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
June 22 to June 26, 2009


1. (U) Below is a compilation of economic highlights from Embassy
New Delhi for the week of June 22-26, 2009, including the
following:

-- India To Be Fastest Growing Economy in 2010
-- India Signals Openness to Re-Start
Doha Round Negotiations
-- GOI Announces New PPP Norms
-- GOI Announces Educational Reforms Agenda

India To Be Fastest Growing Economy in 2010
--------------


2. (SBU) The World Bank updated its Global Development Finance
publication this week and predicted that India will surpass China to
be the fastest growing economy in the world in 2010. The
development bank forecast Indian growth at 8% with China's economic
growth a bit slower at 7.5%. The forecast for both the countries in
2011 was to hit 8.5% growth, as the bank expects most of the global
economy to return to normal by then. If the World Bank's forecast
proves true, this would mark the first time in decades that India's
growth outpaced China's. This year, most local economists expect
India to grow between 6.5-7%.


3. (SBU) Such growth may be threatened, however, if the summer
monsoon rains do not start up soon. The rains, on which much of the
summer crops are dependent, were expected to begin around June 13,
but they are now nearly two weeks late. Although agriculture
contributes less than 20% to GDP, it is the source of employment to
more than half the labor force. Citi estimates that a bad monsoon,
depending on how delayed it is and how deficient the amount of
rainfall, could cut GDP in the coming year by 50 to 100 basis
points.

India Signals Openness to Re-Start
Doha Round Negotiations
--------------

4. (U) Media reported extensively Commerce Minister Anand Sharma's
take on the multilateral trade talks. Since the time of his taking
over the charge in the Commerce Ministry of the newly formed
government of India (GOI),the minister has been making positive
statements on the revival of the WTO talks. With the economic
downturn in the global economy, India views an opportunity in the
successful completion of the Doha round of talks; however, India has
not indicated a definitive position on the contentious agriculture
market access and NAMA issues. After his recent meeting with USTR
Kirk in Washington, Sharma has been quoted as saying that, for now,
the GOI's focus is not so much on the details, but on reviving the
process. He told media that in the "present economic backdrop,
there is a need to re-energize and not re-invent, since much effort
has been invested over years to reach a broader convergence on a
large number of issues."

5. (U) After his recent remarks in Washington that New Delhi is
ready for "give and take" without being "frozen in [a]
pre-negotiating position" in the interest of global trade, and the
initiative of his ministry to call off the impasse in negotiations,
there were speculation, in general, that India is ready to offer
concessions and has softened its position. Clarifying his stance on
the talks, Sharma has told media that India's position would
continue to be guided by national interest, especially "livelihood
concerns and subsistence farmers." Commenting on the two draft
reports of the working group on agriculture and NAMA, Sharma earlier
indicated that these drafts may be used as the "base" for the
resumption of multilateral talks. According to press reports,
Sharma will convey India's position at the upcoming OECD meeting,
and will also meet his counterparts from France, Australia and
Canada.
GOI Announces New PPP Norms
--------------


6. (U) The Ministry of Finance (MOF) has revised the Request for
Qualification (RFQ) norms for public private partnership (PPP)
projects. Under prior norms, a prospective bidder needed to

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demonstrate execution of projects equivalent to the cost of the
proposed project in the last five years. Per the new norms, the
threshold technical capacity of bidders has been enhanced by almost
twice the estimated cost of projects under the PPP model. For
example, a developer bidding for a PPP project worth Rs 500 crore
(USD 100 million) should have a record of executing projects worth
at least Rs 1,000 crore (USD 200 million). The cross holding limit
for investors has also been raised to 5% from the prior 1%.
Therefore, an investor holding equity in two companies, which are
partners in a project, can now hold up to 5 percent in each company.
However, financial institutions are exempt from this rule.
Increasing the cross holding limit is expected to improve investor
confidence and bring in more investments.


7. (U) In addition, each of the members of a consortium, in
addition to holding 26 percent equity in the special purpose vehicle
floated to bid for the project, will also be required to hold equity
equal to at least 5 percent of the total project cost for a period
of two years after the commissioning of the project. The norms have
also increased the number of short-listed bidders from five to six
for projects over INR 500 crore (USD 100 million) and from five to
seven for projects under 500 crore (USD 100 million) or for
repetitive projects, although this relaxation of sorts is seen as
counter-productive by the industry.


8. (U) The GOI continues to retain its authority to restrict the
number of projects awarded to a single bidder. Though this limit
seems to be a move by the GOI to prevent cartelization, it is also
seen as a retrograde step by industry. According to industry,
establishing a threshold criterion will be enough of a deterrent for
trivial bidders. Many analysts continue to argue that retention of
these two clauses will continue to create confusion with
infrastructure project bids and lead to delays which have repeatedly
plagued the road development sector. These factors have made it
difficult for the National Highways Authority of India (NHAI) to
attract road and highway project bids. From here forward, the
pending thirty-seven road sector projects, which will adhere to
these new bidding norms, will provide an interesting test case for
the GOI to determine the efficacy of the new PPP norms.


GOI Announces Educational Reforms Agenda
--------------

9. (U) Announcing a 100-day mandate for his ministry, the new Human
Resource Development (HRD) Minister Kapil Sibal, on June 25 declared
his plans to allow foreign direct investment (FDI) in education.
Sibal, known for strongly favoring FDI in India's education sector,
told press reporters that "FDI must come into India. Entry into the
education sector must neither be limited nor over-regulated. I want
the system to be accessible from outside too." He stated that
allowing private investment, including FDI, in education "does not
mean you have fly by night operators. The country should not
prevent quality learning from coming". Explaining his position, he
pointed to a significant number of Indian students studying abroad
(160,000) at an overall cost of seven billion dollars, visa
problems, and issues like the recent attacks on Indian students in
Australia. He further reasoned "When the demand exists, why should
we send our children out? Foreign universities can come at our
doorstep; India has the potential to become a global provider of
quality graduates."

10. (U) Elaborating on his plans for revamp of the education
system, the minister has reportedly said that he would take forward
the Foreign Educational Institutions (Regulation of Entry and
Operations, Maintenance of Quality and Prevention of
Commercialization) Bill, which was cleared by the cabinet in
February 2007 but has been stalled. The pending legislation seeks
to permit but regulate the entry, operation and maintenance of
foreign education.

11. (U) Countering claims of the political opposition on the
subject, Sibal emphasized that "The Left is not against foreign
universities per se; they are concerned about fly by night
operators. Everything has to be regulated and it will be." He made
it clear that the government cannot handle everything, and the

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players will include corporate investment in school education, joint
ventures, public-private partnerships. Another important step
forward that the HRD Minister announced includes structural reforms
to relax procedures and to end the licensing regime in the sector.

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

BURLEIGH