January, when both Air Dravida and TransIndia plan to begin operations. The two regional airlines intend to operate single-aisle jets between the South's metro cities (Chennai, Bangalore, and Hyderabad) and turbo-prop aircraft on routes between the region's smaller cities. The executive director of Air Dravida told Consulate General Chennai that his company had procured three second-hand, 50-seat Bombardier aircraft already. He said that there is a "huge" unmet demand for air travel from the South's smaller cities to the region's metros and that he expects Air Dravida to break even within four quarters. NEW DELHI 00004667 003.2 OF 003 ¶11. (U) Visit New Delhi's Classified Website: http://www.state.sgov/p/sa/newdelhi. MULFORD