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
JANUARY 27 TO JANUARY 30, 2009


1. (U) Below is a compilation of economic highlights from Embassy
New Delhi for the week of January 27-30, 2009, including the
following:

-- Govt, Central Bank Lower GDP Projections
-- Study Projects $6-10 billion for India from EU FTA
-- Study Projects Continued Growth in Higher-Income Households
-- GOI Official Arrested for Drug Smuggling
-- Cabinet Clears Infrastructure Projects worth $7 billion
-- Karnataka Government to Build High Speed Rail Link
-- IT Titans Slug it Out for Fidelity

Govt, Central Bank Lower GDP Projections
--------------


2. (U) The Prime Minister's Economic Advisory Council (EAC) issued
its semi-annual "Review of the Economy," revising downward its GDP
growth projection from 7.7% (made last August) to 7.1% for the
current fiscal year, which ends March 31. While this comes closer
to private sector and IMF projections in the 6-7% range, it still
remains slightly more optimistic than consensus projections. The
EAC is more upbeat about the services industries, expecting more
than 9% growth in the subsectors of hotel and transport and finance
and insurance, sectors apparently hit hard by both the financial
crunch and the world economic slowdown. More surprising is the
EAC's forecast that growth in India's fiscal year 2009/10 (April 1
to March 31) will range between 7-7.5%, when the IMF and private
analysts are calling for India's growth to be closer to 5.5%. The
EAC argues that global capital markets will improve before global
demand does, allowing India to more quickly recover, combined with
what it deems a sufficient fiscal stimulus to sustain domestic
demand and growth.


3. (SBU) India's central bank, the Reserve Bank of India (RBI),also
issued downgraded GDP projections as part of its scheduled quarterly
policy review, released January 27. The RBI lowered its
expectations for India's economic growth rate for the current fiscal
year from 7.5-8% to 7%, again slightly higher than most market
projections. The RBI pointed to several recent business expectation
surveys, where industrialist outlook had declined since October

2008. Surprising some (market expectations were mixed),the central
bank left all policy rates unchanged, although consensus supports
room for more interest rate reductions, as inflation continues to
moderate. (Note: Some analysts expect inflation to turn negative
for several months in April-June quarter. End note.) The market
sense is that more interest rate reductions are in store in the next
several months, perhaps by end-February, as expectations rise that
national parliamentary elections will be called then.

Study Projects $6-10 billion Gain for India from EU FTA
--------------


4. (U) A European Commission-sponsored study conducted jointly by
the Netherlands-based research organization ECORYS, and India-based
organizations Center for Trade and Development (CENTAD) and Consumer
Unity & Trust Society (CUTS),has projected substantial Indian gains
from a Comprehensive Economic Partnership Agreement (CEPA) with the
EU. The EU and India launched talks on the CEPA - roughly
equivalent to a comprehensive free trade agreement - in 2007.
Negotiations have lagged since then, missing a 2008 year-end target
date for completion.


5. (U) The study projects the CEPA could add 4.9-7.7 billion euros
(about $6.3 - $10 billion) to Indian GDP, depending upon four
different scenarios of relaxed trade conditions while gains for the
EU will be a maximum of 4.4 billion euros ($5.6 billion). The
proposed CEPA will cover liberalization of goods trade through
reduced or zero tariffs, greater market access for services, and
easier investment norms. However, the agricultural sector is
entirely excluded from the CEPA. In terms of overall export growth,
the study projects that the agreement could add 5 to 10 percentage
points to India's overall export growth depending on what amount of
goods are freed for zero import duty trade. 21 per cent of India's

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exports go to the EU, but this share accounts for less than 2 per
cent of the EU's total imports.


6. (U) While the study points out gains in specific sectors like
textiles, it also projects possible job losses because of the impact
of the agreement on sectors such as automobiles and food processing.
According to the joint study, the Indian apparel sector could be
one of the main beneficiaries of the CEPA. In the auto and auto
component sectors, the study projects Indian exports growing 7-13
per cent due to the agreement; but imports will also increase in the
range of 30-47 per cent. Some job losses are also expected in the
automobile space as inefficient producers are expected to be wiped
out. In addition, some local trade experts feel that the Indian
food processing industry could be adversely impacted because of
cheap imports.

Study Projects Continued Growth in Higher-Income Households
--------------


7. (U) According to an analysis conducted by the National Council of
Applied Economic Research (NCAER) the number of low-income
households (annual income less than 71,000 rupees or $1,450) in
India dropped 11 percent between 2005 and 2008. The study projects
that fiscal year 2009-10Qll witness the number of high-incomeQuseholds (approximately 46.7 million earning more than 2.85 lakh
rupees or $5,800/year) outnumbering low-income households (about 41
million) in India for the first time ever with over five million
mid-income households (those earning between $1,450 and $5,850)
moving into the high-income group. In addition, the number of
middle-income households is projected to rise to 140.7 million for
2009-10 from 138.4 million in 2008-09. The NCAER analysis was based
on the assumption of Indian GDP growth of 6.7 percent for 2008-09
and 5.7 percent for 2009-10, taking into account the expected
slowdown in growth from the global recession.

GOI Official Arrested for Drug Smuggling
--------------


8. (U) Saji Mohan, a 1995 batch IPS officer from the J&K cadre was
arrested in Mumbai on January 24Qth over 38 kilograms of heroin.
Saji was a former zonal director of the Narcotics Control Bureau
(NCB) Chandigarh from 2007 to 2008 before he was transferred to
Kochi in Kerala on December 31, 2008 as Deputy Director of the
Enforcement Directorate. He was arrested by the Maharashtra Anti
Terrorism Squad (ATS) for allegedly running a drug racket. While he
was with the NCB, a large consignment of heroin, weighing about 50
kg was seized under his supervision. According to the ATS, Mohan
illegally set aside several kilograms of heroin and the racket was
exposed by two of Mohan's agents who were arrested on January 17
while trying to "circulate" the heroin.

Cabinet Clears Infrastructure
Projects worth $ 7 billion
--------------


9. (U) As part of the GOI effort to boost the slowing economy, the
Indian Cabinet Committee of Economic Affairs (CCEA) on January 28
cleared infrastructure projects worth approximately USD 7 billion.
One of the major projects includes an investment of USD 3 billion
for a Chennai metro project which is scheduled for completion in
2014-15. The metro's total length will be 45 km, of which 21 km
would be elevated and the remaining 24 km underground. Funding for
the project will be divided equally between the central government
and the Tamil Nadu state government. The project's special purpose
vehicle (SPV) has secured 59 percent of the funding through a
development assistance loan from the Japanese International
Cooperation Agency (JICA).


10. (U) The Cabinet also approved the Delhi Metro Railways Amendment
Bill of 2009 which significantlQimits legal challenges to the GOI
project extending the meQ into Noida and Gurgaon. This is an
effort by the central government to remove a key legal barrier to
construction delays ahead of the scheduled completion of the project

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in 2010 for the Commonwealth Games. The committee also approved
road projects valued at USD 4 billion for six-lane highways of nine
stretches totaling 1409.93 km which will be built on Design, Build,
Finance, Operate, and Transfer (DBFOT) basis under Phase V of the
National Highways Development Project (NHDP). This includes
important stretches such as the Delhi-Agra, Kishangarh-Udaipur, and
Vijayawada-Elluru-Rajahmundry routes. Another major road project
includes the four-lane highway of the Vijayawada-Machilipatnam
section of national highway 9 in Andhra Pradesh under Phase III of
the NHDP on a DBFOT basis. The Cabinet also cleared FDI of
approximately USD 200 million for the Krishnapatnam Port Company
Ltd, which is currently developing the Krishnapatnam port area in
Andhra Pradesh.

Karnataka Government to Build High Speed Rail Link
-------------- --------------


11. (SBU) Karnataka's government made a formal decision on January
22 to construct a high-speed rail link between Bangalore's central
business district and its new airport 40 kilometers to the north.
Initial plans to build the link as a public-private partnership
floundered as the private partner proved unable to raise requisite
funds. A top Government of Karnataka Finance Ministry official told
Consulate General Chennai that the state hopes to raise the
necessary funding from financial institutions owned by the central
government. An aide to Karnataka's Chief Minister told us that the
process of land acquisition for the project was still incomplete and
that a decision on the specific type of rail system has not been
reached. He did, however, tell us that he expects construction of
the project to start in mid-2009. (Comment: Given the obstacles
yet to be overcome in securing funding, procuring land, and deciding
on the appropriate system, expecting any real construction to begin
this year seems overly optimistic.)

IT Titans Slug it Out for Fidelity
--------------


12. (SBU) Infotech industry titans IBM and Infosys are locked in a
battle to acquire Fidelity Management and Research (FMR),the
research and analysis arm of Fidelity Investments centered in
Bangalore and Chennai. At stake is a highly prized army of more
than 2000 extremely skilled employees based in the two cities, as
well as business worth USD 250 million annually. News reports
suggest that the selling price will be in the USD 150 million to USD
160 million range, with a requirement that the buyer retain all of
FMR's staff for at least two years. An IBM executive told Consulate
General Chennai that Fidelity has been an IBM customer for over two
decades, enhancing his company's chances. An Infosys senior manager
told us, however, that his company placed a higher value on FMR
because of its top-notch talent, and was likely to be willing to pay
more than IBM. He noted that the eventual winner of this struggle,
whoever it might be, would add considerable expertise and ability,
allowing that company to move up the value chain.


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

MULFORD