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Cablegate: New Delhi Weekly Econ Office Highlights for the Week Of

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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

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