Identifier
Created
Classification
Origin
08NEWDELHI982
2008-04-03 11:05:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy New Delhi
Cable title:  

NEW DELHI WEEKLY ECON OFFICE HIGHLIGHTS FOR THE WEEK OF

Tags:  EAGR EFIN EINV EPET ETRD SENV IN 
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VZCZCXRO2084
RR RUEHAST RUEHBI RUEHCI RUEHLH RUEHPW
DE RUEHNE #0982/01 0941105
ZNR UUUUU ZZH
R 031105Z APR 08
FM AMEMBASSY NEW DELHI
TO RUEHC/SECSTATE WASHDC 1214
INFO RUEHCG/AMCONSUL CHENNAI 2742
RUEHCI/AMCONSUL KOLKATA 2042
RUEHLH/AMCONSUL LAHORE 4377
RUEHBI/AMCONSUL MUMBAI 1848
RUEHPW/AMCONSUL PESHAWAR 4821
RUEHIL/AMEMBASSY ISLAMABAD 4757
RHEBAAA/DEPT OF ENERGY WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RULSDMK/DEPT OF TRANSPORTATION WASHDC
RHMFIUU/FAA NATIONAL HQ WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE WASHDC
RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
UNCLAS SECTION 01 OF 04 NEW DELHI 000982 

SIPDIS

SIPDIS
SENSITIVE

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
USDA PASS FAS/OCRA/RADLER/BEAN/CARVER/RIKER

E.O. 12958: N/A
TAGS: EAGR EFIN EINV EPET ETRD SENV IN
SUBJECT: NEW DELHI WEEKLY ECON OFFICE HIGHLIGHTS FOR THE WEEK OF
MARCH 31 - April 3, 2008

REF: New Delhi 902

NEW DELHI 00000982 001.2 OF 004


UNCLAS SECTION 01 OF 04 NEW DELHI 000982

SIPDIS

SIPDIS
SENSITIVE

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
USDA PASS FAS/OCRA/RADLER/BEAN/CARVER/RIKER

E.O. 12958: N/A
TAGS: EAGR EFIN EINV EPET ETRD SENV IN
SUBJECT: NEW DELHI WEEKLY ECON OFFICE HIGHLIGHTS FOR THE WEEK OF
MARCH 31 - April 3, 2008

REF: New Delhi 902

NEW DELHI 00000982 001.2 OF 004



1. (U) Below is a compilation of Economic highlights from Embassy
New Delhi for the week of March 31-April 3, 2008, including the
following items:
--MCDONALD'S OPENS ITS FIRST OUTLET IN CHENNAI
--WIPRO RAMPS UP CHENNAI OPERATIONS
--GOA TO HAVE LARGEST OFFSHORE CASINO
--PLANNING COMMISSION'S FOCUS ON FINANCIAL SECTOR
--BUREAUCRATIC CHANGES AT THE MINISTRY OF FINANCE
--FOREIGN BORROWING BOOSTS EXTERNAL DEBT
--INFRASTRUCTURE FIRMS SHOW INTEREST IN AP REGIONAL AIRPORTS
-- SURGE IN INFLATION PUTS GOVT ON WAR FOOTING

MCDONALD'S OPENS ITS FIRST
OUTLET IN CHENNAI
--------------


2. (U) Chennai's first McDonald's opened on April 2, and Chennai
Consulate officers cut the opening ribbon and consumed the
restaurant's first french fries and Maharaja Macs. The outlet,
located in a food court in an information technology park near the
American International School, can serve more than 1200 meals per
day. The head of McDonald's India Corporate Affairs and Franchise
Relations relations office told Consulate Chennai that the company
plans to ramp up rapidly the number of outlets in the city, and
promised that Chennai's second McDonald's would open in
approximately six months. That facility, he said, would be a
stand-alone restaurant, in contrast to the current outlet, which
stands along side a KFC, Subway, and a few local restaurants.
McDonald's plans to supply its Chennai outlet through its central
warehousing facility in Bangalore until the there are enough outlets
in Chennai to justify a Chennai warehouse. McDonald's could start
sourcing some of its supplies in the area if demand from the

restaurants was enough to make this viable.


3. (U) In a good example of corporate social responsibility and a
clever PR move, the new McDonald's auctioned off it first vegetarian
burger, gaining Rs. 400,000 for charity. The winning bid came from
Saravana Bhavan, a Chennai-based chain of popular South Indian
vegetarian restaurants. Saravana Bhavan has followed the McDonald's
model by opening branches to feed dosa and idli-hungry Indian expats
in the Gulf countries, Canada and the U.S.

WIPRO RAMPS UP CHENNAI OPERATIONS
--------------


4. (U) Bangalore-based IT giant WIPRO announced on March 28 plans
to expand its Chennai operations. The company acquired a total of
170 acres of land at two locations in the city, which should be able
to accommodate 35,000 employees. A top WIPRO official told
Consulate Chennai that WIPRO had enjoyed 40 to 50 percent growth in
the domestic market with the telecom, financial, retail and
petroleum sectors being the main drivers. The domestic market, he
continued, contributes 18 percent of the company's revenues. Some
of the largest business deals that his business unit secured during
the past month were from domestic firms, he added.

GOA TO HAVE LARGEST OFFSHORE CASINO
--------------


5. (U) Press reported that Highstreet Cruises and Entertainment
Pvt. Ltd. is getting set to launch Casino Royale on Goa's Mandovi
River in May, avoiding India's ban on gambling by being located
offshore. Casino Royale will be located on a ship which will feature
rooms and suites to accommodate guests. Jaydev Mody, Highstreet
Cruises director, stated that the casino will be all-inclusive with
slot machines, restaurants, entertainment areas and live music. In
the next seven to eight months, Goa plans to construct four other
offshore casinos as the state government tries to lure Indian
gamblers back to India from Nepal where casinos have been legalized.

NEW DELHI 00000982 002.2 OF 004


Goa's economy is highly dependent on tourism and the state
government is hoping that granting five offshore casino licenses
will further boost tourism. Currently, Goa has one offshore casino,
Casino Goa. Bharatiya Janata Party (BJP)'s government decision to
permit casinos to operate in Goa when gambling is illegal in all
other states in India has prompted criticism from the Congress
Party. (Note: The Congress Party was the first to allow gambling in
Goa, when in 1992, it amended the Goa Public Gambling Act to allow
slot machines in five-star hotels. Later, table games were
permitted offshore, during the tenure of Congress chief minister
Pratapsingh Rane. The BJP opposed these developments at the time.
Nevertheless, after coming to power in Goa, BJP chief minister,
Manohar Parrikar granted a license for Casino Goa to commence
operations. End Note.)

PLANNING COMMISSION'S FOCUS
ON FINANCIAL SECTOR
--------------


6. (SBU) Press reports provided highlights on April 3 of a new
Planning Commission report on the services sector, which recommends
financial sector liberalization supportive of the government's
commitment towards reforms. Most of the measures have already been
debated for the past four years by the UPA government but have not
been implemented due to the Left party's opposition. Some of the key
recommendations suggested by the Planning Commission panel for the
banking sector include abolition of bank branch licensing, a gradual
reduction in the statutory liquidity ratio requirement for banks
from the current 25% and phasing out of directed priority sector
lending by banks. Consolidation in the banking sector, particularly
in mid-sized public sector banks, is emphasized to "leverage the
synergistic benefits" and to avoid duplication of investments in
technology and other infrastructure. The panel asks the government
to reduce its equity in public sector banks to 33% from the current
51% so that banks can raise capital.


7. (SBU) The panel also recommends that foreign investors be
permitted to hold 49% equity in domestic insurance firms, up from
the current 26%. Pension and provident funds should be allowed to
diversify their investment portfolios from the current excessive
share of government securities to various categories of corporate
debt, securitized paper and equity investments. On asset management,
the panel recommends that the regulations governing venture capital
and private equity funds need to be rationalized to help
institutional investors like banks, insurance companies and pension
funds to invest in this segment. For financial markets, the report
recommends that the debt capital market and securitization market
should be developed through affordable and uniform levels of stamp
duty and listing of securitization paper. Comment: Like the recent
reform suggestions in the Ministry of Finance (MOF)'s Economic
Survey, many of these changes are supported by the MoF and Prime
Minister Singh, but have been stymied by the Left. Also like the
Economic Survey, the new report's recommendations indicate the
direction the UPA's reformers would like to go, if allowed. End
comment.

BUREAUCRATIC CHANGES AT THE
MINISTRY OF FINANCE
--------------


8. (SBU) Effective April 1, Ms. Sushma Nath has been appointed the
new Expenditure Secretary at the Ministry of Finance, succeeding
Sanjiv Mishra. Nath, 57, is an Indian Administrative Services
officer of the 1974 batch from the Madhya Pradesh cadre. Prior to
that, she held the prestigious post of Secretary of the Sixth Pay
Commission, which recently submitted its recommendations for salary
hikes for the central government employees. Nath is expected to
draw on her first-hand knowledge of the Sixth Pay Commission survey
results to implement the recommendations in her new position. She
has held many senior assignments in her cadre state of Madhya
Pradesh. At the central level, Nath worked in a number of important

NEW DELHI 00000982 003.2 OF 004


positions including as Additional Secretary in the Ministry of
Agriculture and Joint Secretary at the Ministry of Consumer Affairs,
Food and Public Distribution and at the Department of Disinvestment,
Ministry of Finance. Ms Nath holds graduate degrees in law and in
chemistry and physics.


9. (SBU) On April 1, Vivek Mehrotra took over as the new Secretary
of the Department of Disinvestment of the Ministry of Finance,
relieving Finance Secretary Subba Rao of the additional charge he
had held since P.V. Bhide was appointed as the revenue secretary
last year. Mehrotra, 57 years old, is an Indian Administrative
Services officer of the 1974 batch from the Haryana cadre. Prior to
this position, Mehrotra was working as Special Secretary and
Financial Adviser at the Ministry of Home Affairs. He has served in
many key positions in his cadre state such as Finance Secretary and
Principal Secretary (Fisheries). Mehrotra has worked as Additional
Secretary at the Ministry of Finance, Ministry of Consumer Affairs,

SIPDIS
Food and Public Distribution and the Ministry of Home Affairs. He
holds postgradate degrees in economics and political science.
Filling the position adds to the government's signals that it
intends to start the disinvestment process in public sector
companies (reftel).

FOREIGN BORROWING BOOSTS
EXTERNAL DEBT
--------------


10. (SBU) A recent Ministry of Finance's report on India's external
debt indicates that the country's outstanding external debt rose to
$201.4 billion at end December 2007 compared with $169.7 at end
March 2007. The rise in external debt was mainly due to corporate
borrowings (through external commercial borrowings or ECBs),
short-term debt and rupee appreciation. However, India's foreign
exchange reserves at the end of 2007 provided a cover of 137% to the
total debt, totaling $275 billion (as of March, reserves had risen
to roughly $300 billion). Long-term debt accounted for 82.6% of the
foreign debt during April-December 2007. The share of government
debt in total external debt at end December 2007 stood at just $53
billion, while private debt was $148.5 billion. The report says that
the GOI continues to follow a cautious policy to maintain its
external debt within reasonable limits with a focus on raising
sovereign loans at concessional rates with longer maturities,
pre-paying high cost loans, regulating foreign borrowings,
rationalizing NRI interest rates on deposits, monitoring short-term
debt and encouraging non-debt creating capital flows. SEBI contacts
told Econoff in January that the RBI was averse to raising the cap
on foreign debt in India's private and public debt markets in order
to prevent higher debt levels. The government also maintains a
yearly cap on ECBs.

INFRASTRUCTURE FIRMS SHOW INTEREST
IN AP REGIONAL AIRPORTS
--------------


11. (U) In response to a state government tender to develop eight
regional airports in the state of Andhra Pradesh, as many as 37
infrastructure firms have put in bids. The regional airports in
Andhra would help further economic growth within the state and meet
growing demand for quick transportation. India currently has 80
fully functional airports equipped to handle commercial, charter,
and defense flights. Of these, 24 major airports together account
for 94 percent of total air traffic, with remaining traffic shared
by smaller or regional airports. Each of the planned regional
airports will have a 2500 meter runway to accommodate small aircraft
and will require an investment of around one billion rupees ($25
million) each. Industry estimates it could take two years from date
of award to completion of a project. Companies that have shown
interest in developing the airports include the UK-based Caparo
Group Ltd, GMR Infrastructure Ltd, Lanco Infratech Ltd, IVRCL
Infrastructures and Projects Ltd, Maytas Infra Ltd, Mukesh
Ambani-promoted Reliance Industries Ltd, Anil Ambani-led Reliance

NEW DELHI 00000982 004.2 OF 004


Airport Developers Pvt. Ltd, Unitech Ltd and Hindustan Construction
Co. Ltd. Project awards are anticipated in September 2008.

SURGE IN INFLATION PUTS
GOVT ON WAR FOOTING
--------------


12. (SBU) As a follow up to reftel on government anti-inflation
measures, the government convened a meeting of the Cabinet Committee
on Prices March 31 at the Prime Minister's residence, even as more
inflation data (for the week of March 15) showed wholesale prices
jumping to a 13-month high, politically dangerous level of 6.68%.
The RBI said the main impetus was a spurt in global prices for food,
fuel, and metals (Post will examine, septel, the combination of
factors behind the price rise and the outlook for the next few
months). As he announced new measures, Finance Minister Chidambaram
told press that the government would employ all available measures -
fiscal, monetary, and supply-side - to control prices.


13. (U) The new decisions included the total elimination of import
duties on unprocessed edible oils and maize, reduction to 7.5%
import duty on processed cooking oils, and an export ban on
non-basmati rice and pulses. Other actions the government has taken
recently include previous reductions to the import duty on refined
edible oil, banning the export of wheat and edible oils, and a
suspension of refunds on exports of steel, cement, chrome and
manganese ore. In addition, the government is looking to
administrative measures to curb inflation. The government has asked
states to limit privately held stocks of commodities, under the very
anti-market Essential Commodities Act. The government has also
asked steel producers to lower or at least maintain prices and is
threatening an export duty. Press also reported that the government
was planning to allow the January ordinance establishing the Forward
Market Commission's autonomy to lapse. Cement producers have also
been targeted; press reports indicate that cement exports may be
banned. In the meantime, the government is importing cement from
Pakistan to augment domestic supply.


14. (SBU) In the weeks ahead, all eyes will be on the central bank,
the Reserve Bank of India, as it readies its annual monetary policy
statement at the end of April. Market observers are speculating
that the RBI may raise interest rates or the cash reserve ratio
(CRR) or a combination of both, to take money out of the system.
However, some are arguing that the higher interest rates are not
worth the adverse impact on growth, given that 1) there is a timelag
between higher rates and lower inflation and 2) inflationary
pressures currently stem from supply-side constraints, and are not
demand-driven. While global commodity prices are not expected to
fall in the near term, some food prices in India are likely to go
down in April, as harvests start hitting the markets. Indian
futures prices of edible oils were down at the end of the week,
anticipating the duty cut impact.


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

WHITE