NEW DELHI WEEKLY ECON OFFICE HIGHLIGHTS FOR THE WEEK OF

UNCLAS SECTION 01 OF 03 NEW DELHI 000532

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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 16 TO MARCH 20, 2009


1. (U) Below is a compilation of economic highlights from Embassy
New Delhi for the week of March 16-20, 2009, including the
following:

-- Inflation Falls to a Historic Low
-- Foreign Direct Investments High Through January
-- India Discusses Free Trade Pact with Chile
-- New Pension Scheme for Informal Sector
Deferred By Two Months
-- Indian Shrimp Exporters Hope to Benefits from Reduced
Anti-dumping Duties
-- D.K. Mittal Takes Over as Additional Secretary (WTO)
-- US Pharma Bill Would Open Market for Indian Generics
-- Tata Seeks Patents for Nano Car Inventions
-- Turkey and Egypt Slap Additional Import Duty On Indian Textile
Yarn


Inflation Falls to a Historic Low
--------------


2. (SBU) India's wholesale price index (WPI) inflation year on year
for the week ending March 7, 2009 fell to a record low of 0.44
percent (the lowest since 1977). While the fuel index remains in
negative territory (-5.95%),prices of primary products were up
4.38%. Manufactured products decelerated sharply to 1.32%, a result
of contraction in metal prices. Much of the current fall in
inflation is due more to last year's high base effect in many
commodities than any great decline in real consumer prices. Retail
food prices continue to be high, with food grains prices about 9
percent more expensive than a year ago. Economists expect WPI
inflation to turn negative for a few months, which might prompt
consumers to delay spending in hopes of further price reductions,
causing demand to fall. However, Montek Singh Ahluwalia, Deputy
Chairman of the Planning Commission, speaking to reporters on March
19, predicted that the inflation rate would rebound from its present
level, as there is still demand in the economy, which is expected to
rise further in the second half of the year. He further suggested
that India's low inflation will enable policy makers to take more
steps to stimulate a slowing economy, which many took to mean
further reductions in interest rates.

Foreign Direct Investments High Through January
--------------

3. (U) India's foreign direct investment (FDI) inflows into India
grew 58 percent to $2.7 billion in January 2009 (after registering
an average rise of just $1.32 billion for three consecutive months)
compared to $1.76 billion in the same month a year ago. Cumulative
FDI inflows for April-January 2009 totaled $23.8 billion and are
expected to at least reach $25 billion for this fiscal year ending
March, although the government's target of $35 billion set last year
may not be met. Ajay Shankar, Secretary of the Department of
Industrial Policy and Promotion, was quoted to have said that
"January numbers are very good... It is an indication of the
confidence that the rest of the world has in India." However,
economists note that the increase in January could be from
commitments made before the global financial crisis.

India Discusses Free Trade Pact with Chile
--------------


4. (U) During a recent meeting in New Delhi, Chilean President
Michelle Bachelet and Prime Minister Manmohan Singh decided to
deepen bilateral ties by exploring the possibility of a bilateral
free trade agreement (FTA),initiated steps to expand defense
cooperation, and intensified scientific ties, especially with
respect to Antarctica. India and Chile already have a functional
Preferential Trade Agreement (PTA),with current bilateral trade at
more than $2.3 billion. Both countries have decided to strengthen
cooperation in information technology and biotechnology. Aiming to
double trade in five years and to enhance defense cooperation, Chile
also announced the opening of a commercial office and defense
attache's office at its embassy in New Delhi. During President

NEW DELHI 00000532 002 OF 003


Bachelet's visit, Chile and India also signed documents in the areas
of new and renewable energy, education, exploration and utilization
of outer space for peaceful purposes and geology and mineral
resources.

New Pension Scheme for Informal Sector
Deferred By Two Months
--------------


5. (U) The Pension Funds Regulatory and Development Authority
(PFRDA) has deferred launching the introduction of the New Pension
System (NPS) for informal and privates sector workers by at least
two months, because of the upcoming elections. Introduction of the
scheme for informal sector workers, which will allow partial
investment of pension funds in equities, was initially set to be
rolled out on April 1, 2009. The PFRDA has already short-listed the
six fund managers and 23 points of presence to collect the
contributions from the investors, though contracts had not been
signed. The regulator had also started an advertising campaign in
the last week of February to seek workers participation, which is
reported to have generated a lot of interest. However, in order not
to violate the moral code of conduct for elections, scheduled to be
held in April-May, the PFRDA decided not to continue the information
campaign and undertake the participatory activities as originally
planned.

Indian Shrimp Exporters Hope to Benefit
from Reduced Anti-dumping Duties
--------------


6. (U) Pursuant to the U.S. decision to reduce antidumping duties on
Indian shrimp, domestic industry reportedly hopes to become
competitive in the U.S. market once again. According to the Indian
seafood industry, shrimp exports to the U.S. have declined in recent
years due to several reasons, namely, the decline (until recently)
of the dollar against major global currencies, slower growth of the
U.S. economy, anti-dumping tariff disputes, and a reduction in
consumer confidence. The Kochi-based Seafood Exporters Association
of India (SEAI) expects a further cut in the dumping duty on Indian
shrimp in July 2009 with a final U.S. review.

D.K. Mittal Takes Over as Additional Secretary (WTO)
--------------


7. (U) D.K. Mittal was recently named an Additional Secretary for
the Ministry of Commerce and Industry, in the post held previously
by Rahul Khullar. As the top bureaucrat of the Trade Policy
Division in the Ministry, he will be responsible for WTO
negotiations, reporting directly to Commerce Secretary GK Pillai.
Mittal is known to be an approachable, results-oriented, and dynamic
personality. He is an IAS Officer of the 1977 batch from the state
of Uttar Pradesh. He previously served as Joint Secretary
(Americas) in Commerce from 1998-2004, a post currently occupied by
Anil Mukim. In addition to his assignments at the Center, he has
held key positions in his cadre state of Uttar Pradesh. He was the
CEO of Infrastructure Leasing and Financial Services (IL&FS) and
Secretary to the Chief Minister of Uttar Pradesh. He is also a
postgraduate in Physics.

US Pharma Bill Would Open Market for Indian Generics
-------------- --------------


8. (U) Local media reported this week on the possible impact on the
Indian generic drug industry of a pharma bill introduced in the U.S.
Congress. The bill, introduced by Senator Herbert Kohl (Wisconsin),
aims to make it easier for generics to gain access to the U.S.
market. The bill would ban MNC pharma companies from transferring
authorized generics to third parties, allowing cheaper generics to
enter the market. Most Indian generic exporters, such as Sun Pharma
and Cipla, would likely benefit from the bill; however, Indian
companies selling authorized generics would take a hit, including Dr
Reddy, which recently introduced a generic migraine treatment in the
U.S. that significantly increased its North American sales.

NEW DELHI 00000532 003 OF 003



Tata Seeks Patents for Nano Car Inventions
--------------


9. (U) Tata Motors has applied for 37 patents to protect inventions
and innovations related to the development of the Nano, the
high-profile low-cost vehicle that will be launched on March 23.
The company has also begun filing patent applications overseas, in
line with its hopes to launch the Nano globally in 2011 in Eastern
Europe, Latin America, Africa and South East Asia. Several other
auto-manufacturers have announced plans to develop low-cost vehicles
and Tata is concerned that the inventions associated with making the
car low-cost and fuel efficient, including specialized components
and the rear-engine design, may be copied. According to local
media, Tata Motors is already close to filing Intellectual Property
claims in international markets.

Turkey and Egypt Slap Additional Import Duty on Indian Textile Yarn
-------------- --


10. (SBU) Econoff met Commerce Ministry Director Mukesh Bhatngar who
confirmed that India has initiated a request for consultations with
Turkey on the imposition of safeguard duties on the import of Indian
cotton yarn. The Indian textile industry has viewed the measure as
a protectionist one and demanded the government to seek arbitration
at the WTO dispute settlement body. It is not clear at this moment
whether India will challenge the move in the WTO; Bhatnagar informed
Embassy officials that the ministry has not yet received an official
notification from the Turkish government, and that his department is
still collecting information from the industry to assess the
compatibility of the safeguard duty to the WTO norms. In the
meantime, the Government of India (GOI) has requested consultations
with the Turkish government and they are expected to take place some
time in April 2009. According to media reports and industry
statements, the effective import duty on natural yarn in Turkey
ranges between 15 and 20 per cent, against its 5-percent bound
rate.


11. (SBU) Egypt has also imposed a safeguard duty of 25 per cent on
natural yarn recently against its bound duty rate of 15 per cent.
Bhatnagar stated that Egypt has termed the additional duty as an
"import fee" and the GOI is seeking more information from the
Egyptian authorities on details of the levy, before asking for
bilateral consultations. The ministry has also started an
investigation into the additional duty imposed by Egypt on the
product.


12. (SBU) Turkey and Egypt are among India's major textile export
destinations with sales worth about $300 million; due to the recent
protectionist measures, the industry expects a drastic drop in
exports to both countries. Motivated by cotton yarn exporters'
demand to take up the issue at the dispute settlement body under the
WTO, the GOI is prepared to challenge the move if investigations
point to violation of WTO norms and the issue is not resolved
through bilateral consultations.


13. (U) Visit New Delhi's Classified Website:
http://www.state.sgov/p/sa/newdelhi.

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