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
FEBRUARY 4 - FEBRUARY 8, 2008 (CORCY)


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1. (U) Below is a compilation of Economic highlights from Embassy
New Delhi for the week of February 4-8, 2008.

WTO SIDES WITH INDIA
ON WINE TAXES
--------------


2. (U) The Business Standard reported Thursday that a World Trade
Organization (WTO) dispute-settlement panel dismissed the United
States' complaint against India over excise duties on foreign wines
and spirits, determining that these duties are not cross-border
measures. When India repealed its additional customs duties on
wines and spirits in July 2007, the European Union suspended its
similar case with the WTO, but the U.S. pushed for a formal ruling,
leading to this week's decision.

GOI CONSULTING INDUSTRY ON TRADE
IN REMANUFACTURED GOODS
--------------


3. (U) According to The Hindu, the GOI has initiated discussions
with industry stakeholders to clarify the definition of
'remanufactured goods' and formulate a prudent stance on their
import in preparation for further discussions on the Doha Round.
Commerce Additional Secretary Rahul Khullar explained that in
addition to concerns about safety, dumping, and unfair price
competition, India will have to consider its potential for exports
in remanufactured goods, as India does not currently have many
well-known brands likely to appeal to other countries' consumers.
With developed countries eager to ship remanufactured goods to the
Indian market, therefore, a liberalized policy on trade in
remanufactured goods may be to India's disadvantage. The current
Foreign Trade Policy permits the import of remanufactured goods only
with a license but does not stipulate a definition for the
category.

WAL-MART TO OPEN CASH-AND-CARRY
OUTLET BY JUNE
--------------


4. (U) Wal-Mart announced this week that it will open its first
cash-and-carry outlet in Ludhiana, Punjab, by June 2008. The
facility will be only 80,000 square feet, versus the 1 million
square feet typical of the company's U.S. stores, and will carry
mostly food and groceries. This outlet will sell to wholesale
buyers rather than directly to end consumers, as foreign direct
investment is prohibited in multi-brand retail, and it will feed the
Bharti retail outlets that will open under a joint venture with
Wal-Mart. Andrew Sherman, who has served as legal counsel
throughout the formation of the Bharti-Wal-Mart joint venture, told
Econoffs that the first of these retail outlets will open within two
months, with produce drawn from alternate sources until the Wal-Mart
wholesaler opens.

GOI SEEKS PREFERENCE FOR
GEMS AND JEWELRY
--------------


5. (U) The GOI hopes to get Indian gems and jewelry back under the
U.S. general system of preferences (GSP),after losing the
designation in 2007 because U.S. imports from India passed the
statutory maximum threshold of USD 1.87 billion. India's Gem &
Jewelry Export Promotion Council (GJEPC) argues that the
appreciating rupee, along with the 6.7-percent import duty imposed
since the loss of GSP status, has significantly impacted Indian
exports and caused substantial job loss. The latest trade data
shows that Indian exports of diamonds and precious stones to the
U.S. grew 26 percent in the first 11 months of 2007, but the GJEPC
contends that the bulk of those exports shipped in the first half of
the year, before the GSP adjustments were finalized, and therefore
do not reflect the impact of the change in GSP status. Commerce

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Joint Secretary Mukim assured DepEconCouns on Thursday that his
ministry would provide figures to support the export council's
contention.

BILATERAL TRADE GAP REDUCED
--------------


6. (U) U.S. exports to India rose 75 percent through November 2007
to USD 15.85 billion, with growth of approximately 34 percent in
aviation and aircraft, 20 percent in engineering goods and
machinery, and 11 percent in precious stones and metals. Meanwhile,
Indian exports to the U.S. rose by a relatively modest 10.9 percent
to USD 22 billion, resulting in a sharp reduction of the U.S.'s
bilateral trade deficit.


COMMERCE MINISTER SPIES
DOHA DIVERGENCE
--------------


7. (U) Commerce Minister Kamal Nath said Thursday that while there
has been significant progress made in the past year on the WTO's
Doha Round, developed and developing countries could reach an
impasse if developed countries do not make stronger commitments on
trade-distorting agricultural subsidies. Nath further stated that
it might be possible to reach an agreement by the end of this year
but that to achieve that aim, negotiators must make comparable
progress on non-agricultural market access, services, and rules as
well.

CLINICAL TRIALS FOR AIDS
VACCINE HALTED
--------------


8. (U) India's first domestically engineered AIDS vaccine, a
formula using the adeno-associated virus vector being tested at the
National AIDS Research Institute, elicited an immune response of
only 20 percent in Phase I clinical trials, falling short of the
threshold for continuation to Phase II testing. Responses were
similar even where researchers administered boosters. The vaccine
failed to reach desired standards in humans despite producing high
immune responses in animal testing.

FOOD-PROCESSING MINISTRY
TARGETS FOOD PARKS
--------------


9. (U) In a meeting Thursday, Secretary Suvrathan of the Ministry
of Food Processing Industries (MOFPI) informed USTDA Regional
Director for South and Southeast Asia Henry Steingass that MOFPI
plans to help finance 30 food parks across the country to develop
cold chains for food-processing industries. Suvrathan said MOFPI
will contribute INR 500 million (USD 12.8 million) and seek
private-sector funding of INR 4 billion (USD 102.4 million) for each
park. Suvrathan said that MOFPI will launch the first five soon,
including parks in Andhra Pradesh, Maharashtra, and Jharkand. In
addition to cold-chain development, MOFPI hopes the parks will help
facilitate communication between farmers and retailers, and he said
that the Ministry might move on to marine parks if the initial parks
are successful. Suvrathan suggested that these parks represent an
excellent opportunity for foreign investors.

BOEING AND TALMSL PARTNER
ON MANUFACTURING
--------------


10. (U) On Wednesday, Boeing Company and TAL Manufacturing
Solutions Ltd. (TALMSL),a subsidiary of Tata Motors, agreed to work
together on the manufacture of structural components for the 787
Dreamliner airplane. The newly formed partnership calls for TALMSL
to build floor beams using advanced titanium and composite

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materials. The floor beams will be manufactured in TALMSL's
facility in Nagpur and then transported to Boeing partners in Japan,
Italy, and the U.S. for assembly. Carolyn Corvi, Vice-President and
General Manager of Airplane Programs for Boeing Commercial
Airplanes, hoped that the new partnership between Tata Motors and
Boeing would "increase the value of the 787 to our customers,
helping to make it the world's leading commercial airplane."

WIPRO TO ENTER DEFENSE MARKET
--------------


11. (U) Wipro, India's third largest software services company,
announced that it plans to build electronic warfare systems, radars,
flight stimulators, and other defense-sector communication systems
for U.S. defense contractors such as Lockheed Martin and Northrop
Grumman. Under the GOI's defense policy, foreign contractors must
source components and systems from Indian companies for at least 30%
of the value for orders from the Indian military of over INR 3
billion (approximately USD 77 million),and Wipro is pursuing offset
contracts in anticipation of increasing defense revenues. India is
expected to import USD 30 billion in defense equipment through 2012,
particularly multi-role fighter jets, artillery, helicopters, and
long-range maritime spy aircraft, and the Ministry of Defense
projects that Indian companies will receive offset contracts from
global military equipment makers for a total of INR 400 billion (USD
10.3 billion) through 2011. Wipro has already taken the first step
in asking the GOI for permission to enter defense production through
offset contracts.


12. (U) Finance Minister Chidambaram expects India's economy to
grow at 9.0 percent in 2007-2008, with the help of rising foreign
and domestic investment, and stated that he is prepared to make
rapid policy adjustments to sustain high levels of growth in a time
of global economic uncertainties.

HYUNDAI OPENS NEW FACTORY;
SOME WORKERS PROTEST
--------------


13. (U) Hyundai inaugurated its second automobile manufacturing
facility in Chennai, which will ramp up the Korean carmaker's India
production capacity to over 500,000 units per year, mainly for
export. The new facility, collocated with Hyundai's existing plant,
will produce 57 cars an hour and employ an additional 7500 workers.
With this USD 1 billion investment, Hyundai's total stake in Chennai
is now USD 1.73 billion. The gala opening of the facility, attended
by Consulate Chennai, featured both the head of Hyundai Motors and
the Chief Minister of Tamil Nadu.


14. (U) During the opening ceremonies, some 100 workers fired by the
company for "poor performance" staged a demonstration at the plant.
Police detained them for demonstrating without a permit, but
released them after the ceremony. Local trade union leaders allege,
however, that the company gave the workers their pink slips because
they attempted to form a union at the factory.

INTEL ENTERS LOW-COST COMPUTING
WITH USD 1 BILLION INVESTMENT
--------------


15. (SBU) Chipmaker Intel is formally entering the low-cost
computing market. Intel India's head of corporate affairs told
Consulate Chennai that the company plans to invest USD 1 billion
over three years to work with Indian hardware vendors like HCL,
Wipro, and Zenith to produce low-cost, light-weight computer
platforms that will enable customers to access the web cheaply.
Intel also plans to work with local assemblers to develop both
technical and marketing capacities. Intel will also focus its
investment on developing low-cost WiMAX (a wireless
telecommunications technology intended to replace cable and DSL)
capabilities. On the corporate social responsibility front, Intel

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signed a memorandum of understanding with the Tamil Nadu government
to provide low-cost internet connectivity to 22 schools across the
state.

CHENNAI TO GO AS SMOKELESS AS NYC
--------------


16. (U) Local press reports that the government of Tamil Nadu plans
to turn the state into a (tobacco) smoke-free zone by 2010, with the
help of funds provided by New York City Mayor Michael Bloomberg.
Tamil Nadu's director of public health told the press that his
department had secured a slice of the USD 125 million offered by the
New York City administration to battle tobacco. Tamil Nadu, which
already bans smoking in public places, will use the funds to
increase awareness and enforce the law more vigorously.

NEW SURVEY ON "HOW INDIA EARNS,
SPENDS AND SAVES"
--------------


17. (SBU) Montek Singh Ahluwalia, Deputy Chairman of the Planning
Commission, this week released a report on a 2005 survey conducted
by Max New York Life and National Council of Applied Economic
Research (NCAER) on "How India earns, spends and saves" to
understand the changes in income trends. The sample size used for
the survey included 63,016 households in 24 states out of which
31,446 were rural and 31,570 urban. The survey indicated that
around 22.3% households control 51% of India's total income. This
group's per capita income is $829 annually, about nine-times the
lowest income level-segment of 17.9 per households whose annual per
capita income is $88. Urban family income stands at $2396/year which
is 85% higher than the rural family income of $1298/year. Delhi is
the richest state with an annual average per capita income of $728,
versus Bihar, the poorest state, with a per capita income of just
$156. According to Max New York Life-NCAER survey, using state-wise
expenditure poverty lines for FY 2004-05, 20.8% of the population or
214 million people are poor, while the most recent consumption-based
poverty assessments indicated 26 percent of Indians were below the
poverty line. The incidence of rural income poverty is 21.7% versus
urban poverty at 18.7%.


18. (SBU) An average Indian spends at least 12.2% of his income on
weddings and social ceremonies. About 81% of the Indians save for
the future out of which 63% of the households save for social
ceremonies. Income level influences the saving pattern, while
savings behavior is decided by education levels and occupation. An
average urban family saves about $669 while a rural one saves $290
on an average. Due to the lack of an efficient social security
system, over 80% of Indians save but less than a fourth of these
savings are done in financial instruments. While two-thirds of all
savings are kept in the form of liquid cash - cash, bank and post
office deposits - around one-fifth of all investments are in the
form of premiums on insurance policies, as compared to just 70% in
the case of shares and debentures.


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

MULFORD