New Delhi Weekly Econ Office Highlights for the Week of

UNCLAS SECTION 01 OF 03 NEW DELHI 002280 SENSITIVE SIPDIS 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 E.O. 12958: N/A TAGS: ECON EFIN EINV ENRG ETRD ECPS BEXP TRGY IN SUBJECT: New Delhi Weekly Econ Office Highlights for the Week of November 9-13, 2009 ¶1. (U) Below is a compilation of economic highlights from Embassy New Delhi for the week of November 9-13, 2009, including the following: -- Buzz Misleads on WTO Government Procurement Agreement -- RBI Audits Could Lead to Further Opening of the Banking Sector -- Corporate Profits Up, Sales Not So Much -- India Trying to Lead by Example in SAFTA -- Energy Technology Data Exchange Offers Membership Buzz Misleads on WTO Government Procurement Agreement -------------- ¶2. (SBU) A November 3 article in the Financial Express indicated that the Commerce Ministry had moved a Cabinet note proposing observer status in the WTO Government Procurement Agreement (GPA), prompting U.S. companies to become hopeful there had been a shift in GOI sentiment. A local Microsoft Director expressed optimism to Econoffs that if India were to become a member of the GPA, Microsoft would eventually receive equal treatment in bidder selection and award of contracts in India's multi-billion dollar government procurement market. On November 9, Ministry of Commerce Director in the Trade Policy Division Bipin Menon, who covers GPA under Joint Secretary Bharati Sihag, told Econoff that the Cabinet note mentioned in the press had been submitted nearly two months ago and GOI is now engaged in an elaborate process of consultations, including with state governments. Menon would not confirm whether Secretary Khullar submitted the note, adding that he did not think India would become an observer for some time, as GPA would not benefit all Indians. Menon added that he believed many governments submitted inaccurate reports to the WTO about the true costs of the goods they procured, acknowledging the United States was not one of those governments. (Note: The EU, Hong Kong, Chinese Taipei, and eleven other countries are currently parties to the GPA, while China, Sri Lanka, and 20 other countries are observers, some of which are negotiating accession.) ¶3. (SBU) Menon said the United Nations Conference on Trade and Development (UNCTAD) began a cost-benefit study of India joining GPA more than one year ago and UNCTAD had already submitted preliminary findings to GOI. He noted that the findings would not be made public. He also could not remember how much India stood to reap by gaining access to U.S., European and other government procurement markets, explaining that he thought these figures were always exaggerated. UNCTAD Senior Economist Rashmi Banga told Econoff on November 10 that UNCTAD had provided a report with such statistics to the Commerce Ministry, however, the report is supposed to be confidential, as there are several sensitive areas involved. She viewed the GOI consultations with the states as a positive move, as the states are not very transparent. However, Banga noted that India's nine major federal public sector units are quite transparent and procured 60 percent of their purchases from foreign firms. Banga explained that one of the major hang-ups for India to become a GPA observer is that the WTO has not made clear what conditions may be required of observers. (Comment: As recently as the October 26 Trade Policy Forum focus group on Tariff and Non-Tariff Barriers, the GOI raised the perceived restrictive nature of "Buy American" provisions in the stimulus package, and Menon said the GOI planned to consult the WTO on this matter. The message that joining the GPA would solve this problem for the GOI appears to be gaining some traction. End Comment.) RBI Audits Could Lead to Further Opening of the Banking Sector -------------- ¶4. (U) The media reported that the Reserve Bank of India (RBI) has decided to audit the financial operations and the risk-management capabilities of the existing 32 foreign banks and its 300 branches operating in India. The RBI will conduct the audit to assess and evaluate the transparency of these banks so that they do not pose any systemic risk to the banking sector, in view of the ongoing global financial crisis. NEW DELHI 00002280 002 OF 003 ¶5. (SBU) The proposed audits could further hinder the ability of foreign banks to open branches in India as it is unlikely that the RBI will grant additional branch licenses until the audit is complete. However, Citibank India Managing Director of Corporate Affairs and Business Development Ashok Swarup told Econoff that the RBI will use the results of these audits to "strengthen its hand" in opening the banking sector to foreign banks. Once the audits are complete, Swarup thought the RBI would be able to state that the foreign banks follow prudential norms, have sufficient capital, and maintain adequate risk controls and, therefore, the foreign banks should be allowed to open more branches in India. Corporate Profits Up, Sales Not So Much -------------- ¶6. (U) Corporate India gave mixed signals for the second quarter (June-September) of FY 2009-10 (FY10). Profits during the period were 39 percent higher but sales fell nine percent. The increased profits and decrease in sales led to a sharp improvement in net profit margins, which increased to 8.4 percent of sales from 5.6 percent of sales during the same period of the previous year. ¶7. (U) Higher profit margins were mainly due to a 13 percent decrease in expenses from better inventory management, lower interest expenses, and reduced raw material costs. Reduced excise duties as part of the government's fiscal stimulus program also helped improve margins in some sectors (auto, telecom and cement) with companies preferring to keep the savings rather than pass them on to consumers. ¶8. (U) Among industry groups, sugar, tea and automobiles performed exceptionally well, both in profits and sales during the quarter. Sectors with significant sales growth included construction, electronics, fast moving consumer goods, and food processing. A decline in sales occurred in aluminum, fertilizers, hotels, shipping, steel, and trading firms. As many as 20 industries recorded positive net profit growth during the period with only a handful of sectors - aluminum, electricity, fertilizers, hotels, paper, shipping and steel - experiencing a decline in net profits. India Trying to Lead by Example in SAFTA -------------- ¶9. (SBU) Ministry of Commerce Director Babni Lal, who handles South Asian Association for Regional Cooperation (SAARC) issues told Econoff on November 9 that the member countries committed to reducing their sensitive lists and ongoing liberalization of trade in goods. Lal was also part of Minister Sharma's delegation to the fourth South Asia Free Trade Agreement (SAFTA) Ministerial Council meeting on October 28 in Kathmandu. Lal said India had moved to zero duty on certain products for Least Developed Countries (LDCs--Bangladesh, Bhutan, Nepal, and Maldives) a year ahead of schedule and was trying to lead by example on many issues, including developing an online database with India's SAFTA tariffs and other import requirements. Lal said the SAFTA members also deliberated on regional cooperation on trade in services, but it would take two-three years to reach agreement due to the lack of data and Bangladesh's desire for Small Vulnerable Economy (SVE) status. Lal commented that Pakistan's failure to send ministerial representation to the Council meeting (instead sending a Joint Secretary) clearly demonstrated lack of interest in regional integration. She also noted that Pakistan's close relationship with China was a major factor that prevented Pakistan from granting India most-favored nation status. ¶10. (SBU) Lal explained that despite SAFTA implementation in January 2006, economic integration within SAARC is only 4.5-4.8 percent, compared with 28 percent for the Association of Southeast Asian Nations. This is primarily due to political concerns. However, other factors also act as effective barriers to trade, including trade in similar products (e.g., textiles and leather) resulting in competition rather than comparative advantage; poor infrastructure; lack of land customs clearance facilities; and lack of harmonized standards. UNCTAD Senior Economist Rashmi Banga told Econoff on NEW DELHI 00002280 003 OF 003 November 10 that UNCTAD and the Asian Development Bank had just completed a study quantifying the benefits of SAFTA that is currently only available in hard copy. Banga is also studying supply chains in South Asia. (Comment: Hopefully, some of this research will convince all SAFTA members of the potential economic gains from greater integration. End comment.) Energy Technology Data Exchange Offers Membership -------------- ¶11. (U) The International Energy Agency (IEA),under its Networks of Expertise in Energy Technology (NEET) initiative, sponsored a two-day workshop on renewable energy technologies in New Delhi. The NEET leverages its expertise and network in energy technology to "plus 5" countries of Brazil, China, India, Mexico and South Africa. IEA has 42 Implementing Agreements where both IEA member and non-member countries can participate in energy-related projects and exchanges. The Ministry of New and Renewable Energy (MNRE) had invited representatives from seven of the 42 IEA agreements on Wind, Solar, Bio-energy, and Energy Technology Data Exchange (ETDE) to New Delhi to explore possibilities for Indian participation/membership. Brian Hitson, Chairman and U.S. representative of the Energy Technology Data Exchange (ETDE) met with the Indian Ministry of Power, MNRE, Bureau of Energy Efficiency, and The Energy Resource Institute to encourage membership to ETDE. The Indian Ministry of Power has been the first to show interest in taking up ETDE membership. Benefits to ETDE membership include access to the world's largest energy science and technology database, ability to jump-start technology research, possible identification of experts/partners in other countries, and ability to learn how others are dealing with energy and environmental challenges. ¶12. (U) Visit New Delhi's Classified Website: http://www.state.sgov/p/sa/newdelhi. ROEMER