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Cablegate: New Delhi Weekly Econ Office Highlights

VZCZCXRO9461
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHNE #3034/01 1801142
ZNR UUUUU ZZH
R 291142Z JUN 07
FM AMEMBASSY NEW DELHI
TO RUEHC/SECSTATE WASHDC 6612
INFO RUEHCG/AMCONSUL CHENNAI 0748
RUEHCI/AMCONSUL KOLKATA 0293
RUEHLH/AMCONSUL LAHORE 4022
RUEHBI/AMCONSUL MUMBAI 9932
RUEHPW/AMCONSUL PESHAWAR 4581
RUEHIL/AMEMBASSY ISLAMABAD 3510
RHEBAAA/DEPT OF ENERGY WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RULSDMK/DEPT OF TRANSPORTATION WASHDC
RMHCSUU/FAA NATIONAL HQ WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE WASHDC
RUCNMEM/EU MEMBER STATES COLLECTIVE

UNCLAS SECTION 01 OF 03 NEW DELHI 003034

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SENSITIVE
SIPDIS

USDOC FOR ITA/MAC/OSA/LDROKER/ASTERN/KRUDD
DEPT PASS TO USTR DHARTWICK/CLILIENFELD/AADLER
DEPT PASS TO TREASURY FOR OFFICE OF SOUTH ASIA ABAUKOL
TREASURY PASS TO FRB SAN FRANCISCO/TERESA CURRAN
STATE FOR SCA/INS MICHAEL NEWBILL AND EB/TRA JEFFREY HORWITZ AND TOM
ENGLE
PASS TO FAA THOMAS NASKOVIAK
PASS TO DOT DAVID MODESSIT

E.O. 12958: N/A
TAGS: EFIN EINV EAIR PTER KTFN PREL ENRG ECON IN PK IR
GM, UK
SUBJECT: NEW DELHI WEEKLY ECON OFFICE HIGHLIGHTS


NEW DELHI 00003034 001.2 OF 003


1. (U) Below is a compilation of Economic highlights from Embassy
New Delhi for the week of June 25-29, 2007.

COMING SOON - EFFORTS TO AMEND THE MONEY LAUNDERING ACT
--------------------------------------------- ---

2. (SBU) During a meeting with Econoff on June 29, Joint Secretary
of Revenue Mukul Singhal at the Ministry of Finance (who is charged
with handling money laundering issues and represents India at the
Asia Pacific Group (APG) on Money Laundering) confirmed that his
ministry hopes to introduce amendments to the Prevention of Money
Laundering Act (PMLA) during the next session of Parliament
(expected to begin in mid-July to early August 2007). The
amendments are under final review by the legal department and
undergoing deliberations between Finance and other ministries. When
Econoff asked if the amendments will be in line with FATF
recommendations, Singhal replied that FATF is a universal agreement
and India is being "guided" by its principles/recommendations. When
asked about the likelihood of passing the amendments through
Parliament, Singhal said to keep in mind that that the PMLA is
"produced by administrators, in the interest of administrators ...
and without review by the judiciary." He and his colleagues at the
Ministry of Finance are hopeful the legislation will be reviewed by
Parliament and not referred to a standing committee, which can add
months to legislative passage. When asked about GOI's participation
at the upcoming APG Assessment training in Singapore, Singhal
confirmed that GOI will send two participants. Econoff encouraged
active participation by GOI officials at the APG (through
presentations, volunteering to participate in assessment teams,
etc.). Post will follow up with Finance contacts for the latest
readout on India's participation at the ongoing FATF plenary in
Paris.


INDIA'S OUTWARD INVESTMENT SET TO EXCEED INBOUND FDI
--------------------------------------------- -------
3. (U) Two recent studies highlight the noticeable growth in
India's outbound investment, an emerging significant source of FDI
in the world. A recent joint report prepared by the Federation of
Chambers of Commerce and Industry (FICCI) and Ernst & Young on
"Direct Investments in the US by Indian Enterprises" notes that
India's total outbound equity investments exceeded $15 billion in
2006 and are expected to cross $35 billion in 2007. The outbound
forecast in 2007-08 exceeds the inbound FDI equity target of $30
billion that India has set for the year. Another study 'Global
Outbound FDI Potential of Indian Companies 2007' conducted by Oxford
Intelligence points out that India's share of global outward
investment has trebled over the last four years and outbound
activity increased by 26% alone in 2006. While Tata's large
acquisitions took the headlines, Indian overseas investments were
rather broad-based, with small and medium firms in the $20-60
million range making acquisitions in pharma and healthcare,
irrigation, electronics, automotives, textiles, telecom, paint,
paper and gems and jewelry sectors.
4. (U) The FICCI Report also highlighted India and the US' surging
bilateral investment flows. US equity investments in India doubled
from the year before to hit $856 million in 2006-07; even more
striking, Indian companies invested over $2 billion in the US in
2006-07. The information technology (IT) and IT-enabled services
sectors accounted for nearly half of India's deals in the US in
2006-07. The study also found that in the business process
outsourcing space, Indian companies are now increasingly opening up
units in the US, providing opportunities of large-scale employment
there, and giving rise to a "reverse outsourcing" trend. FICCI
Secretary General Amit Mitra expects that India's cash-rich and

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highly profitable companies could invest roughly $10 billion in the
US by 2010.
PLANS TO DEVELOP NEW GREENFIELD AND SMALL AIRPORTS
--------------------------------------------- -----


NEW DELHI 00003034 002.2 OF 003


5. (U) The Associated Chambers of Commerce and Industry of India
(ASSOCHAM) held a National Summit on Aviation Industry Issues on
June 27, bringing together 75 participants from industry, NGOs,
government, diplomatic missions, and media. Civil Aviation Joint
Secretary K N Srivastava stated that given the interest in

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developing smaller airports, the Airport Authority of India (AAI)
and private industry were planning to develop at least six
greenfield airports and 50 smaller airports within the next five
years in Maharashtra, Gujarat, Karnataka, and Bihar, among others.
Plans to build rail links to/from airports for ten major cities,
including Delhi, Mumbai, Hyderabad, and Pune, were also highlighted.
Other panelists emphasized the need to address consumer concerns,
the inadequacy of aviation regulations, the shortage of properly
trained ground and cabin personnel, and the industry's need to meet
the demands of international clients.

CHALLENGES FACING SOUTH ASIA REGIONAL INTEGRATION
--------------------------------------------- ----

6. (U) Ejaz Ghani, Economic Adviser at the World Bank, on June 27
chaired a multi-country video panel from Washington on the World
Bank report "South Asia: Growth and Regional Integration".
Participants from India, Pakistan, Afghanistan, Bhutan, and Sri
Lanka provided their suggestions and critiques to Ghani on the
report. The event emphasized The South Asian Association for
Regional Cooperation (SAARC) member countries' overall desire to
cooperate economically, although the majority of member countries
present at the video conference highlighted political differences,
primarily between Indian and Pakistan, as a barrier to growth.

7. (U) Ghani stressed the need for regional collaboration in three
primary areas - energy, transportation, and water. On energy, he
said there is an abundance of clean energy in the region and
energy-surplus countries can gain from exporting their supplies. On
transportation, he said the cost and difficulty of border crossing
and border transfers are among the largest impediments to growth.
Ghani highlighted geography and infrastructure as underutilized
resources and added that intricate non-tariff barriers, such as
indirect supply chains requirements, hinder growth. On water, he
said flood control is essential to prevent constant infrastructure
damage, which in turn could improve water availability and power
generation. One of the greatest advantages of regional cooperation,
he emphasized, would be poverty reduction - particularly for
states/districts in the outlying areas of a country (among the
poorest in India). Ghani noted the political climate for regional
integration has improved in recent years and that there is a demand
for sub-regional and regional cooperation despite political
differences. He also mentioned that the private sector sees
regional cooperation as a new opportunity for growth.

8. (U) South Asian participants raised a number of issues, mostly
political in nature. Pakistani speakers expressed concern that
South Asian countries produce many of the same products, which
results in more competition than collaboration on both high-value
and low-value products. Both Indian and Pakistani members stressed
political differences between their countries as barriers to
collaboration. The Afghans questioned the potential for regional
integration when more than 90 percent of the subcontinent's GDP is
constituted by Pakistan and India, resulting in "no real cooperation
and no real integration." In addition to overcoming political
differences with border countries, they stressed concerns about
security and political stability in Afghanistan.

9. (U) The Bhutanese recommended multilateral organizations like
the World Bank and Asian Development Bank coordinate regional
efforts to avoid duplication and accelerate practical regional
solutions. They also commented that SAFTA has been a slow process
and much more needs to be done on customs procedure, transportation
infrastructure, etc. The Sri Lankan delegation worried that
economic integration between China and India, which the report

NEW DELHI 00003034 003.2 OF 003


promotes, might benefit SAARC member countries in the short run with
lower consumer prices, but harm India and its neighbors' competing
industries in the long run. The Bangladeshi representative
recommended establishing regional authorities for water, energy, and
transportation. He was pleased with India's newfound will (as the
current SAARC chair) to increase regional and sub-regional
cooperation.

LALU CONTINUES TO PROMOTE
TRANSFORMATION OF THE INDIAN RAILWAYS
---------------------------------

10. (U) Railway Minister Lalu Prasad has become a regular featured
speaker for student groups. On Thursday, June 28, he addressed a
graduating class from the Indian Foreign Service Institute as well
as guest diplomats and media about transforming the enormous Indian
railway system into a profit making organization. Citing his rural
and modest background as an inspiration to making the railways
affordable to the "common man," he highlighted the importance of
rooting out corruption in an effort to further reduce passenger
fares. Fiercely affirming that India has a social responsibility to
provide affordable transportation to the masses, he maintained
privatization is not the answer (though he invites private sector
participation in modernizing the railway system). Unlike many of
the European railways which Minister Prasad recently visited, he
noted that India's railways are often overcrowded and lack many of
the same amenities. Though it will take time, Prasad said, his
vision for the railways requires an Indian version and not simply an
adoption of Western systems, which will include world class
stations, facilities for farmers at stations, and a dedicated
freight corridor.

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

Mulford

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