NEW DELHI WEEKLY ECON OFFICE HIGHLIGHTS FOR THE WEEK OF MAY

UNCLAS SECTION 01 OF 03 NEW DELHI 001048 SENSITIVE SIPDIS STATE FOR SCA/INS AND EEB USDOC FOR ITA/MAC/OSA/LDROKER/ASTERN/KRUDD DEPT OF ENERGY FOR A/S KHARBERT, TCUTLER, CZAMUDA, RLUHAR DEPT PASS TO USTR CLILIENFELD/AADLER/CHINCKLEY DEPT PASS TO TREASURY FOR OFFICE OF SOUTH ASIA MNUGENT TREASURY PASS TO FRB SAN FRANCISCO/TERESA CURRAN USDA PASS FAS/OCRA/RADLER/BEAN/FERUS EEB/CIP DAS GROSS, FSAEED, MSELINGER E.O. 12958: N/A TAGS: ECON EAGR EAIR ECPS EFIN EINV ELAB EMIN ENRG EPET ETRD, BEXP, KBIO, KIPR, KWMN, IN SUBJECT: NEW DELHI WEEKLY ECON OFFICE HIGHLIGHTS FOR THE WEEK OF MAY 18 TO MAY 22, 2009 ¶1. (U) Below is a compilation of economic highlights from Embassy New Delhi for the week of May 18-22, 2009, including the following: -- Ministry of Finance Reorganization -- Insurance Bill Passage Likely in Winter Parliament -- CCI Goes Live -- India Notifies Initiation of Safeguard Duty Investigations -- Nath Says India to Work on FDI Irritants -- Exporters Demand Another Stimulus Package -- Two-day MTNL Strike Disrupted Delhi's Communication Networks Ministry of Finance Reorganization -------------- ¶2. (SBU) Ministry of Finance contacts have confirmed to Emboffs recent media reports that the newly appointed Finance Secretary Ashok Chawla is reorganizing several Joint Secretary portfolios to create a division of infrastructure and investment. This reflects the greater push that the government wishes to give to infrastructure development, as bureaucratic hurdles and the global financial crisis have crimped performance in key infrastructure sectors. Joint Secretary Govind Mohan will now head investment in the MoF, including the Foreign Investment Promotion Board (FIPB) and bilateral investment treaties. His division will also handle infrastructure policy-related issues in the areas of railways, telecom, roads, ports, shipping, civil aviation, power, coal, energy and water transport, as well as all mergers and acquisitions of an Indian company. Foreign investment policies will continue to be framed as before by the Department of Industrial Policy and Promotion under the Ministry of Commerce and Industry. Joint Secretary Anup Pujari, who was head of investment, the FIPB and bilateral investment treaties, will now oversee India's engagement with multilateral organizations, including the World Bank and IMF. Joint Secretary Alok Sheel, who had some overlapping responsibilities, will now focus on G-20 issues. Insurance Bill Passage Likely in Winter Parliament -------------- ¶3. (SBU) An insurance contact told Econoff that he heard from the Ministry of Finance this week that they expect the Insurance Amendment Bill, which raises the foreign direct investment cap from 26% to 49%, and was just introduced in the February Budget Session of Parliament, to be sent to the Standing Committee on Finance by June 15. The Standing Committee would have three months to issue its report, a standard step in passage of legislation. The government could then finalize the bill and offer it for passage in the Winter Session of Parliament, which usually starts in early to mid November. CCI Goes Live -------------- ¶4. (U) India's new competition body, the Competition Commission of India (CCI),became operational on May 20, 2009. The GOI notified certain provisions of the Competition Act 2002 relating to anti-competitive agreements and abuse of dominant market position, which gives CCI the power to commence enforcement actions. However, the GOI has yet to notify sections dealing with mergers and acquisitions, although it is expected that these sections will eventually be notified. In addition to appointing a CCI chairman and two members in February, the GOI has also established a Competition Appellate Tribunal. The tribunal will be headed by retired Supreme Court of India Justice Arijit Pasayat. The tribunal will hear appeals of the decisions of the CCI and also adjudicate compensation claims related to anti-competitive practices. The CCI would ultimately replace the Monopolies and Restrictive Trade Practices Commission (MRTPC). The MRTPC will continue to deal with pending cases on its docket for two years before being wound up. No new cases will be adjudicated by the MRTPC. India Notifies Initiation of NEW DELHI 00001048 002 OF 003 Safeguard Duty Investigations -------------- ¶5. (U) India has notified its decision to initiate investigations that could result in the imposition of safeguard duties on hot-rolled steel, certain automobile parts, acrylic fiber, and coated paper at the World Trade Organization (WTO). In the notification submitted to the WTO, India reportedly indicated that domestic industry, in all four cases, has claimed that their sales have dropped because of a surge in imports which has caused injury (losses and market disruption) to them. Despite the WTO notification, the GOI's Board of Safeguard Approvals (a body of secretaries headed by the Commerce Secretary) recently rejected applications for the imposition of interim duties on the four products since the Board found insufficient evidence for the domestic industry's claims of injury due to import surges. The GOI's designated safeguards authorities had recommended imposition of the interim duties on the four products without consulting the user industry. The Board directed the safeguard authorities to consult with all stakeholders and the user industry to come up with findings. Nath Says India to Work on FDI Irritants -------------- ¶6. (U) Former Commerce Minister Kamal Nath told media this week that the new government will soon start work on removing procedural bottlenecks for foreign investors; however, allowing FDI in multi-brand retail will not be on its immediate agenda. Commenting on the trends in FDI inflows during the last year, he reportedly said that the FDI inflow to India has "not dried up ... but (getting it) has become competitive." Independent think-tank Indian Council of Research on International Economic Relations (ICRIER) conducted a government-sponsored study in 2008 on the impact of FDI in retail on neighborhood grocery shops, which highlighted that big stores and mom-and-pop shops (kiranas) can generally co-exist, with some negative impact to kiranas that are in close proximity to big store outlets. Exporters Demand Another Stimulus Package -------------- ¶7. (U) Facing its worst crisis in over a decade, India's dipping export sector is ready with a wish-list for the new government. Exporters have demanded a stimulus package including a 3-year tax holiday and subsidized loans for the textile sector. Some experts estimate there are nearly 20 million direct jobs in the industry. The Commerce Ministry is lobbying the Finance Ministry to approve the proposed tax concession and other similar measures to help assist India's exporters during the global downturn. India missed its export target for the previous fiscal year, registering only three percent growth for the year. Industry and the GOI have repeatedly attributed the dismal export performance to an appreciating rupee, falling global demand, the high cost of credit, and alleged protectionism by some economies. ¶8. (U) Some of the proposals the government is considering include increased duty drawback rates; exemption of fringe benefit tax and service tax for exporters to offset the cost of export marketing; cheaper export credit; tax benefit on investment in new plant and machinery; and creation of an export development fund. In addition, the Apparel Export Promotion Council (AEPC) requested fiscal incentives specifically for the garment segment of the textile sector, establishment of a product development fund, and simplification of export-import norms. Garment exports account for nearly six percent of India's total exports. Two-day MTNL Strike Disrupted Delhi's Communication Networks -------------- ¶9. (U) Except for top officials, most employees of the GOI-owned Mahanagar Telephone Nigam Limited (MTNL),which runs telecom and NEW DELHI 00001048 003 OF 003 Internet services in the country's two main metro cities Delhi and Mumbai, went on a strike on May 19-20 disrupting communications networks. The MTNL Executives Association demanded that the Sixth Pay Commission's recommendation of a 30% pay increase be implemented. The strike crippled landline phones and internet services affecting operations at the airport, banks, hospitals and other essential services. U.S. Embassy's local telephone lines experienced intermittent service outages. ¶10. (U) MTNL Chairman RSP Sinha said striking employees had cut or sawed telecom cables carrying Subscriber Trunk Dialing (STD) long-distance traffic and optical fiber cables carrying broadband traffic and direct-to-home (DTH) television services. The disruption of telecom and data services severely affected operations at Indira Gandhi International Airport, leading to flight delays of several hours. Internet services interruption also affected the sale of air tickets as many airline websites and travel portals went down. Card swiping machines at various outlets and petrol pumps stopped functioning. The MTNL Executives Association called off the strike on Wednesday (May 20) after the MTNL management agreed to resolve the pay revision issue, thereby allowing telecom services to return to normal. ¶11. (U) Visit New Delhi's Classified Website: http://www.state.sgov/p/sa/newdelhi. BURLEIGH