NEW DELHI WEEKLY ECON OFFICE HIGHLIGHTS FOR THE WEEK OF

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SUBJECT: NEW DELHI WEEKLY ECON OFFICE HIGHLIGHTS FOR THE WEEK OF
NOVEMBER 10 TO NOVEMBER 14, 2008


1. (U) Below is a compilation of economic highlights from Embassy
New Delhi for the week of November 10 to November 14, 2008,
including the following:

-- PM Singh Comments on His Plans for G-20 Summit
-- Inflation Rate Drops to Single Digits
-- Private Carriers Protest Their Exclusion Under GOI New Ground
Handling Policy
-- GOI Reviewing Trade Policy with Pakistan
-- Indian Exports Fall Following Lower Global Demand and Poor Export
Financing
-- India Confident of Meeting Target of 100 Percent Sanitation
Access in Rural Areas
-- Tamil Nadu Allows Market Access for European Spirits
-- International Mining and Machinery Exhibition (IMME 08)
-- BIMSTEC Calls for Early Conclusion of Free Trade Agreement

PM Singh Comments on His Plans for G-20 Summit
-------------- -

2. (U) Prior to his departure for the G-20 Summit in Washington,
D.C., local media quoted Prime Minister Singh as stating "I will put
forward our views on the need for greater inclusivity in the
international financial system, the need to ensure that the growth
prospects of the developing countries do not suffer, and the need to
avoid protectionist tendencies." Singh also reiterated that the
fundamentals of the Indian economy were strong and that India has
potential to contribute to global economic growth; however, such
contributions are limited by the lack of international support that
provides effective governance. Media reports suggested that the PM
would like world leaders to discuss the need for a global monitoring
authority to promote global supervision and cooperation.


3. (U) Local media also quoted an unnamed official from the PM's
office, who stated that Singh will take a "holistic and political
view" and that Planning Commission Deputy Chairman Montek Singh
Ahluwalia, as the Indian 'sherpa' for the G-20 Summit, will consult
with the PM on the 'larger economic impact' of the decisions
resulting from the gathering.

Inflation Rate Drops to Single Digits
-------------- -


4. (U) India's inflation rate unexpectedly lowered to 9.98% at the
end of the first week of November, the first time the Wholesale
Price Index (WPI) dropped to single digits since hitting 12.8% in
August. According to local media, the downward shift was a sharper
correction than expected; the rate was anticipated to fall below 10%
around the turn of the year.


5. (U) COMMENT: With economic indicators suggesting that growth is
decelerating, the only factor that has prevented the Reserve Bank of
India (RBI) from cutting policy rates has been high inflation,
meaning the downward shift will provide RBI the maneuverability to
further cut rates in order to encourage growth. The decline in
inflation rates may also have a positive impact on upcoming state
and national elections. END COMMENT.

Private Carriers Protest Their Exclusion
Under GOI New Ground Handling Policy
--------------


6. (U) Effective January 1, the GOI will implement a new civil
aviation requirement that, with the exception of the state-carriers
Air India and Indian Airlines, prohibits all other carriers from
providing ground-handling services. Besides the state carriers, The
Cabinet Committee on Security will permit only the Airports
Authority of India and an independent agency selected through a
global bidding process (in which private sector airlines can also
participate) to provide these services. When implemented, the new
rules will force the private carriers who currently provide their
own ground handling services to lay off their ground handling staff.
The largest private carrier, Jet Airways, employs 4,000 ground
handling staff, while IndiGo, Spice Jet and Go Air together employ

NEW DELHI 00002924 002 OF 004


an additional 2,000 staff. 29 per cent of the 28,000 personnel
employed by private carriers are involved in ground handling.
Private carriers are opposed to the new policy which they argue
would lead to a cost escalation and affect service quality. In
response, the government is reportedly discussing with the carriers
a compromise formula under which front-end ground-handling (customer
interaction) will be done by the airlines and back-end work would be
done as required under the new rules. According to an Ernst & Young
report the Indian ground handling market is estimated to be worth
US$ 625 million.

GOI Reviewing Trade Policy with Pakistan
--------------


7. (U) Inspired by the rising business interest among the Indian and
the Pak traders, the Government of India (GOI) is, reportedly,
reviewing its trade policy with Pakistan to push economic ties
despite an impasse over Kashmir and other pending issues. Media
reports that the Indian commerce ministry is currently consulting
stakeholders to enhance trade with Pakistan by changing the entire
approach. Some proposals that are being considered include trading
with Pakistan through a unilateral, negative trading list as opposed
to a positive list approach. However, the task is perceived to be
daunting as a few sections of the Indian establishment still tend to
attach political sensitivities to trade liberalization with
Pakistan. Lack of reciprocity from Pakistan - mainly on the issue
of according MFN (Most favored Nation) status to India - is often
cited as the major deterrent to a more liberal trade policy from the
Indian side.


8. (U) Indo-Pak bilateral trade, at $2.12 billion, is restricted and
dominated by a positive list maintained by Pakistan and non-tariff
barriers imposed by India. However, trade still finds its way, and
items other than the ones on the positive list, are traded in third
countries such as Dubai. Pakistani president Asif Ali Zardari has
expressed interest in pushing economic cooperation with India
through announcing a new trade policy in August 2008, expanding its
positive list of exportable items to India. However, the
notification of these items is still awaited. Similarly, the
Wagah-Attari road and the Khokrapar-Munabao railway line to all
permissible trade items was to open to push bilateral trade, which
has yet to take place. According to Dr. Taneja, a senior researcher
at the Indian Council for Research on International Economic
Relations (ICRIER),the political factors that were trying to guide
trade have taken a backseat and the private sector in both countries
is very active despite the fact that Pakistan hasn't given India MFN
because of the promising profits. Dr. Taneja also mentioned lack of
implementation of stated intent and policies from the Pakistani
government.

Indian Exports Fall Following Lower Global Demand and
Poor Export Financing
-------------- --------------


9. (U) According to the Government of India (GOI) preliminary
monthly trade data, exports have declined 15 per cent to $12 billion
in October 2008 compared to $14 billion in October 2007. Exports
from all areas other than oil, accounting for over 80 percent of
India's total exports, registered a decline; industries like gems
and jewelry and handicrafts are the hardest hit. The downward
trend, witnessed for the first time since 2003, points to
increasingly difficult times for Indian exports, given the ongoing
global dip in demand following the financial crisis in its major
destination markets (the US accounts for 13 percent of Indian
exports and the EU 22 percent). Government sources expect the trend
to continue in the coming months, suggesting that the export growth
target of 23 percent to $200 billion for Indian fiscal year (IFY)
2008-09 is unlikely to be achieved. India's average export growth
rate for first six months of the current fiscal year
(April-September) stood at an impressive 31 percent, which has now
dropped to 21.5 percent after the October figures. The slowdown in
exports has occurred despite the 20-percent depreciation of the
rupee against the US dollar over the last year, suggesting that

NEW DELHI 00002924 003 OF 004


scarce and expensive export financing is also a major negative
factor. According to trade analysts, traders are finding it
difficult to access liquidity both at the buyers' end and at the
sellers' end.


10. (U) In a recent press conference, GOI officials stated that
despite recent steps taken by the Reserve Bank of India (RBI),such
as further reductions in both the cash reserve ratio (cash that
banks must deposit with the RBI) and statutory liquidity ratio (the
amount banks must invest in government securities),small exporters
are still finding it difficult to obtain financing. Concerned over
the possibility of significant job losses in labor-intensive export
sectors, the GOI is considering as yet unidentified additional
measures to help exporters.

India Confident of Meeting Target of 100 Percent
Sanitation Access in Rural Areas
--------------


11. (U) India's rural development ministry recently told the media
that India expects to build 112,300 toilets every day to ensure 100
percent sanitation access in the country by 2012. However, a
Water-Aid India (a local arm of an international organization
specializing in drinking water and sanitation) representative has
estimated completion of these sanitary facilities by 2015. The
Government of India's (GOI) sanitation goals are the latest
supplement to its "Total Sanitation Campaign" (TSC) which was
initiated in 2004 to eradicate the "open toilet" system in the
country by 2010. The cost of building toilets under this campaign
is shared by the federal government, state governments and the
beneficiaries. According to the Ministry of Health and Family
Welfare, poor sanitation and resultant diseases cause an annual loss
of 180 million man-days and an economic loss of Rs.12 billion in
India. According to a UNICEF/WHO (United Nations Children's
Fund/World Health Organization) joint study on the country's
progress on sanitation goals, India has more than 500 million people
who use the "open toilet" system.

Tamil Nadu Allows Market Access for European Spirits
-------------- --------------


12. (SBU) The South India state of Tamil Nadu quietly began allowing
more European brands of spirits into the market on November 10, as
the state-owned alcohol monopoly Tamil Nadu State Marketing
Corporation (TASMAC) started selling products owned by London-based
Diageo. TASMAC's marketing director told Consulate General Chennai
that a recent Government of India (GOI) directive mandated this
change, prompting TASMAC to offer spirits including Johnnie Walker
Black Label, Johnnie Walker Red Label, Smirnoff vodka, and Gordon's
dry gin at all of its stores. (Our own inspection of a TASMAC
outlet on November 11, however, found that the only one of these
items actually available was Gordon's, but the TASMAC managing
director said that the other varieti%s should hit the shelves
starting November 17.)


13. (SBU) The timing of Tamil Nadu's action is probably not
accidental. A contact at Chennai's British Deputy High Commission
told us that it expected a team from the European Commission to
arrive in India next week to monitor GOI compliance with recent
World Trade Organization (WTO) rulings against India's trade
practices regarding spirits.


14. (SBU) The TASMAC marketing director also told us the
organization's next scheduled internal review (in February) will
likely result in another expansion of available brands. He added
that "a few US brands" might be included on that list.

International Mining and Machinery Exhibition (IMME 08)
-------------- --------------


15. (U) The Confederation of Indian Industry (CII) organized the 9th
International Mining and Machinery Exhibition (IMME'08) in Kolkata
from November 5 - 8. Over 300 exhibitors from 15 countries

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exhibited - a 25 percent increase from the last show held two years
ago. Six new-to-market American firms exhibited in addition to the
established American manufacturers. In discussions with exhibitors
and participants, PolEconOff found that China and India remain
attractive mining markets despite the global slowdown; however, the
credit crunch is negatively impacting firms' investment plans.
Equipment financing is viewed as a profitable and growing market
segment. One U.S. firm told PolEconOff that it would like to import
and sell re-conditioned machinery in India; but is hindered by
Indian restrictions on importing used machinery.

BIMSTEC Calls for Early Conclusion of Free Trade Agreement
-------------- -


16. (U) According to local media sources, the second summit of the
Bay of Bengal Initiative for Multi-Sectoral Technical and Economic
Cooperation (BIMSTEC) culminated with a call for an early conclusion
of a free trade agreement (FTA) to stimulate economic activity among
the seven memer countries, which includes India, Sri Lanka, Bhutan,
Bangladesh, Thailand, Myanmar and Nepal.


17. (U) The summit also agreed on a pact to combat terrorism and
finalized agreements on promoting exchange in three areas, weather,
culture and energy. As part of the implementation of these
objectives, the group of nations decided to set up a weather and
climate center in India, a cultural industries center in Bhutan, and
an energy center in India. According to media sources, Prime
Minister Singh offered to extend information sharing from its
Tsunami Warning Center to other member countries and discussed
pooling resources to set up a food bank that could be drawn from by
BIMSTEC countries in need. The summit also agreed to focus on
enhancing rail, road and shipping links to promote greater contact
through exchange, business and tourism.


18. (U) Visit New Delhi's Classified Website:
http://www.state.sgov/p/sa/newdelhi

MULFORD