New Delhi Weekly Econ Office Highlights for the Week of

UNCLAS SECTION 01 OF 03 NEW DELHI 002013 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 MDELANEY/CLILIENFELD/AADLER 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 FSAEED, KDUNNE, AGIBBS E.O. 12958: N/A TAGS: ECON EAGR EAIR EFIN EINV ENRG ETRD BEXP PHUM PINR IN SUBJECT: New Delhi Weekly Econ Office Highlights for the Week of September 21-24, 2009 REF: NEW DELHI 1944 ¶1. (U) Below is a compilation of economic highlights from Embassy New Delhi for the week of September 21-24, 2009, including the following: -- AIG Downsizing In India -- Slow Going for Financial Sector Reform -- India Retains U.S. FAA Category 1 Status -- World Bank Approves $4.3 billion Loans for India -- Unique ID Program Taking Shape AIG Downsizing In India -------------- ¶2. (U) Media reports that American International Group (AIG) is planning to sell its 26 percent stake in Tata AIG Life Insurance to its Indian partner Tata, who owns the remaining 74 percent share in the life insurance business, for an estimated $165 million. Tata has not madea decision yet on whether to run the business itself or sell the 26 percent from AIG to other foreign partners. ¶3. (U) Tata AIG Life, headquartered in Mumbai, began operations in 2001 and now has a substantial customer base in life insurance operations in India, with assets worth Rs 100 billion ($2.1 billion)and 200 offices. It has also started to sell its products online. ¶4. (U) Comment: AIG's sale of its interest in Tata AIG Life Insurance appears to be part of AIG's overall restructuring of its life insurance business in Asia that could result in it spinning off its Asian holding company, American International Insurance, as an independent entity through an IPO on an Asian stock exchange. With the possible sale of its interest in AIG Tata and its recent sale of back-office support provider AIG Systems and Solutions, it appears that AIG is leaving India, although it still retains its 26 percent interest in AIG Tata General Insurance. End Comment. Slow Going on Financial Sector Reform -------------- ¶5. (U) Despite Finance Minister Mukherjee's statement last week that the GOI remains committed to financial sector reform (reftel),local media has reported that it is unlikely that the GOI will present to the winter (November) Parliament session the reforms foreign investors are most interested in such as the Banking Regulation Amendment Bill, the Pension Fund Regulatory and Development Authority (PFRDA) Bill, and the Insurance Amendment Bill. The delay is reportedly due to differences of opinion between the various stakeholders including different financial regulators and trade unions over various clauses in the bills. ¶6. (U) According to media reports, an unnamed finance ministry official said the Ministry of Finance plans to only introduce to the winter Parliament session the Micro Financial Sector (Development and Regulation) Bill and the State Bank of India (SBI) Amendment bill, both of which lapsed in Parliament when elections were held in April/May. The Micro Financial Sector (Development and Regulation) Bill aims to regulate microfinance organizations and entrust the regulation of the micro financial sector to the National Bank for Agriculture and Rural Development (NABARD). NABARD will also establish a Micro Finance Development and Equity Fund for the development of the sector. Earlier, the bill faced opposition due to leftist parties wanting to put a cap on interest rates charged by these institutions. ¶7. (U) The SBI Amendment bill seeks to reduce the GOI's equity in the SBI (the largest public sector bank in India) to 55 percent from the current 59.41 percent. The 4.41 percent equity is worth approximately $1.03 billion. Once the bill is enacted into law, the NEW DELHI 00002013 002 OF 003 SBI will be able to sell that 4.41 percent equity stake to raise money for further growth. ¶8. (U) Comment: Reports such as this will solidify investors' beliefs that the GOI is not fully committed to financial sector reform, regardless of statements made by the Finance Minister. Only concrete actions will change opinions at this point. End comment. India Retains U.S. FAA Category 1 Status -------------- ¶9. (U) On September 23, the U.S. Federal Aviation Administration (FAA) and Directorate General of Civil Aviation (DGCA) completed final consultations under the FAA's International Aviation Safety Assessment (IASA) program, resulting in India retaining its Category 1 status. The Category 1 status indicates that India's civil aviation authority has been assessed by FAA inspectors and has been found to license and oversee air carriers in accordance with International Civil Aviation Organization aviation safety standards. Director General of Civil Aviation Zaidi said he viewed the actions the DGCA had taken to strengthen its oversight capacity as a beginning and stated his commitment to attaining even higher levels in safety oversight, and ultimately transforming DGCA into an independent civil aviation authority. India's retention of Category 1 status paves the way to expand further our already strong bilateral cooperation in civil aviation. World Bank Approves $4.3 billion Loans for India -------------- --- ¶10. (U) On September 22, the World Bank approved a loan package of $4.35 billion for four projects to recapitalize public sector banks, provide infrastructure financing, address power deficiency, and improve water supply. ¶11. (U) India's state-owned banks will receive $2 billion through the Finance Ministry to boost their capital and increase their liquidity to extend loans for infrastructure, small and medium enterprises, and the rural economy. The GOI has identified 19 banks that need a capital infusion of $4.8 billion to support their growth and ensure that government equity in these banks does not fall below 51 percent. The World Bank plans to provide another $1 billion by June, 2010 for further support to these banks. ¶12. (U) The World Bank will also provide another $1.2 billion to the India Infrastructure Finance Company Limited (IIFCL) for financing public-private partnership projects for roads, power, railways, airports, and ports. The Power Grid Corporation, the national electricity distribution company, will receive $1 billion to address India's acute power shortages and strengthen the existing transmission system as well as expand the Indian national grid to achieve the objective of power for all by 2012. Finally, the state of Andhra Pradesh will receive about $150 million to improve its water supply and sanitation services for 2,600 villages across six districts. Unique ID Program Taking Shape -------------- ¶13. (U) Joint Secretary (Telecom) J.S. Deepak told Econoffs that the first meeting between Additional Secretary of Department of Telecom Subodh Kumar, Mr. Nandan Nilekani, chairman of the Unique Identification Authority of India (UIDAI) and founder of Infosys, and Indian telecom service providers was held on September 24 to discuss the roll-out of the unique identification (UID) program. Earlier this year, the GOI set up the UIDAI to implement a Unique Identification card project, which will own the database of residents along with their biometric information. ¶14. (U) The introduction of unique identification will be heavily based on India's wireless subscribers, currently estimated at about NEW DELHI 00002013 003 OF 003 480 million, which are already authenticated in terms of identity and address. The first UID is targeted for issuance in the next 18 months and it is expected that the nearly all wireless subscriber base voluntarily will join the program in the following 18 months. The biometric data will be collected by telecom outlets, who primarily sell pre-paid phone cards. There are over one million telecom outlets; however, only 30-40,000 vendors will provide this service through what GOI is calling a hub-and-spoke model. ¶15. (SBU) Joint Secretary Deepak noted that despite the inherent challenges posed by the massive scale of this program, the introduction of UID will transform the way Indians do business in the areas of Government-to-Citizen interaction. He said the ID would be useful for a multitude of purposes, including elections, taxation, national security, and banking. Deepak, a former USAID employee responsible for global social programs, was enthusiastic about the UID's potential to greatly reduce "leakage" in government subsidies and benefit payments, including the NREGA program, and for its ability to also transform provision of education and healthcare. ¶16. (U) Visit New Delhi's Classified Website: http://www.state.sgov/p/sa/newdelhi. ROEMER