NEW DELHI WEEKLY ECON OFFICE HIGHLIGHTS FOR THE WEEK OF MAY

UNCLAS SECTION 01 OF 03 NEW DELHI 001048

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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

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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

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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