NEW DELHI WEEKLY ECON OFFICE HIGHLIGHTS FOR THE WEEK OF

UNCLAS SECTION 01 OF 03 NEW DELHI 000471 SIPDIS SENSITIVE 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 CLILIENFELD/AADLER/CHINCKLEY DEPT PASS TO TREASURY FOR OFFICE OF SOUTH ASIA MNUGENT TREASURY PASS TO FRB SAN FRANCISCO/TERESA CURRAN USDA PASS FAS/OCRA/RADLER/BEAN/CARVER/RIKER EEB/CIP DAS GROSS, FSAEED, MSELINGER E.O. 12958: N/A TAGS: ECON EAGR EAIR ECPS EFIN EINV EMIN ENRG EPET ETRD BEXP, KIPR, KWMN, IN SUBJECT: NEW DELHI WEEKLY ECON OFFICE HIGHLIGHTS FOR THE WEEK OF MARCH 9 TO MARCH 13, 2009 ¶1. (U) Below is a compilation of economic highlights from Embassy New Delhi for the week of March 9-13, 2009, including the following: -- Industrial Index Declines Again -- Foreign Direct Investment High Through December -- Inflation Continues To Soften -- Characteristics of Service Sector Enterprises -- India Puts on Hold FTA Negotiations Till May-end -- GOI Decides to Lift Ban on Wheat Exports, But to Continue Ban on Rice Exports -- Diamond Sector Troubles Gain Attention Industrial Index Declines Again -------------- ¶2. (U) The government-maintained index of industrial production (IIP) declined for a second month in a row in January, although falling just 0.5 percent. The decline was mainly due to shrinking output by the manufacturing (-0.8 percent) and mining (-0.4 percent) sectors, as compared to a robust 6.2 percent growth achieved in January last year. Electricity generation registered a growth of just 1.8 percent. The surprise element was the 15.1 percent growth recorded in the capital goods sector which can partially be attributed to the base effect. Moreover, consumer durables production grew by 2.5 percent, moving into a positive zone after three months of fall, on the back of high growth in automobile sales. Cumulative industrial growth for April-January FY 2008-09 works out to three per cent as compared to a growth of 8.7 percent over the corresponding period of last year. Meanwhile, the IIP for December was revised upwards, from the provisional 2 percent announced earlier to just 0.6 percent, which could lead to an upward revision of the third quarter GDP figure. Several economists expect the January figures to be revised upwards as well, and see the healthy capital goods growth as a sign of revival in consumer demand. Foreign Direct Investment High Through December -------------- - ¶3. (SBU) According to the Ministry of Commerce and Industry, foreign direct investment inflows into India recorded an increase of 67 percent during April-December 2008 to reach $21.2 billion versus $12.7 billion in the corresponding period of last year. Investment from three Asian countries - Mauritius, Singapore and Japan -contributed more than 55 percent of the total inflows during the period. For the year to date, Singapore surpassed the U.S. as the largest source of long-term investment into India, excluding Mauritius which is a tax haven used by other countries. Investment from the U.S. continued to grow, totaling about $1.3 billion during April-December 2008 versus $1.1 billion for the full fiscal year 2007-08. Inflation Continues To Soften -------------- ¶4. (U) Wholesale price index (WPI) inflation year on year for the week ending February 28 fell to a six year low of 2.43 percent. It was 6.21 percent in the corresponding week a year ago. The WPI has declined due to the low prices of non-food commodities and manufactured products such as metals, textiles, chemicals and batteries, experiencing a fall in demand and easing prices of inputs. Prices of food items such as pulses, dairy products and edible oil also softened during the week. The index for fuels remained unchanged for the second consecutive week. Economists expect WPI inflation to fall temporarily to zero percent in the next 2-3 months following January and February cuts in excise duties, reduced aviation turbine fuel prices and the high base effect. However, the Consumer Price Index for industrial workers, which is more representative of an urban household consumption basket, but whose data collection is less comprehensive than for the WPI, continues to be high at 10.5 percent for January 2009, indicating that retail price inflation faced by consumers remains high. NEW DELHI 00000471 002 OF 003 Characteristics of Service Sector Enterprises -------------- ¶5. (SBU) The services sector has been the prime driver of India's accelerated growth in recent years as it contributes to more than half of the country's gross domestic product and is second only to agriculture in terms of employment generation. A recent survey conducted by the National Sample Survey Organization (NSSO) on the operational characteristics of enterprises (a sample of 190,282 units) in the services sector shows that an estimated 16.5 million service sector units were in operation in the country in FY 2006-07, employing about 33.5 million people. About 60 percent of the enterprises were in rural India versus 40 percent in urban sector. The survey found that 81 percent of the working owners were literate with some formal education, with the number as high as 77 percent in the rural areas. Roughly one-third of the enterprises were operated within a personal residence, and nearly 90% were self-proprietorships, reflecting the large number of self-employed in India. The largest proportions of workers were found in "transport, storage and communication" at 25 percent; "financial intermediation" with 17 percent of workers; "hotels and restaurants" employing 15 percent, followed by "other community, social and personal services activities" at 15 percent, and "education" at 12 percent of workers in the service sector. India Puts on Hold FTA Negotiations Till May-end -------------- --- ¶6. (U) According to media reports Prime Minister Manmohan Singh has directed all the ministries not to pursue free trade agreements with any nation until a new government is formed by May-end. This would result in delay in signing of the India-ASEAN (Association of Southeast Asian Nations) and India-South Korea free trade pacts, which are reportedly ready otherwise. The decision is considered significant in light of Commerce Minister Kamal Nath's earlier statements that a comprehensive economic cooperation agreement between India and ASEAN could be signed in April, 2009. Five phased general elections in India are scheduled from April 15 and the new government is likely to be in place by late May 2009. GOI Decides to Lift Ban on Wheat Exports, But to Continue Ban on Rice Exports -------------- --- ¶7. (U) The Government of India (GOI) is likely to lift the ban on wheat/wheat product exports in the coming months after the new government is in place. The Indian cabinet has taken the decision in principle to allow wheat exports up to two million tons after the general elections in view of the piling up of wheat stocks in storage houses. However, the Cabinet clarified that there is no plan to lift the curbs on the export of non-basmati rice. The GOI had banned the export of wheat in February 2007 and that of non-basmati rice in April 2008 to boost domestic supply and contain price rise. Diamond Sector Troubles Gain Attention -------------- ¶8. (U) Diamond workers in the diamond hub of Surat and several other diamond-processing areas located in the state of Gujarat have been receiving increased media and political attention. Due to the economic downturn, exports of diamonds have decreased resulting in the closure of diamond-processing units and job losses. According to the Gem and Jewelry Export Promotion Council, India's diamond exports are down by approximately three percent for this fiscal year (which began in April 2008). As the sector is largely unorganized, accurate data on the number of factories and workers is not available; however, estimates range from 500,000 to 800,000 workers in the state and 6,000 to 10,000 factories and workshops. Local media sources estimate that over 4,000 diamond units have closed and over 400,000 workers have lost their jobs. Local media also claims that between 40 and 70 diamond workers have committed suicide, NEW DELHI 00000471 003 OF 003 intensifying attention on the sector. ¶9. (U) Surat, the most well-established industry hub, is estimated to have lost 200,000 jobs, which accounts for approximately 14 percent of the total number of voters in the city, although a percentage of those workers have likely migrated to other areas in search of employment. Diamond worker associations are urging their members to boycott both the Congress and BJP party in upcoming elections. In response, Rahul Gandhi met with Surat diamond workers in February and blamed the state government for the situation. In turn, Gujarat's Chief Minister Narendra Modi of BJP criticized the Congress-led government for not supporting the workers and announced a relief package that would provide training and a stipend of Rs 100 per day for the unemployed. ¶10. (U) Visit New Delhi's Classified Website: http://www.state.sgov/p/sa/newdelhi. WHITE