New Delhi Weekly Econ Office Highlights for the Week of

UNCLAS SECTION 01 OF 03 NEW DELHI 002037 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 29-October 1, 2009 REF: New Delhi 1903 ¶1. (U) Below is a compilation of economic highlights from Embassy New Delhi for the week of September 29-October 1, 2009, including the following: -- Foreign Equity Investment Passes $10 Billion Mark -- FIPB Approves 13 Proposals in September 2009 -- Air India Strike Ends -- India's Small but Important Centre for WTO Studies Foreign Equity Investment Passes $10 Billion Mark -------------- -------------- ¶2. (U) According to the Securities and Exchange Board of India, foreign institutional investors (FIIs) have invested $11.2 billion in equity since the start of 2009. Qualified institutional placements and initial public offerings contributed almost half of the foreign investment. This compares with a net outflow of $12 billion in 2008 and an all-time record inflow of $17.7 billion in ¶2007. As of mid-March, there was a nearly $2 billion net outflow, as the effects of the global financial crisis was still being felt. However, since then, FIIs have pumped in over $12 billion, an average of $2 billion per month since April. ¶3. (U) The market expects robust FII inflows to continue, as institutional investors - both foreign and domestic - are expected to increase their holdings of Indian equities and foreign pension funds are likely to buy into Indian shares. Also, the market is expecting several large companies, particularly real estate companies, to list shares on the Indian stock exchanges, which would also likely boost FII inflows. The confidence of foreign investors in Indian equities is much more positive now relative to 2007 as the fundamentals of the Indian economy are strong. The only threat to the FII inflows would be if global central banks resort to monetary tightening. ¶4. (U) FIIs have shown little interest in the Indian corporate debt market, despite the GOI increasing the limit for corporate debt investment by FIIs from $6 billion to $15 billion in February, 2009. Net FII inflows on corporate debt for 2009 totaled only $81 million as of September 22. Comment: This reflects both arbitrage conditions (interest rate and inflation rate expectations relative to bond prices in India and elsewhere) and the difficulties of operating in the Indian bond markets. End comment. FIPB Approves 13 Proposals in September 2009 -------------- ¶5. (U) India's Foreign Investment Promotion Board (FIPB) approved 13 FDI proposals worth approximately $82 million in September. Of the total amount approved, approximately 62 percent was for the information and broadcasting sector. Other investments approved were for technology, shipping, and cash and carry trading. The FIPB deferred on eight proposals and rejected two proposals including one by ICICI Investment Management Company's request to invest in an Indian fund company through a foreign fund. ¶6. (U) In response to FIPB's prior deferral, the Agriculture Ministry approved Monsanto India's plan to pursue business in genetically engineered planting materials, stating the company can deal with genetically modified seeds/planting material in compliance with the existing environment protection law, paving the way for FIPB approval. The FIPB had deferred on Monsanto's application in August, asking Monsanto to seek the views of the Department of Biotechnology and the Ministry of Environment. The company can now look forward to integrate its agro-chemical business in India with its U.S. parent's seed business. Air India Strike Ends -------------- NEW DELHI 00002037 002 OF 003 ¶7. (U) National carrier Air India resumed normal operations after a four-day pilot strike. The strike ended after Prafel Patel, Minister of Civil Aviation, assured striking pilots that the airline's decision to cut productivity-linked incentives would be put on hold and that that any cuts would be decided in consultation with the pilots. Patel also announced his Ministry would formulate a panel to consider the incentive payments. ¶8. (SBU) The strike came at a particularly bad time for Air India. The airline is in serious financial trouble facing reported accumulated losses of between two to three billion dollars and a directive from the Government of India to develop a credible turnaround plan as a precondition to receiving additional funds. While the strike's end may have alleviated passenger concerns in the short-term, the fundamental financial problems Air India faces are far from over. As DGCA Director General Nasim Zaidi recently commented to Econoffs, the air carrier must implement serious cost saving measures or it will have no hope of survival. Zaidi noted that labor costs were the real problem at Air India, both with pay being higher for various positions than for other airlines and with overall staffing, with Air India having an average of 250 employees per aircraft, compared to the 130/aircraft average of India's other carriers. India's Small but Important Centre for WTO Studies -------------- -------------- ¶9. (SBU) On September 30, Deputy Econ M/C and Econoff met with Shanshank Priya, one of three professors at India's Centre for WTO Studies at the Indian Institute of Foreign Trade (IIFT); the Center is apparently recruiting to fill a fourth position. Priya explained that the IIFT Director, K.T. Chacko, serves as the Centre's director. IIFT is supported by government funding, tuition payments, and consultancy fees, while the Centre relies purely on government funding (from the Ministry of Commerce and Industry), since it does not have a legal status of its own. Priya is a civil servant belonging to the Indian Revenue Service and was Deputy Secretary/Director in the Trade Policy Division at the Commerce Ministry from 2000-2005. He covers customs and non-agriculture market access. Professor Madhukar Sinha covers services and TRIPS (intellectual property) and Professor Rajan Ratna (who is drafting a report on barriers to agricultural imports in the United States, reftel)) covers agriculture, sanitary and phyto-sanitary issues, and technical barriers to trade. ¶10. (SBU) Priya is currently analyzing gaps in India's trade facilitation. He was the primary drafter of the recently-released first annual report on the trade barriers of India's major trading partners (reftel). Acknowledging that he relied primarily on third-party reports and well as trade policy reviews in the WTO, Priya asked for advice on how to make the report more robust, like the U.S. National Trade Estimate Report on Foreign Trade Barriers. After Deputy M/C explained our process, he said he hoped to solicit more input from India's embassies but was not optimistic that other ministries would be responsive to contributing. The Centre produces a number of trade-related newsletters and publications targeted toward GOI officials and academics that are available on its website (http://wtocentre.iift.ac.in). ¶11. (SBU) Comment: While clearly limited in size and resources, The Centre for WTO Studies appears to be a useful voice in pushing for economic reform from within the Indian government. The Centre's role as an internal think tank that develops longer-term projects for the Commerce Ministry allows its professors to be more forward-leaning andreform-minded than India's average bureaucrats. The Embassy will look at potential international visitor programs for the professors. ¶12. (U) Visit New Delhi's Classified Website: http://www.state.sgov/p/sa/newdelhi. NEW DELHI 00002037 003 OF 003 ROEMER