New Delhi Weekly Econ Office Highlights for the Week of

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E.O. 12958: N/A
TAGS: ECON EAGR EFIN EPET ETRD BEXP KIPR IN XB XA

SUBJECT: New Delhi Weekly Econ Office Highlights for the Week of
August 3-7, 2009

REFTEL: A. NEW DELHI 368

B. NEW DELHI 435

1. (U) Below is a compilation of economic highlights from Embassy
New Delhi for the week of August 3-7, 2009, including the
following:

-- Exports Decline for 9th Straight Month; Imports Decline More
-- Possible Law to Clarify Sector-specific Investment Caps
-- India and South Korea Sign Trade Agreement
-- India Still "Gathering Information" on EU Drug Seizures
-- India and Nigeria Sign Deal on Pharmaceutical Exports

Exports Decline for 9th Straight
Month; Imports Decline More
--------------


2. (U) India's exports shrunk for the ninth consecutive month in
June 2009, falling by 28 percent compared to the same month last
year primarily due to the continued slowdown in the United States
and the European Union. Sectors most hit by the global slowdown
continue to be labor-intensive ones including leather, textiles,
handicraft, gems and jewelry. Imports contracted by 29.3 percent
led by a 51 percent decline in oil imports, reflecting a slowdown in
domestic consumption. With imports declining at a faster rate than
exports, the trade deficit narrowed to $6.2 billion in June 2009 as
compared to $9.1 billion in June 2008. On a cumulative basis,
exports in the first quarter of FY 2009-10 (i.e. April 1 to June 30,
2009) were down 31 percent compared to Q1 of FY 2008-09, while
imports were down 36.5 percent. The trade deficit for Q1 FY 2009-10
was $15.5 billion, almost half of the deficit recorded during the
same period last year.

Possible Legislation to Clarify
Sector-Specific Investment Caps
--------------


3. (U) According to media reports, new legislation is being proposed
to clarify foreign direct investment (FDI) and sector-specific
investment caps. According to the report, the clarification would
be implemented through an act of Parliament, instead of tinkering
with the investment regime through press notes, executive orders,
and other ad hoc measures. (Reftels A and B).


4. (U) Comment: Clarity on the sectoral FDI caps would be welcome;
liberalization or elimination of the caps would be even better. At
this point, no details have been made public. The report appears to
be a continuation of the running debate on the treatment of foreign
investment between the Ministry of Finance, the Reserve Bank of
India (RBI),and the Ministry of Commerce and Industry. Post will
continue to monitor possible investment-related legislation, but
given the lack of progress in Parliament on other economic reform
laws such as the insurance bill, we are not holding our breath.

India and South Korea Sign Trade
Agreement
--------------


5. (U) India signed a pact with South Korea on Friday morning that
will eliminate duties at a slower pace than the U.S.-South Korea
Free Trade Agreement signed in June 2007 (but not yet ratified by
Congress),according to media sources. The Comprehensive Economic
Partnership Agreement (CEPA) is expected to eliminate 75 percent of
India's duties on South Korean imports, while South Korea will cut
93 percent of its duties on Indian products. Bilateral trade
between the two countries was $15.6 billion in 2008, just 2 percent

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of South Korea's total trade and less than one-fifth of U.S-South
Korea bilateral trade of $82.7 billion. The agreement should
benefit South Korea's auto parts industry and India's service sector
(South Korea has agreed to allow access to Indian IT professionals
but not to nurses and doctors),but provide very little market
opening in agriculture and forestry. It does not include rice,
pork, chicken, most tropical fruits, and other sensitive products.
(Comment: The GOI continues to make very slow, incremental gains in
market opening via bilateral and regional trade agreements, rather
than making progress on a multilateral front. End Comment).

India Still "Gathering Information"
on EU Drug Seizures
--------------


6. (U) Local media report that the GOI continues to consider
approaching the dispute settlement body of the WTO to protest
seizures of Indian medicines at various European ports. Although
the seizures were carried out on charges of intellectual property
rights violations within EU countries, Indian pharmaceutical
companies contend that since the drugs were in transit to other
markets (primarily in Africa and South America),the shipments were
illegally seized. Currently, the GOI is gathering information on
the seizures. According to the Indian Pharmaceutical Export
Promotion Council (Pharmaexcil),five cases, involving drug-makers
Cipla, Dr. Reddy's, Aurobindo, and Ind-Swift, have been brought to
the Ministry of Commerce's attention. The Department of
Pharmaceuticals is also pushing for the Ministry of Commerce to
provide reimbursements to Indian drug companies who now pay
additional freight to avoid transshipping Indian pharmaceuticals
through the European Union to South America and Africa. (Note:
While a potential WTO case has been reported several times by local
media, other than comments that the GOI is collecting information,
no other statements regarding a pending case have been mentioned by
GOI officials. End Note.)

India and Nigeria Sign Deal
on Pharmaceutical Exports
--------------


7. (U) On August 3, the Department of Pharmaceuticals (part of the
Ministry of Commerce) signed an agreement with the government of
Nigeria to combat counterfeit drugs in the Nigerian market. As part
of the agreement, Nigeria's National Agency for Food and Drug
Administration and Control (NAFDAC) will open offices in India.
Nigeria, the ninth biggest export destination for Indian
pharmaceutical products, will also collaborate with India to set up
a drug-testing center in Nigeria. Both governments will work to
encourage Indian drug companies to set up manufacturing units in
Nigeria and explore whether or not drug-makers can supply low-cost
drugs to the Indian government. (Comment: Last May, Nigerian
officials seized fake Chinese anti-malarial drugs carrying a
"Made-in-India" tag. India's outreach efforts to Nigeria likely
stem from concerns that African countries, which comprise 18 percent
of the Indian pharmaceutical market, are beginning to doubt the
quality of Indian pharmaceutical goods. End Comment.)


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


ROEMER