New Delhi Weekly Econ Office Highlights for the Week of

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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
--------------


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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.



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