Identifier
Created
Classification
Origin
09NEWDELHI1284
2009-06-19 11:47:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy New Delhi
Cable title:  

New Delhi Weekly Econ Office Highlights for the Week of

Tags:  ECON EAGR EAIR ECPS EFIN EINV EMIN ENRG EPET ETRD 
pdf how-to read a cable
VZCZCXRO3910
RR RUEHAST RUEHBI RUEHCI RUEHDBU RUEHLH RUEHNEH RUEHPW
DE RUEHNE #1284/01 1701147
ZNR UUUUU ZZH
R 191147Z JUN 09
FM AMEMBASSY NEW DELHI
TO RUEHC/SECSTATE WASHDC 7080
INFO RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RULSDMK/DEPT OF TRANSPORTATION WASHDC
RHMCSUU/FAA NATIONAL HQ WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE WASHDC
UNCLAS SECTION 01 OF 03 NEW DELHI 001284 

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 EMIN ENRG EPET ETRD
BEXP, KBIO, KIPR, KWMN, IN

SUBJECT: New Delhi Weekly Econ Office Highlights for the Week of
June 15 to June 19, 2009

UNCLAS SECTION 01 OF 03 NEW DELHI 001284

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 EMIN ENRG EPET ETRD
BEXP, KBIO, KIPR, KWMN, IN

SUBJECT: New Delhi Weekly Econ Office Highlights for the Week of
June 15 to June 19, 2009


1. (U) Below is a compilation of economic highlights from Embassy
New Delhi for the week of June 15-19, 2009, including the
following:

-- Inflation Hits Negative Territory
-- India Imposes Restrictions on Chinese Mobiles,
Extends Tight Norms on Toys and Dairy
-- Panel Advises Increase in Support Price for Rice
-- Rise of ATF Prices Lowers Airlines' Thin Profit Margins
-- CCI First Entree - State of Competition Conference
-- IT Industry Developing in Bhutan

Inflation Hits Negative Territory
--------------


2. (U) Government data for the week ending June 6 shows wholesale
price inflation (WPI) was negative for the first time in 30 years.
The WPI registered -1.61% for the first week of June, compared to
the same period the year before. Economists were expecting the WPI
to move into negative territory, given the high base effect of June
2008, due to the record high commodity prices at the time. The
negative inflation is expected to last 3-6 months, depending on the
extent to which the government decontrols energy prices and how much
the extraordinary monetary easing around the world translates into
inflationary pressures in the months ahead. Some economists expect
India's WPI inflation to hit 6-7% by March 2010. The last time
India experienced deflation was in the mid-1970s because of the oil

crisis.

India Imposes Restrictions on Chinese Mobiles,
Extends Tight Norms on Toys and Dairy
--------------

3. (U) The Commerce Ministry's Directorate General of Foreign Trade
(DGFT) imposed a ban on June 18, effective immediately, on imports
of Chinese mobile handsets without the international mobile
equipment identity number (IMEI). The move, according to press, is
a result of concerns raised by certain security agencies. Since
many sets without any 15-digit IMEI number have reportedly been
entering the Indian market from China, the authorities are said to
find it difficult to track the sale or usage of these cheap
unbranded sets. According to industry estimates, there are
approximately 30 million such phones in use in the country.

4. (U) In another precautionary measure, the GOI extended an
existing ban on import of dairy products from China for another six
months effective June 24, 2009. The import of milk and milk
products from China was banned in September 2008, following reports
of contaminated shipments to other Asian and African countries. The
DGFT notification specifies that dairy products include milk
chocolates and chocolate products and candies/ confectionary/ food
preparations with milk or milk solids as an ingredient. India does
not import milk/milk products from China as of now.

5. (U) The DGFT also banned until January 2010, in general, all
import of toys that do not meet international safety standards and
norms. India imposed a ban on Chinese toys in January on health
hazard grounds; however, the ban was later eased upon Beijing's
challenge on account of discriminatory treatment. The DGFT has now
amended and extended the March 2009 notification to include imports
of toys not carrying health safety certificates from all countries.
The move is expected to hit Chinese suppliers the most as more than
half of total toy imports by India are sourced from China.
According to the amended rules, the ban will not be applicable to
toys that come with a certificate from laboratories accredited to
the International Laboratory Accreditation Cooperation.
Panel Advises Increase in Support Price for Rice
--------------

6. (U) An official advisory panel, The Commission for Agricultural
Costs and Prices (CACP),has recommended increasing the minimum
support price (MSP) for unmilled rice and other grains for the
upcoming summer crop. CACP has recommended an MSP in the range of
Rs 950-980 per quintal (100kg),an increase of 5 percent over the
level in the previous year. MSP is the base price at which the
government procures grains from farmers to resell it to the poor at
subsidized rates through the public distribution system; MSP also

NEW DELHI 00001284 002 OF 003


sets the base price for private traders. The advisory agency has
also recommended higher MSPs for pulses and other grains as well.
Farmers in Punjab and Haryana, accounting for one-third of the
government's total rice procurement, have reportedly been
complaining of rising input costs. The move, if implemented, may
please farmers but it would increase the GOI's sizeable food subsidy
bill. In the previous fiscal 2008-09, the rice MSP was raised 20
percent to Rs 900 per quintal for common varieties and Rs 980 per
quintal for grade A varieties. Panel recommendations will be
considered by the Indian Cabinet in the coming weeks although they
are not binding on the government.

7. (U) Agriculture trade experts are divided on these
recommendations. The Head of Agriwatch (a prominent research body
on commodities) has been quoted in media as saying that "There is no
need for MSP to rise," since the government achieved record
procurement last year at Rs 850 a quintal. However, the chief
economist at the National Commodity and Derivatives Exchange (NCDEX)
has commented that "an upward revision is required, especially when
the Consumer Price Index for agricultural labor for 2008-09 has
risen by 9.5 percent over the last year."
Rise of ATF Prices Lowers
Airlines' Thin Profit Margins
--------------

8. (U) With the rise in crude oil prices to a seven month high of
$72 a barrel, government-owned oil companies (Indian Oil, Bharat
Petroleum and Hindustan Petroleum) have raised the price of aviation
turbine fuel (ATF) by 33% since March 2009. ATF prices have gone up
from $665 per kiloliter to $747 per kiloliter. Recovering from last
year's oil shocks, when crude oil peaked at $147 a barrel, air
carriers lowered their fares at the end of 2008 and into 2009 to
attract passengers and improve load factors. However, with ATF
prices spiraling again, most domestic carriers have announced
another round of fare increases. These latest moves will impact air
travel in India, since with higher airline prices, passengers may
once again shift back to other modes of transport, particularly
train travel. The airline industry in India is already battling
with overcapacity, rising debt, and falling passenger growth, caused
in part by the global financial slowdown. While the industry is
taking measures to bring down operating costs, the rise in ATF
prices will directly affect airlines and their thin margins given
that jet fuel costs comprise almost half of airlines' operating
costs.
CCI First Entree - State of
Competition Conference
--------------


9. (U) The newly operational Competition Commission of India (CCI)
held its first National Conference on the "State of Competition in
the Indian Economy" on June 11-12 in New Delhi. The two day
conference, organized in collaboration with the World Bank and the
UK's Department of International Development (DIFD),brought
together national and international competition policy and law
experts to discuss a variety of competition issues in Indian
markets. CCI organized this conference as part of their competition
advocacy mandate and to assist in capacity building for research on
competition issues as well as to enable the Commission to better
understand the state of competition in different sectors of the
Indian economy. Eventually the results of the studies commissioned
by the Commission will be used for competition advocacy with central
and state governments and with industry.


10. (U) Inaugurating the conference, the Minister of State for
Corporate Affairs Salman Khurshid emphasized the GOI's primary
objective, to promote "growth with equity." Towards that end, he
expects CCI to play a crucial role in promoting and ensuring free
and fair competition in the market. Khurshid expressed strong faith
in CCI's work on competition advocacy and in achieving the
objectives of the 2002 Competition Act. CCI Chairman Dhanendra
Kumar reiterated that the function of the Commission is to help
Indian industry "perform better and create a better environment by
promoting competition" to benefit all stakeholders, including
companies and consumers. While assuring industry that the CCI would
not act as a roadblock, he clarified that the industry should also

NEW DELHI 00001284 003 OF 003


get used to this anti-trust watchdog.

IT Industry Developing in Bhutan
--------------


11. (U) Local media report the Bhutanese government has signed an
agreement with a leading Indian IT company, which it hopes will help
nurture an IT boom in the small developing country. On June 8, the
Bhutanese Government and leading Indian Business Process Outsourcing
(BPO) firm, Genpact, signed an agreement under which Genpact will
annually recruit 200 Bhutanese graduates from the Royal University
of Bhutan (RUB) to be trained and employed in India for two years.
After training, the students will return to Bhutan to work in
Genpact BPO centers. The agreement, along with the establishment of
a nationwide high speed broadband network and IT park that is
scheduled to be completed in two years, will help jumpstart an IT
industry. The Bhutanese government has prioritized the development
of its IT industry in hopes that it will alleviate unemployment.


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

BURLEIGH