New Delhi Weekly Econ Office Highlights for the Week of

UNCLAS NEW DELHI 002120 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 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 EFIN EINV ENRG ETRD ECPS BEXP PHUM PINR IN SUBJECT: New Delhi Weekly Econ Office Highlights for the Week of October 9-15, 2009 ¶1. (U) Below is a compilation of economic highlights from Embassy New Delhi for the week of October 9-15, 2009, including the following: -- No End in Sight for Strengthening Rupee -- Industrial Production Points to Recovery No End in Sight for Strengthening Rupee -------------- ¶2. (U) The Rupee has appreciated more than six percent against the dollar since the beginning of the fiscal year on April 1, and is now at its strongest level since October 1, 2008. The rupee's strength is due to robust capital inflows and an improvement in the trade deficit, mainly due to a steeper drop in imports than exports. Other factors mentioned by analysts include the dollar's weakness against the euro, absence of intervention by the Reserve Bank of India (RBI),and selling of dollars by banks to take advantage of the arbitrage opportunity in offshore markets. ¶3. (U) At a speech at the IMF-World Bank annual meeting in Istanbul on October 6, RBI Governor Dr. D. Subbarao said that interest rates in India may have to be tightened ahead of those in advanced economies due to inflationary pressures in India. An increase in interest rate differentials between India and the developed economies could lead to even larger capital inflows, making exchange rate management difficult for the RBI. The combination of higher interest rates and increased capital inflows could further strengthen the rupee against the dollar. Industrial Production Points to Recovery -------------- ¶4. (U) The August index of industrial production (IIP) rose 10.4 percent in August, indicating that industrial recovery is under way. All three sectors - manufacturing, power, and mining - that make up the index rose more than 10 percent with manufacturing, which accounts for 80 percent of the index based on sectors, growing by 10.2 percent. Fourteen of the 17 industries that make up the manufacturing sector had positive growth in August, led by petroleum and coal products, textile products, basic chemicals and machinery and equipment. Only food products, wood and wood products, and vegetable and fiber textiles declined in August. ¶5. (U) All five use categories - basic goods, capital goods, intermediate goods, consumer durables, and consumer non-durables - also grew in August. Consumer durables led the way, up 22.3 percent, followed by intermediate goods such as cotton yarn, which rose 14.3 percent in August. Analysts credited the growth to increased demand due to the festival season in India and back pay made to government workers for the Sixth Pay Commission, which gave salary increases to government workers, 40 $tQ^DQa6. (U) Comment: This is the third straight month of strong industrial production growth and higher than what most analysts were expecting. Although it is possible that the increased industrial production is simply restocking of inventory levels, other indicators such as foreign direct investment, car purchases, and corporate earnings point to an economy that is bouncing back from the global financial crisis. End comment. ¶7. (U) Visit New Delhi's Classified Website: http://diplopedia.state.sgov.gov/ index.php?title=Embassy_New_Delhi ROEMER