NEW DELHI WEEKLY ECON OFFICE HIGHLIGHTS FOR THE WEEK OF JANUARY 14-18, 2008

UNCLAS SECTION 01 OF 06 NEW DELHI 000189 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 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 SENV IN SUBJECT: NEW DELHI WEEKLY ECON OFFICE HIGHLIGHTS FOR THE WEEK OF JANUARY 14-18, 2008 NEW DELHI 00000189 001.2 OF 006 ¶1. (U) Below is a compilation of Economic highlights from Embassy New Delhi for the week of January 14-18, 2008. VERIZON RECEIVES LONG DISTANCE LICENSES -------------- ¶2. (SBU) U.S. Telecom company Verizon Business announced on January 9, 2008 that India's Ministry of Communications and Information Technology (MCIT) Department Telecommunications (DOT) had finally issued to Verizon Business India -- a joint venture between Verizon Business and Mumbai-based Videocon Group -- an International Long Distance (ILD) license (applied for on February 7, 2007) and a National Long Distance (NLD) license (applied for on May 21, 2007), both of which were approved on November 9, 2007. AT&T also provides ILD and NLD in India. Verizon already holds an internet service provider (ISP) license and has various local internet protocol (IP) hubs. Verizon said the licenses "enhance Verison Business' delivery of advanced telecommunications services to multinational companies with operations in India, as well as to India-based multinationals." Verizon has expressed its gratitude to the Embassy and FCS for their advocacy efforts. NEW ADVISOR TO FINANCE MINISTER CHIDAMBARAM -------------- ¶3. (U) Effective January 15, well-known economist Dr. Shubhashis Gangopadhyay has been appointed the new advisor (Secretary level rank) to Finance Minister Chidambaram, replacing Dr. Shome who resigned last month and is joining the United Kingdom's Tax Department as chief economist. Gangopadhyay, recognized as a development economist, was previously founder-director of India Development Foundation, a privately funded, non-profit research foundation, since 2002. He has been a visiting fellow to a number of foreign universities including Gothenburg, Rutgers, Stockholm and Southern California. A PhD in Economics from Cornell University, Gangopadhyay was a faculty member at the Indian Statistical Institute, Kolkata between 1991 and 2002. He is a member of the �00A;World Bank's South Asia Chief Economists' Advisory Council and is also on a UN Expert Group on equitable development. He writes extensively in international journals on economics and finance and has authored a number of economic books. Press reported that Shome's decision to quit the Finance Ministry mid-way through his tenure was largely due to his uncomfortable relationship with secretary-level bureaucrats who did not approve of Shome sending his SIPDIS reports directly to the finance minister. Post will try to monitor whether similar tensions arise with another non-bureaucrat adviser. CONFERENCE ON EU-INDIA FTA REVEALS AMBITION, SKEPTICISM -------------- ¶4. (U) During a conference at the Observer Research Foundation in New Delhi on January 11, Carlos Bermejo-Acosta, Chief of the Economic and Trade section of the European Union (EU) delegation, said that the EU is targeting an ambitious free-trade agreement (FTA) with India. Bermejo-Acosta said that the EU will not settle for an agreement that simply lowers tariffs, insisting that any feasible deal must encompass non-tariff barriers to trade, as well as related policy issues, such as intellectual-property legislation and enforcement. He added that the EU will not impose a timeline on the negotiations. ¶5. (U) A pair of economists from the European Center for International Political Economy, Fredrik Erixon and Razeen Sally, then enumerated the many reasons to be skeptical about the potential for an EU-India FTA. Erixon noted that the EU does not have a clear mandate on services or a centralized policy on investments. Sally focused on India's poor history with FTAs, labeling India's record of establishing meaningful agreements "the worst in Asia." (Comment: Post falls on the side of skepticism on these NEW DELHI 00000189 002.2 OF 006 negotiations. We feel that India does not have a genuine interest in forging deep, meaningful FTAs at the present time. End comment.) BANGALORE WATER SUPPLY AND SEWERAGE BOARD PROJECT -------------- ¶6. (U) The Bangalore Water Supply and Sewerage Board (BWWSB) has submitted a USD 114 million proposal to the Ministry of Urban Development's Jawaharlal Nehru National Urban Renewal Mission for implementing a wastewater recycle and reuse plan in the city to meet its increasing fresh water demand. If approved, once implemented, the mission will provide 80 percent of the total project cost (approximately US $ 92 million) to the utility, with the urban utility raising the remaining 20 percent from either internal accruals or from other sources. According to the BWWSB Chairperson, this proposal has already received preliminary approval from the Central Public Health and Environmental Engineering Organization, the technical arm of the central ministry. ¶7. (SBU) BWSSB is reputed to be one of the better performing water utilities in the country. It is also working on a USD 125 million proposal for reducing unaccounted water losses in the city's water supply system. Both of these projects are likely to provide significant export opportunities for U.S. providers of wastewater recycle and reuse as well as leak detection and control technologies/systems. ROCHE PATENT GRANTED IN INDIA UNDER REVIEW AFTER REJECTION IN U.S. -------------- ¶8. (SBU) Business daily The Mint reported Tuesday that India's Controller General of Patents is conducting an inquiry into the Chennai Patent Office's grant of a patent to Roche's anti-infection drug, valganciclovir, which Roche sells under the name Valcyte. The same drug was refused a comprehensive patent in the U.S. in 1994, on grounds that the drug was neither novel nor non-obvious, though the USPTO did grant a patent for the crystalline form of the drug. The Mint quoted a Roche representative as saying that the U.S. rejection is not relevant because of differing patent laws. However, Roche declined to comment on the fact that Indian Patent Law prohibits the patenting of any drug invented prior to 1995. (Comment: Roche has previously been the subject of some suspicion because it has won patents for drugs believed to be only incremental innovations, while other companies, such as Novartis, have had similar patents rejected. End comment.) WORLD BANK FINDS COLLUSION BETWEEN INDIAN DRUG COMPANIES -------------- ¶9. (U) Indian drug manufacturers Nestor and Pure Pharma were found, in a review by the World Bank, to have colluded to win contracts for three major healthcare projects, the Reproductive and Child Health project, the Malaria Control Program, and the TB Control Program. In each case, the companies' bids for drugs differed by less than one tenth of a rupee (2.5 cents) per unit, with the differences "symmetrical and rotated." The two companies also failed to deliver promised quantities of drugs and even diluted the content of drugs to reduce costs. Although both companies had been debarred by the GOI from another health scheme for producing substandard drugs, they remained able to secure no-objection certificates from the World Bank to bid on projects because the list of debarred manufacturers was not publicly available. WEST BENGAL AI OUTBREAK MAY AFFECT SOUTHERN FARMERS, TOO -------------- ¶10. (U) While poultry farmers in West Bengal worry about the NEW DELHI 00000189 003.2 OF 006 immediate impact of the recent avian influenza (AI) outbreak, their counterparts in the South are worried about the outbreak, too. The rise in international commodity prices has raised the price of feed, pressuring margins for farmers. The managing director of a South Indian poultry farm told us that southern farmers fear that the West Bengal AI outbreak may lead to a re-imposition of a recently lifted ban on Indian poultry imports into lucrative West Asian markets. He said that consumption of poultry products in India is already slumping due to rising prices as farmers attempt to pass higher costs on to consumers. The West Asian markets, he said, offer Indian producers better prices than local markets, adding that southern poultry farmers will have difficulties making ends meet if West Asian markets are blocked again. RELIANCE FINDS MORE GAS IN KRISHNA BASIN -------------- ¶11. (U) Reliance Industries Limited (RIL) reported a new natural gas find in the Krishna basin, off the coast of Andhra Pradesh. The find is in shallow waters, only 150 meters deep. RIL's Operations Manager told Consulate Chennai that the company is still conducting a preliminary assessment of the reservoir. He also said that he expects gas from the well to be tapped quickly and economically given the shallow depth of the find. TAMIL NADU IMPOSES "INFRASTRUCTURE CHARGES" ON DEVELOPMENT -------------- ¶12. (U) The Government of Tamil Nadu announced on January 11 the imposition of a one-time "infrastructure charge" of approximately USD 25 per square meter for new commercial structures. Intended to raise funds for much-needed infrastructure improvements, the new fee may also dampen further the city's real estate market, which continues to experience a downturn that began in the second half of ¶2007. The managing director of one of Chennai's major real estate businesses told Consulate Chennai that he expected the new fee to do little to improve infrastructure, but would almost certainly contribute to an increased slowdown in the real estate market. Builders, developers, and other real estate businesses plan to protest the new fee, and will bring in figures from the education establishment to help out -- some 25 colleges in Tamil Nadu are awaiting approvals of new buildings and have received notice that they are expected to pay the new fee. CESSNA OPENS PILOT TRAINING CENTER -------------- ¶13. (SBU) Cessna Aircraft Company, a Textron, Inc. company, has chosen its first Cessna Pilot Center in India - Touchwood Entertainment Limited's Aviation Academy based in the Raipur. The Raipur pilot center is independently owned and will be the only authorized flight school in India to use Cessna's integrated computer-based instruction for teaching. This pilot center will enable Indian students to complete their private pilot's certificate in about 54.5 hours, almost 30 percent less than the international average. The Raipur Cessna Pilot Center will operate with new, fully insured Cessna 172 aircraft, which are currently under factory warranty. ¶14. (U) Touchwood Entertainment Limited operates on a five-acre facility in Raipur, the capital of Chhattisgarh State. The 10-year-old company started aviation-related activities in 2004 by offering ground handling services for airlines and private air operators and began offering flight training in 2007. The academy is centrally located and draws students from all regions in India and includes a staff of former Indian air force instructors training with an all-Cessna fleet. ¶15. (SBU) Aviation in India continues to experience rapid growth, NEW DELHI 00000189 004.2 OF 006 creating both a shortage of pilots and extended demand for business aircraft. Cessna's decision to appoint its pilot center in India comes at the right time to tap the opportunities offered by the exponential growth of aviation here and is yet another instance of an excellent partnership that benefits the people of India. BANGALORE'S NEW AIRPORT TO GET OWN AIR TAXI -------------- ¶16. (U) Deccan Aviation announced plans on January 17 to establish a helicopter service from four points in Bangalore to the new airport, some 40 kilometers north of the city. The shuttle service is slated to begin on March 30, the day that the new airport opens. A "helihop" from Bangalore to the airport should take a mere 10-15 minutes, in contrast to a grueling two -hour-plus ride by road. One of the four departure points in Bangalore will be at Infosys's main campus. An Infosys executive told Consulate Chennai that the company would use the service for its top executives. He cautioned, however, that the shuttle operations would be restricted to daylight hours, which means that the shuttle would not connect easily with international flights, which depart late evening or early morning. According to other Bangalore-based sources, the original idea of the "helihop" service was mooted during a meeting last fall organized by the Bangalore Chamber of Commerce and Industry to discuss the city's increasing infrastructure problems. FISCAL RELIEF TO SUPPORT GROWING AVIATION INDUSTRY -------------- ¶17. (U) Civil Aviation Minister Patel has urged Finance Minister Chidambaram to consider fiscal measures to bring relief to the country's airline industry in the upcoming budget. During a meeting on January 15, Patel pressed for the following key issues - a) aviation turbine fuel (ATF) "declared goods" status so that it is sold at the same price across the country; b) waiver of service tax on air tickets for business and first-class on international flights; and c) tax benefits to encourage merger of private airlines under Section 72A of the Finance Act of 2007. ¶18. (U) Patel is also planning on meeting with state chief ministers to discuss rationalization of sales tax on ATF, airport expansion, and other infrastructure-related issues. There are 80 operational airports in the country, with another 20 greenfield projects under development. In addition, there are at least 300 airstrips lying unused in different states. Patel is hoping to encourage the states to develop blueprints for support infrastructure and modern airports in line with the booming aviation industry. States will also be asked to address related infrastructure issues, including for example city side development of the airport, providing services and connectivity, and linking up with tourism, and the hospitality industry for an all around comfortable experience at India's airports. WILL NOIDA GET A NEW AIRPORT? -------------- ¶19. (U) The proposal for setting up a second airport in India's capital, based in nearby Noida, is under deliberation by a Group of Ministers (GoM). In early January, the Union Cabinet approved the Uttar Pradesh government's request "in principle" for an international airport (called the Taj International Aviation Hub or TIAH) in Greater Noida. GoM must vet the legal aspects of the agreement with GMR, the group that is modernizing Indira Gandhi International (IGI) Airport in Delhi. ¶20. (U) Despite the Civil Aviation Ministry's advocating that Delhi needs more than one airport to meet the growing passenger traffic, GMR has strongly lobbied against building another airport in the nation's capital region. GMR does have the first right of refusal NEW DELHI 00000189 005.2 OF 006 for the Greater Noida airport and would be given a chance to match the highest bid if their quote is at least 10 percent less. ¶21. (U) Uttar Pradesh Chief Minister Mayawati has proposed to build the USD 895 million TIAH over 3,700 acres through a special purpose vehicle (SPV). The SPV will be formed as a joint venture with a private part selected through a competitive bidding process. The equity composition will be as follows - 74 percent private party, 13 percent Uttar Pradesh state government through sponsor, and 13 percent for other government agencies, like the Airport Authority of India. Early plans for the Noida airport include two runways, with the exterior bordering a large commercial district. KINGFISHER EXPANDS ITS AIRCRAFT FLEET -------------- ¶22. (U) Riding high on the heels of this week's figures by the Directorate General of Civil Aviation showing Kingfisher gaining market share and inching closer to Jet Airway's dominance, Vijay Mallya, Chairman and CEO of Kingfisher Airlines announced plans to buy five more Airbus A380s. Back in 2005, Kingfisher placed an order for five A380s for long-haul operations. Kingfisher has asked Airbus to advance delivery of the five confirmed A380s. Scheduled for 2011-12, the domestic carrier has asked the plane maker to have it ready by end-2009. ¶23. (U) At present, Kingfisher cannot fly overseas because it does not meet the domestic requirement of five years of experience on domestic routes. However, with the merger of Kingfisher and Air Deccan, the airline is coming closer to launching its international service. Earlier this week in Chennai, Executive Chairman Gopinath of Air Deccan announced plans to launch international flights from August, when the airline will complete five years in the Indian skies. FLY FINNAIR TO THE US -------------- ¶24. (U) In the race to offer flights to the United States, Finnair is planning to launch a Mumbai-New York flight in April 2008. The airline currently offers service from Mumbai, via Helsinki, to New York. This new sector is estimated to take 17 hours and 10 minutes, making it the fastest flight after the non-stop flights which average about 16 hours and 15 minutes. Finnair Director (Indian subcontinent) Taina Tornstrom also noted the load factor from India was just about the Finnair global average load factor of almost 75 percent (and about 80 percent on long-haul flights). AUDIT ON PESTICIDES SHOWS COCA-COLA CLEAN -------------- ¶25. (SBU) The results of a recently completed audit by The Energy Resources Institute (TERI) showed that there is no measurable pesticide content in the input water at the six Coca-Cola bottling plants across India that TERI evaluated, nor in the water discharged from those plants. Sunita Narain of the Center for Science and Environment (CSE),the organization that raised concerns about pesticides in Coca-Cola to begin with, discounted the TERI study because it did not test the final product. When Econoff spoke with two Coca-Cola representatives, they pointed out that TERI laid out hundreds of criteria for use in the thorough audit, which yielded a report of approximately 600 pages. Coca-Cola also took pains to emphasize that while the audit was at their expense, the company did not choose TERI to perform the audit or communicate directly with them. U.S.-based NGO the Meridian Institute made all the arrangements and acted as intermediary. ¶26. (SBU) Coca-Cola's representatives did acknowledge, however, that the TERI audit advised water-management practices that go beyond compliance with regulations. In particular, TERI indicated that Coca-Cola should decrease or even halt production at times when there is little rainfall around their bottling plants. Though NEW DELHI 00000189 006.2 OF 006 Coca-Cola believes such a policy has never been applied before by any company anywhere in the world, they assured Econoff that Coca-Cola will implement TERI's suggestion. INDIA'S DEMAND FOR GOLD WANING -------------- ¶27. (U) India's demand for gold (including jewelry),which accounts for 30 percent of the world demand, has slowed down since late August due to a spurt in prices that reached a high of Rs 11,700($292)/10gm this week. Due to price volatility and an increase in re-cycling of gold, most customers are shying away as they see a correction coming. For Indians, gold is considered a safe haven asset for investors hedging against inflation, a weak dollar and as an alternative (apart from oil) investment to currencies and bond markets. The World Gold Council predicts some recovery in demand once prices stabilize and the impact of higher rural incomes due to a good winter crop works through. Analysts opine that Gold Exchange-Traded Funds (ETF) (EFTs allows mutual funds to purchase physical gold and issue units to the buyers against the same) that use gold as the underlying asset and Gold-linked debentures will strengthen the existing fundamentals, thereby increasing gold's demand in the country as ETFs grow. ¶28. (U) Visit New Delhi's Classified Website: http://www.state.sgov/p/sa/newdelhi MULFORD