New Delhi Weekly Econ Office Highlights for the Week of

UNCLAS SECTION 01 OF 04 NEW DELHI 002350 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 TINT BG NP IN SUBJECT: New Delhi Weekly Econ Office Highlights for the Week of November 16-20, 2009 ¶1. (U) Below is a compilation of economic highlights from Embassy New Delhi for the week of November 16-20, 2009, including the following: -- India Ready for FATF Evaluation -- Disinvestment Gets a Push -- Commerce Minister Plans to Double India's Share in Global Trade Within the Next Five Years -- ICT Working Group Meets in Washington -- Skype in India -- DOE Visits India -- Volunteer Visitor Program Alum Launches Successful CSR Program India Ready for FATF Evaluation -------------- ¶2. (SBU) In a meeting with Econoffs to discuss the annual International Narcotics Control Strategy Report, Department of Revenue Director Priya Singh said the GOI is ready for its upcoming Financial Action Task Force (FATF) mutual evaluation and has prepared itself well in complying with the 16 key and core FATF recommendations. Singh said the GOI used the preparations for the mutual evaluation as an opportunity to self-assess and a way to coordinate useful information that has been sitting in different government agencies. Her only concern was how the FATF evaluators would understand the slow Indian judicial system, which is the cause for the lack of convictions on anti-money laundering activities despite the increase in cases brought to the court system. She expects 2005 cases to lead to the first convictions in 2010. Singh also noted two areas for improvement: government outreach to domestic non-profit organizations that do not receive foreign funding; and increasing regional work as India has more to offer and can learn from its neighbors. For example, she mentioned the possibility of providing technical assistance to Bangladesh and Nepal in setting up and operating financial intelligence units. Disinvestment Gets a Push -------------- ¶3. (SBU) Although not released officially by the Ministry of Finance, the Cabinet Committee on Economic Affairs (CCEA) announced that the government will reduce its ownership in all profitable public sector enterprises (PSEs) currently listed on a stock exchange so that the government owns no more than 90 percent of any listed PSE. If implemented, this would affect 12 profitable PSEs in which the government ownership currently exceeds 90 percent. In an earlier meeting, Ministry of Finance Department of Disinvestment Joint Secretary Sidhartha Pradhan told Econoff that listed PSEs that are in line for disinvestment by March 31, 2010 include Engineers India Limited, National Thermal Power Corporation, Cochin Shipyard, Rural Electrification Corporation, National Mineral Development Corporation, Satluj Jal Vidyut Nigam, Hindustan Copper Limited, Minerals and Metal Trading Corporation, and Telecommunications Consultants India. ¶4. (U) The CCEA also indicated that all unlisted PSEs that have been profitable for the past three years, have no accumulated losses, and have a positive net worth are required to list at least 10 percent of shares on stock exchanges. One hundred PSEs would currently meet these requirements and be subject to possible listing in the future. ¶5. (U) Based on current market prices, the GOI would raise approximately $5.9 billion, if it reduced its ownership to 90 percent in the 12 affected PSEs. The GOI recently amended the rules so that disinvestment proceeds for the next three years can be used for development and social sector spending. Pradhan said that disinvestment proceeds would be used to reduce the fiscal deficit in addition to paying for capital expenditures. Prior to the rule change, disinvestment proceeds were placed in the National Investment Fund (NIF),which in turn invested in domestic stocks, bonds, and mutual funds. Although the GOI could not touch the principle of the NIF, 75 percent of the income earned was used for social sector programs that promote education, health, employment NEW DELHI 00002350 002 OF 004 and 25 percent was used for capital investment projects of profitable PSEs. ¶6. (SBU) The CCEA announcement did not include a timeline or target date for the PSEs to comply with the decision, but the timing will likely be governed by market conditions. Mr. Pradhan told Econoff that he is not expecting any problems with the disinvestment plans as the left-leaning parties in the governing coalition have "no veto power" as they did in the previous government. Pradhan said coalition partners prior to the April/May election were not interested even in selling profitable PSEs but today see benefits, mainly because they realize the amount of revenue they can raise as listed PSEs' stock values have significantly risen on the Bombay Stock Exchange. (Note: Disinvestment stalled in the previous Congress Party-led government due to opposition by leftist parties. The government raised approximately $1.7 billion from privatization from 2004-2009, significantly less than the over $5 billion raised during the BJP-led government's five year term from 1999-2004. Coalition partners such as West Bengal's Trinamool Congress and Tamil Nadu's DMK have opposed disinvestment in profitable PSEs in the past. DMK had threatened to pull out of the previous Congress-led coalition government over the disinvestment of the profitable PSE Neyveli Lignite Corporation. End Note.) Commerce Minister Plans to Double India's Share in Global Trade Within the Next Five Years -------------- ¶7. (U) On November 12, Commerce Minister Anand Sharma informed the Parliamentary Consultative Committee on Commerce and Industry that his Ministry intends to double India's share in global trade of goods and services within the next five years. He noted that India's share in world trade of goods and services rose from 0.9 percent to 1.6 percent from 2003-08. To reach 3.2 percent by 2014, Minister Sharma indicated that his Ministry hopes to achieve annual export growth of 15 percent in 2010-11 and 25 percent in 2012-14. (Note: This target is much more ambitious than that announced in August with India's Foreign Trade Policy 2009-14, which targeted 2020 for doubling of India's share in global trade. End note.) Minister Sharma explained that while the impact of the global recession is still continuing, the GOI's export stimulus packages have now started bearing fruit. Government incentives to labor-intensive industries had resulted in a revival of the manufacturing sector, he added. Minister Sharma pointed to the recent uptick in exports in sectors that had been affected by the recession, such as gems and jewelry, pharmaceutical, and some agricultural products. He further outlined his plan to sustain export growth through creating a more conducive policy environment, including fiscal incentives, institutional changes, procedural rationalization, efforts to enhance market access across the world, and diversification of export markets. ¶8. (U) The Committee members raised the issue of the Goods and Services Tax (GST) and its implementation, along with their desire for continuation of income tax breaks for exporters, the impact of exchange rate fluctuations on exporters, the need to improve infrastructure facilities, WTO related issues, and the impact of India-ASEAN Free Trade Agreement (FTA). The members suggested that the Commerce and Industry Ministry assess job losses due to the continuing downturn, particularly for gems and jewelry producers in Surat and textile producers in Tirupur, to consider further incentives for job creation. Some Committee members stressed that the current export promotion schemes, which are set for two years, should be extended for at least five years to ensure stability and sustained growth. Minister Sharma said that the India-ASEAN FTA will provide India with greater market access to the Southeast Asian countries, and that a successful conclusion of WTO Doha negotiations is very important. He also informed the attendees that the GOI has formed a committee to recommend specific trade facilitation measures, but provided no further information. ICT Working Group Meets in Washington -------------- NEW DELHI 00002350 003 OF 004 ¶9. (SBU) The U.S. - India Information, Communication and Technology Wrking Group (ICTWG) met in Washington, D.C. on November 4-5. The U.S. side was led by Ambassador Philip Verveer and the Indian side by Special Secretary R. Chandrashekhar, Ministry of Communications and Information Technology. Key issues were addressed during this meeting and broad areas of cooperation and partnership were identified making it a very successful and productive dialogue, especially in the areas of cyber security and encryption. GOI officials also gained from their interaction with the USG and industry representatives on wireless spectrum auctions and broadband deployment. US industry raised issues related to customs valuation and poor treatment of US companies by local customs officials, advocated for pro-growth economic policies in the ICT domain, and advocated for an increased role for the private sector in strengthening the bilateral relationship. The next meeting of the working group is likely to be held in Hyderabad India in May 2010 in conjunction with the ITU-D conference. Skype in India -------------- ¶10. (SBU) Econoffs met with Skype representatives who have been meeting with the GOI officials in response to the unsubstantiated news report that the GOI is planning on shutting down Skype calls from India. Skype offers free software which enables users peer-to-peer voice over internet protocol (P2P VOIP),which has raised security concerns in India especially after the November 26 attacks. Skype intends to educate various officials within the government and dispel doubts about the service. In upcoming weeks, Skype will be developing and revising their strategy for operations in India. Econoffs offered assistance to Skype in reaching out to government officials. DOE Visits India -------------- ¶11. (U) In advance of Secretary Chu's visit, DOE PDAS Jonathan Elkind visited India to present ideas on the Clean Energy Research and Deployment Initiative (CERDI). Elkin met with various ministries as well as the Planning Commission and helped DOE circulate the concept non-paper prior to the visit. The non-paper was well received by government officials and will provide an outline for a cooperative agreement for the Prime Minister's visit to the United States. Volunteer Visitor Program Alum Launches Successful CSR Program -------------- ¶12. (U) PVR Nest, the Corporate Social Responsibility (CSR) arm of PVR Ltd. (a leading multiplex cinema company in India) partnered with Moser Baer (one of India's top information technology and optical media companies) to form CineArt, a program that combines art and cinema for social change. Over a period of five months, children who participated in CineArt developed skills in art and filming. On November 12, the eve of Children's Day, PVR Nest and Moser Baer held CineArt's Grand Finale. CineArt's participants screened their films during the event and New Delhi Chief Minister Sheila Dikshit unveiled the CineArt 2010 Diary, which showcased the work of the program's young artists. In her speech, Dikshit emphasized the role of meaningful entertainment in life and the importance of creative outlets, especially for children. Children from twenty schools across the Delhi NCR region participated in CineArt and attended the Grand Finale. ¶13. (U) Deepa Menon, Head of PVR Nest and the creative force behind CineArt, recently participated in a Volunteer Visitor CSR Study Tour (October 26 to November 3). PVR Nest's CSR initiatives primarily benefit disadvantaged children and the environment. In addition to CineArt, other PVR Nest CSR programs include Childscapes, PVR Ki Paathshala, School Life, and Green Films. ¶14. (U) Visit New Delhi's Classified Website: NEW DELHI 00002350 004 OF 004 http://www.state.sgov/p/sa/newdelhi. WHITE