Reference ID: 08NEWDELHI1209    

Created: 2008-05-02 12:04    

Released: 2011-08-30 01:44    

Classification: UNCLASSIFIED//FOR OFFICIAL USE ONLY       

Origin:  Embassy New Delhi

              


VZCZCXRO3950

RR RUEHAST RUEHBI RUEHCI RUEHLH RUEHPW

DE RUEHNE #1209/01 1231204

ZNR UUUUU ZZH

R 021204Z MAY 08

FM AMEMBASSY NEW DELHI

TO RUEHC/SECSTATE WASHDC 1567

INFO RUEHCG/AMCONSUL CHENNAI 2835

RUEHCI/AMCONSUL KOLKATA 2133

RUEHLH/AMCONSUL LAHORE 4405

RUEHBI/AMCONSUL MUMBAI 1946

RUEHPW/AMCONSUL PESHAWAR 4844

RUEHIL/AMEMBASSY ISLAMABAD 4836

RHEBAAA/DEPT OF ENERGY WASHDC

RUEATRS/DEPT OF TREASURY WASHDC

RULSDMK/DEPT OF TRANSPORTATION WASHDC

RHMFIUU/FAA NATIONAL HQ WASHINGTON DC

RUEHRC/DEPT OF AGRICULTURE WASHDC

RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE


UNCLAS SECTION 01 OF 05 NEW DELHI 001209

 

SIPDIS

 

SIPDIS

SENSITIVE

 

USDOC FOR ITA/MAC/OSA/LDROKER/ASTERN/KRUDD

DEPT OF ENERGY FOR A/S KHARBERT, TCUTLER, CZAMUDA, RLUHAR

DEPT PASS TO USTR CLILIENFELD/AADLER

DEPT PASS TO TREASURY FOR OFFICE OF SOUTH ASIA ABAUKOL

TREASURY PASS TO FRB SAN FRANCISCO/TERESA CURRAN

STATE FOR SCA/INS AND EB/TRA JEFFREY HORWITZ AND TOM ENGLE

USDA PASS FAS/OCRA/RADLER/BEAN/CARVER/RIKER

 

E.O. 12958: N/A

TAGS: EAGR EFIN EINV EPET ETRD SENV IN

SUBJECT: NEW DELHI WEEKLY ECON OFFICE HIGHLIGHTS FOR THE WEEK OF

APRIL 21-25, 2008

 

 

NEW DELHI 00001209  001.2 OF 005

 

 

¶1.  (U) Below is a compilation of Economic highlights from Embassy

New Delhi for the week of April 28 - May 2, 2008, including the

following items:

 

-- A SEPARATE DEPARTMENT OF PHARMACEUTICALS?

-- ADDITIONAL GOI 'ANTI-INFLATION' MEASURES INCLUDE EXPORT

-- KV KAMATH IS NEW PRESIDENT OF CII FOR 2008-09

-- U.S. SLOWDOWN IMPACTING INDIAN TEXTILES INDUSTRY

-- SEZ POLICY UNDER ATTACK

-- CABINET APPROVALS PROPOSAL FOR DEVELOPMENT OF PRIVATE

   AIRPORTS

-- PARLIAMENT PASSES UNION BUDGET 2008-09

-- INDIA LAUNCHES 10 SATELLITES WITH ONE ROCKET

-- MOTOROLA INAUGURATES NEW MANUFACTURING FACILITY

   NEAR CHENNAI

 

A SEPARATE DEPARTMENT OF

PHARMACEUTICALS?

------------------

 

¶2.  (U) The GOI is reportedly planning to establish a new department

of pharmaceuticals within the Ministry of Chemicals and Fertilizers

(MCF).  Press reports describe a "hectic debate" regarding price

regulation of pharmaceuticals, with the MCF engaged in finalizing a

new drug pricing policy.  At present the drug price regulator is the

National Pharmaceutical Pricing Authority (NPPA), but a GOI

committee of secretaries will decide whether NPPA will be a part of

the new department or whether it will continue as an autonomous

body.  If the new department proposal is approved, it could bring

together the functions of various GOI agencies dealing with

different aspects of the pharmaceutical industry, such as the

Ministry of Health (quality of medicines), Ministry of Chemicals and

Fertilizers (pricing and regulation), Ministry of Environment and

Forests (clinical trials) and the Ministry of Science and Technology

(drug research projects).

 

¶3.  (U) Comment.  The GOI's impetus for creating a stand alone

department of pharmaceuticals is its recognition of the sector's

importance as a sunrise industry.  However, we are skeptical that

such an extensive reengineering of the GOI bureaucracy, even when

clearly in the interest of a booming sector, will take place anytime

soon.  End comment.

 

ADDITIONAL GOI 'ANTI-INFLATION' MEASURES

INCLUDE EXPORT DUTIES AND CUTS IN IMPORT

----------------------

 

¶4.  (U) After inter-ministerial consultations, the GOI on April 28

imposed export duties on various steel products ranging from 5 to 15

percent in a bid to contain a domestic demand-supply imbalance and

rising prices of steel.  The GOI also reduced the customs duty to

nil for basic steel inputs like metallurgical coke, ferro-alloys,

and zinc, while abolishing the countervailing duty on imported steel

products used in construction.  Various steel products like pig

iron, mild steel products, hot-rolled coil, cold-rolled coil, bars,

rods and angles have been exempted from the basic custom duty.

 

¶5.  (U) Steel prices have reportedly risen over 60 percent in the

past year.  According to industry sources, price hikes have been

frequent in recent months.  In response to various GOI informal

appeals, Indian steel companies have recently agreed to a voluntary

freeze on prices.  Prior to the latest announcement of steel export

duties, the GOI has already taken many measures in recent months to

stabilize steel prices in the domestic market, such as reducing the

import duty on scrap metal inputs to zero from 5 percent and the

withdrawal of export incentives.

 

¶6.  (U) The GOI also announced some additional duty changes to rein

in food prices.  The measures include an export levy of Rs. 8,000

(approx $200) per ton on basmati rice and a 16.7 percent reduction

in the minimum export price of non-basmati rice to $1,000; reduction

 

NEW DELHI 00001209  002.2 OF 005

 

 

in custom duty on skimmed milk powder to 5 percent from 15 percent

for a tariff rate quota of 10,000 tons; and reduction in import

tariff for butter oil to 30 percent from 40 percent.

 

KV KAMATH IS NEW PRESIDENT

OF CII FOR 2008-09

-----------------------

 

¶7.  (U) Mr. KV Kamath, CEO of ICICI Bank, on May 1 became the

President of the Confederation of Indian Industry (CII - India's

largest industry chamber of commerce) for the year 2008-09.  He was

the Vice President of CII during 2007-08 and succeeds Sunil Bharti

Mittal of Bharti Airtel.  Kamath started his career in 1971 at ICICI

(originally a public sector unit - Industrial Credit and Investment

Corporation of India), but moved to the Asian Development Bank for

some time before returning to a privatized ICICI as its CEO in 1996.

 Under his leadership, ICICI has transformed itself into a modern

financial services group with ADRs listed on the NYSE.  Kamath did

his MBA from IIM-Ahmedabad.

 

U.S. SLOWDOWN IMPACTING INDIAN

TEXTILES INDUSTRY

--------------------

 

¶8.  (U)  The Indian garment and textiles industry is facing lower

demand from U.S. consumers, with retailers such as Wal-Mart, Gap,

Nike, and Target placing fewer orders for readymade garments and

fabrics from India.  Garment exporters are reporting both supply and

demand hurdles, attributing a deceleration in business activity both

to increased cotton prices and increased global competition, while

facing decreased U.S. demand.  An example is Gokaldas Exports, which

is India's largest garments exporter and 50.1 percent owned by the

U.S. private equity firm Blackstone.  The company earns about 96

percent of its revenues from exports and employs over 54,000

workers, but reports its products have become less competitive in

the international market.

 

¶9.  (U) According to the Apparel Export Promotion Council (AEPC),

orders are down about 20 percent from large US retailers,

compressing industry profits margins.  AEPC also notes the negative

impact of the rising rupee on garment exporters.  Indian garment

exporters are now looking at the European market as an alternative

destination for their products.  There is considerable demand for

Indian garments from European retailers, such as Tesco.  However,

AEPC is concerned that the US slowdown may indirectly hit demand

from European retailers.  The domestic market within India is also

booming and offers opportunities to garment manufacturers to offset

lost business.

 

SEZ POLICY UNDER ATTACK

-----------------

 

¶10.  (U) Alleged manipulations in land acquisition deals by some

Indian real estate companies from southern Indian states has

triggered the latest round of debates on the success of special

economic zones (SEZs) policy.  Earlier this week, both the

opposition party BJP and the Congress Party's Left Party allies in

the Parliament questioned hasty approvals of SEZs by the GOI over

the last two years.  Commerce and Industry Minister Kamal Nath

responded to these accusations on April 28 and emphatically stated

that the GOI is open to review the SEZ Act to address any problem

areas.  There has been considerable controversy over land

acquisition in India for SEZ development.  At a time when the ruling

coalition is in a weakened position ahead of national elections next

year, the recent criticism from the Left Parties could lead to

amendments in the SEZ Act as soon as the next Monsoon Parliament in

July.

 

¶11.  (U) Defending the GOI stand on SEZs as engines of growth,

Minister Nath explained to Parliament that currently 80 SEZs are

operational in India, and the GOI plans to assess the overall

 

NEW DELHI 00001209  003.2 OF 005

 

 

success of its 2005 SEZ Act after having 100 SEZs in place (which is

expected later this year).  The GOI has approved 439 SEZs (which are

not yet operational) involving a total of 60,168 hectares of land.

Highlighting the success of SEZs for the Indian economy, Minister

Nath pointed out the huge investments of nearly $17 billion in

various SEZs, employment of 177,000 people, and a 13 percent

contribution to India's total exports of $126 billion.

 

CABINET APPROVALS PROPOSAL FOR

DEVELOPMENT OF PRIVATE AIRPORTS

-------------------------------

 

¶12.  (U) On April 24, the Indian Cabinet cleared the Ministry of

Civil Aviation's proposal to allow private airports, airstrips, and

helipads for private development and operation.  Both the Ministry

and the Directorate General of Civil Aviation (DGCA) have been

authorized to clear private airport proposals, subject to security

clearance from the Ministry of Home Affairs.  While these project

proposals do not require Cabinet approval, all private airports will

have to meet the DGCA's safety norms.

 

¶13.  (U) Between December 1997 and September 2007, the number of

private aircraft in India increased from 96 to 229 and the number of

aircraft for non-scheduled use (charters) from 46 to 196.  The

number of private planes for government and other miscellaneous use

has also increased from 247 to 373.  Despite the significant

increase in private aircraft across India, the number of operational

airports remains the same.  As such, the latest Cabinet decision is

expected to lead to an increase in new airport development to

provide better connectivity to distant and remote locations and

reduce burdens on current operational airports.  Civil Aviation

Minister Praful Patel noted that the Cabinet decision is a positive

step towards meeting the current requirement of 400 to 500 new

private and greenfield airports.

 

¶14.  (U) The Minister also noted, that, in a significant departure

from earlier policies, the Cabinet will allow development of a new

airport within 150km of an existing airport.  However, pending

proposals which have a bearing on the contractual obligations of an

existing airport developer, like those in Bangalore, Hyderabad, or

Delhi, will need Cabinet approval.  The DGCA will be empowered to

clear projects beyond 150km of an existing airport as well as those

which have neither a bearing on existing contractual obligations nor

seek exemption from any rule. The new policy will not have any

bearing on the "under consideration" status of the Uttar Pradesh

state government's proposal to build an airport in Greater Noida nor

growing demands by some to keep the old Bangalore and Hyderabad

airports operational for certain services.

 

¶15.  (U) Under the new simplified policy, the Ministry will provide

a single window to developers and a steering committee headed by

Civil Aviation Secretary Chawla to coordinate the appropriate

clearances from various agencies.  The Ministry's official statement

also clarifies that, "Proposals for airports to handle cargo and/or

nonscheduled flights as well as heliports need not be submitted to

the ministry for approval and these cases may be considered and

decided at the level of DGCA".

 

PARLIAMENT PASSES UNION

BUDGET 2008-09

------------------

 

¶16.  (U) India's budget (Finance bill) for FY 2008-09 was passed by

both houses of parliament this week and received President Pratibha

Patil's assent.  Prior to passing the budget in the lower house of

parliament, the Left parties staged a walkout protesting against

Finance Minister Chidambaram for not addressing their demands,

including a complete a ban on futures trading in essential

commodities.  Chidambaram added several amendments to the bill,

beginning with new fiscal measures to contain inflation. ThU tax

holiday for software companies located in parks run by Software

 

NEW DELHI 00001209  004.2 OF 005

 

 

Technology Parks of India was originally meant to expire in 2009 but

has now been extended for one more year until March 2010. This is

intended to benefit small and medium sized firms that are finding it

difficult to move into the special economic zones due to lack of

availability of space and high rental costs. Further, to provide

relief to public sector units, tax benefits of the seven year tax

holiday has been provided to three oil refineries being built by

public sector oil companies, namely, Indian Oil Corporation,

Hindustan Petroleum Corporation and Bharat Petroleum Corporation,

provided they begin refining not later than the March 31, 2012.

 

¶17.  (U) Press reports indicate that Ram Vilas Paswan, Minister for

Fertilizers and Chemicals, has requested higher fertilizer subsidies

this year due to spiraling global prices. He has demanded that the

subsidy be raised by more than 100% to $25 billion from $11.25

billion paid last year to fertilizer manufacturers, for the same

quantity of fertilizers.  Fertilizer prices around the world have

doubled since January 2007.  The government, however, is not in

favor of increasing fertilizer prices, as that would affect food

grain prices.  The GOI subsidizes domestic as well as imported

fertilizers on behalf of farmers to try to keep food prices

affordable. Comment: Many critics argue for targeting the subsidy

directly to the farmer, rather than to the fertilizer producer or

importer, who does not necessarily pass on the cost savings to the

farmer.  End comment.

 

¶18.  (U) The Fertilizer Association of India (FAI) also has given

indications that the government may have to spend an additional sum

of $6.3 billion during FY 2008-09 on di-ammonium phosphate (DAP)

subsidies. Due to severe shortage of phosphoric acid (the main input

for manufacturing DAP) in the global market, Indian fertilizer firms

have negotiated an import price of $1985/ton with international

suppliers for FY 2008-09 (an increase of 250% over the average price

of $566/ton of imported phosphoric acid during FY 2007-08). The cost

of importing DAP is $1275/ton, while government subsidies enable

farmers to purchase it at $233/ton. The existing subsidy rate for

DAP is therefore around $1000/ton.  A hike in the fertilizer subsidy

bill will impact the fiscal deficit, targeted at 2.5% of the GDP in

the current fiscal year.  In FY 2007-08, the government issued

fertilizer bonds worth $1.9 billion to 23 fertilizer companies. The

government is likely to issue similar bonds in the current year to

compensate the fertilizer subsidies.  Note:  One of the main drivers

for increased prices is more demand for natural gas for

non-fertilizer uses.  Natural gas is 90% of the raw material cost

for fertilizers such as ammonia.  Six new urea plants are being

constructed in Iran, Egypt, Nigeria, Oman and Russia, which should

increase the supply significantly and bring down prices, over time.

End note.

 

INDIA LAUNCHES 10 SATELLITES

WITH ONE ROCKET

----------------------------

 

¶19.  (SBU) India's space agency (ISRO) successfully launched its

workhorse Polar Satellite Launch Vehicle (PSLV) precisely on

schedule at 9:23 am on April 28.  Fourteen minutes after lift-off,

the PSLV began releasing its cargo, which consisted of 10

satellites:   a 900-kg mapping satellite (Cartosat 2A), an 83-kg

"mini" satellite, and eight "nano" satellites.  ISRO's Director of

International Cooperation told Consulate Chennai that the initial

signals indicate that all satellites are in their prescribed orbits.

 He added that this launch operationalized ISRO's Commercial Launch

Services Agreement with the European Space Agency (ESA), noting that

several of the nano satellites were of European origin.

 

MOTOROLA INAUGURATES NEW

MANUFACTURING FACILITY

NEAR CHENNAI

---------------

 

¶20.  (U) Motorola celebrated on April 26 the grand opening of its

 

NEW DELHI 00001209  005.2 OF 005

 

 

new production facility at Sriperumbudur, 50 km west of Chennai.

Henry Mohan, Motorola India's General Manager, told Consulate

Chennai that the new facility, focused on the Indian market and able

to produce one million mobile phones every month, was necessary to

meet the tremendous demand for the company's products.  He also

explained that the facility will produce 6000 base stations yearly

for Indian mobile service providers.  Indicating that he expects the

Motorola to continue to expand in India, he noted that the new

facility currently occupies only one-fifth of the 70 acres of land

in Sriperumbudur the company controls.  Motorola is only the latest

high-tech manufacturer to set up shop alongside the

Chennai-Bangalore highway, where the state of Tamil Nadu wants to

develop an industrial corridor; its immediate neighbors include

major production facilities for Dell, Nokia, Flextronics, Samsung,

Caparo, and Hyundai.

 

¶20.  (U) Visit New Delhi's Classified Website:

http://www.state.sgov/p/sa/newdelhi

 

MULFORD