UNCLAS SECTION 01 OF 05 NEW DELHI 001354
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
EEB/CIP DAS GROSS, FSAEED, MSELINGER
USTR FOR CATHERINE HINCKLEY
E.O. 12958: N/A
TAGS: EAGR, EFIN, EINV, EPET, ETRD, SENV, IN, ECPS, BEXP
SUBJECT: NEW DELHI WEEKLY ECON OFFICE HIGHLIGHTS FOR THE WEEK OF MAY
12-16, 2008
NEW DELHI 00001354 001.2 OF 005
1. (U) Below is a compilation of Economic highlights from Embassy
New Delhi for the week of May 12-16, 2008, including the following
items:
-- EXIM VISIT HIGHLIGHTS NEW INFRASTRUCTURE FINANCING
FACILITY
-- EXIM MEETS WITH INDIA INFRASTRUCTURE FINANCE CO.
-- INDUSTRIAL GROWTH MODERATES IN FISCAL YEAR 2007-08
-- SLOWING INDUSTRIAL GROWTH MAY PROMPT ECB CHANGE
-- INDIAN EXPORTERS PLEASED WITH WEAKER RUPEE
-- GOI BROWBEATS CEMENT AND STEEL INDUSTRY INTO PRICE CUTS
-- FAKE DRUG MARKET EXPANDS IN INDIA
-- MARKETING APPROVAL MAY BE LINKED TO PATENTS
-- CII SUMMIT ON CSR
EXIM VISIT HIGHLIGHTS
NEW INFRASTRUCTURE FINANCING FACILITY
---------------------------------
2. (SBU) As a reflection of Export-Import Bank's (Ex-Im) growing
commitment to India, Ex-Im Chairman James Lambright visited Mumbai
and New Delhi on May 12-14 to announce the export credit agency's
new $2.2 billion India Infrastructure Facility (IIF). The facility
has identified eight Indian financial institutions to participate in
the facility: Power Finance Corp., Infrastructure Development
Finance Co., IDBI Bank Ltd., India Infrastructure Finance Co., State
Bank of India, Infrastructure Leasing &Financial Services, India
Renewable Energy Development Agency and Punjab National Bank. All
but IIFCL signed memoranda of understanding with Ex-Im during
Chairman Lambright's visit. Lambright used the visit to highlight
Ex-Im's growing commitments to India, currently at $3.5 billion,
with another $6 billion of commitments in the pipeline for the next
few years. Given the pipeline, Lambright expects India to surpass
Mexico as the largest beneficiary of Ex-Im financing. Mexico
currently has $7 billion in financing. Exim's total worldwide
portfolio of loans outstanding is approximately $60 billion.
EXIM MEETS WITH
INDIA INFRASTRUCTURE FINANCE CO.
--------------------------------
3. (SBU) Ex-Im senior loan officer and Emboffs met with IIFCL
chairman Kohli on May 15 to discuss the reasons behind IIFCL's
decision not to sign a memorandum of understanding with Ex-Im.
Kohli indicated that the board had initally decided against the
signing, but were now more inclined to do so, if the board could
receive information highlighting where US exporters could
competitively supply Indian infrastructure needs. Kohli was hopeful
that the board could resolve the issue soon. Kohli noted that their
use of the Ex-Im guarantees must still get approval of the RBI, just
like any private entity. However, he implied that IIFCL would have
an easier time than other entities because of its close government
ties. It has a higher-than-usual ceiling on ECB guarantees of $2.5
billion, of which IIFCL used $1 billion last year and plans to use
$1.5 billion this year. Kholi also hinted that their ceiling could
be raised to $5 billion if necessary.
4. (SBU) Kohli also provided some insights into the operation of
the foreign exchange reserve investment facility recently set up as
a subsidiary of IIFCL in London. IIFCL as a whole has disbursed
$500 million out of $4 billion committed, although none has yet come
from the UK entity. They will receive funds in $250 million
tranches and disburse as they go, with the Indian office making all
lending decisions. They pay LIBOR to the RBI and charge a nominal
markup to borrowers. They have access to $5 billion per year, which
at the moment is a non-binding constraint. London was chosen
because of the strength of the regulatory environment, despite the
NEW DELHI 00001354 002.2 OF 005
fact that the UK's regulatory body, the Financial Services Authority
(FSA) has no authority over them. Singapore and Dubai were their
first choices, but the RBI overruled.
INDUSTRIAL GROWTH MODERATES
IN FISCAL YEAR 2007-08
------------------------
5. (U) The index of industrial production (IIP) for the month of
March 2008 dropped to 3% (the lowest since February 2002), although
some of the change was due to March 2007's high statistical base -
growth that month was 14.7%. March 2008 output put industrial
growth for full FY 2007-08 at 8.1% versus 11.6% in FY 2006-07. Rate
sensitive consumer durables such as motorcycles, refrigerators, and
air conditioners witnessed the sharpest drop, with negative growth
of 2.1% in March compared to the same time last year. The
manufacturing sector, which carries a weight of 79.3% in the IIP,
grew by just 2.9% in March 2008. In addition, lower output in crude
oil, petroleum refinery, electricity generation and coal also pulled
down the IIP in March. Cumulatively, the manufacturing sector
registered a still decent growth of 8.6% in FY 2007-08, although
down from 12.5% in FY 2006-07.
6. (U) Despite sluggish growth in the IIP in March 2008, India's
core infrastructure sectors, with a combined weight of 26.7% in the
IIP, recorded a robust increase of 9.6% in March 2008 (driven by
growth in finished steel at 21% and cement at 9.3%) compared to
10.5% growth in the same period last year. However, for full FY
2007-08, growth in the six core sectors fell by almost half to 5.6%
compared to 9.2% in FY 2006-07. Growth in capital goods remained
healthy as it grew by 16.5% in FY 2007-08, marginally less than the
18.2% registered in 2006-07, indicative of continued investment
taking place in the economy.
7. (U) Economists expect industrial growth to revive in April and
moderate to around 7.5% in FY 2008-09. Industry analysts are not
buying the base effect explanation and opine that the industrial
output is slowing down due to higher interest rates and rising costs
of inputs. They further blame the fall in consumer durables growth
on faulty construction of the IIP. For instance, the index includes
black and white televisions, VCR's and tape recorders. Deputy
Chairman of the Planning Commission Montek Singh Ahluwalia has also
voiced concern that there exist certain lags in India's data
collection systems that need revamping. The GOI is already working
towards overhauling the consumer durables basket, in which new goods
such as liquid crystal displays and laptops will find a place, while
typewriters and sewing machines may be phased out.
SLOWING INDUSTRIAL GROWTH
MAY PROMPT ECB CHANGE
--------------------------
8. (SBU) Economic Times reported today that the IIP data showing
that industrial growth slowed to 3% in March compared to March 2007
may prompt the Ministry of Finance and RBI to loosen restrictions on
domestic companies' external commercial borrowings (ECBs). In
August of last year, the RBI announced that companies were limited
to repatriating only $20 million of any foreign financing; the rest
had to be spent outside India, so as to mitigate the inflationary
and rupee appreciation pressure from capital inflows. The
government also places - though did not enforce in FY08 - an
aggregate $22 billion limit on total ECBs per year as well as
limiting Indian bank guarantees of foreign financing to 25% of net
worth. In light of the moderation in industrial growth, stemming
from higher domestic interest rates and rising input costs, coupled
with the recent FII outflows and rupee depreciation, market analysts
anticipate that the RBI may be more willing to consider easing ECB
restrictions. The Ministry of Finance's Joint Secretary for Capital
Markets, K.P. Krishnan, had already indicated to Emboffs MoF
receptiveness to changes in the policy.
NEW DELHI 00001354 003.2 OF 005
INDIAN EXPORTERS PLEASED
WITH WEAKER RUPEE
------------------------
9. (U) Reports indicate that the approximately five percent
depreciation in the Indian rupee against the US dollar over the last
two weeks is helping Indian exporters as they book new orders,
especially vis-a-vis China, where the yuan-dollar rate has been
relatively steady. The rupee is now trading at around 42.5 against
the dollar. The Indian currency gained more than 10 per cent in
fiscal year 2007-08, but it reversed and started depreciating in
April, due to a combination of lower capital inflows and higher
imports. Despite the relative increase in volatility, the Reserve
Bank of India has abstained from intervening in the foreign exchange
market so far. Based upon the weaker rupee, the Federation of
Indian Export Organizations (FIEO) now hopes to achieve an export
target of $200 billion with improved volumes due to the weaker
rupee. According to FIEO, India missed its target by five billion
dollars in IFY 2007-08, with a total of $155 billion in exports, due
to slowing demand in the US coupled with the weakening of the dollar
against the Indian rupee during that time period.
GOI BROWBEATS CEMENT AND STEEL
INDUSTRY INTO PRICE CUTS
------------------------------
10. (U) On May 14, the Government of India (GOI) persuaded local
secondary steel makers and cement manufacturers to cut product
prices, as a part of its efforts to contain inflation. Earlier,
primary steel producers promised to cut prices to ensure better
availability of steel for the domestic industry. Steel secretary
R.S. Pandey told press reporters that the secondary steel producers,
accounting for about 7 million tons of steel production, have
pledged to hold the new reduced price line for the next three
months. He also confirmed the GOI is examining the request by the
steel industry to lower recently imposed export duties. Taking
credit for the recent measures, Pandey highlighted that steel
product prices have come down by 20 percent from their peak. The
GOI has also pressured cement manufacturers into rolling back prices
to levels prevailing before April 30. The cement producers have
agreed to hold prices steady for at least three months.
FAKE DRUG MARKET
EXPANDS IN INDIA
-----------------
11. (U) ASSOCHAM (Associated Chamber of Commerce - a prominent
industry body) estimates that the counterfeit drugs market in India
is growing at 25 percent annually. In fact, the Organization for
Economic Cooperation and Development's (OECD) latest figures say 75
percent of fake drugs supplied the world over have their origins in
India. However, the Government of India's (GOI) own Health Ministry
estimates are much more conservative, putting the amount of
counterfeit drugs supplied globally and sourced from India at about
5 percent. The GOI defines a counterfeit medicine as one that has
no active ingredient or is an expired drug which has been re-labeled
and sold. (Note: There is a general confusion in terminology
between fake, spurious and counterfeit among Indian media, and the
terms are interchangeably used. Under Indian law, both counterfeit
and fake drugs are described as 'spurious' medicines. U.S. law
defines counterfeit drugs as those sold under a product name without
proper authorization. Counterfeiting can apply to both brand name
and generic products, where the identity of the source is
deliberately and fraudulently mislabeled in a way that suggests that
it is the authentic approved product. End Note.)
NEW DELHI 00001354 004.2 OF 005
12. (U) These findings by various organizations and the looming
threat of India becoming a big counterfeit drug market have prompted
the Drug Controller General of India's (DCGI) office to undertake a
Rs.5 million (approx $120,000) study to assess the actual size of
the spurious drug market in India. DCGI plans to complete the
survey within six months by randomly collecting 31,000 samples from
various drug outlets. With a detailed project design, it has
already identified for testing 61 popular drug brands in nine
therapeutic categories, including anti-tuberculosis, anti-allergy,
diabetes, cardiovascular diseases, anti-infective steroids,
anti-malaria, anti-histamine, and multi-vitamins. DCGI's office
claims that on average 1000 drug inspectors pick up 40,000 drug
samples annually for regular testing according to which 0.3-0.4
percent have zero active content while 8 percent are substandard.
However, a local drug expert, Dr. C.M. Gulati reportedly stated that
the 26 government labs test only one percent of the drugs
manufactured annually.
13. (U) GOI Department of Biotechnology Secretary, M K Bhan, has
been quoted as saying that the "counterfeit drug market is still not
a colossal problem in India, but a close watch on the [counterfeit]
market's expansion is required to punish those involved with it."
Dr. C M Gulati observes that the estimates on India's counterfeit
drug market are highly exaggerated, and the cost of producing fake
and real drugs in the low-cost Indian market is roughly equivalent,
which acts as a disincentive to counterfeiters. According to Dr
Gulati less than 3 percent of the Rs.320 billion ($7.7 billion)
pharmaceutical industry in India is spurious.
14. (SBU) Health Attach met with the DCGI Dr. Surinder Singh and
emphasized that for the DCGI's estimation of the counterfeits
market, sample size and a proper sampling scheme are essential to
obtain accurate results.
MARKETING APPROVAL
MAY BE LINKED TO PATENTS
-------------
15. (U) According to press reports, the Drug Controller General of
India (DCGI) is considering linking pharmaceutical marketing
approval to patents. Such a move could prevent domestic
pharmaceutical manufacturers from selling generic versions of drugs
that are under patent in India. Currently, the DCGI does not
consider patents in evaluating applications for marketing approval,
leaving the burden on the innovating company to address cases of
patent infringement in the courts, after the generic has gone to
market. While this new policy of the DCGI could usher in dramatic
changes in the Indian pharmaceutical industry, there is no current
timeframe for when the implementing regulations might be in place.
CII SUMMIT ON CSR
-----------------
16. (U) Confederation of Indian Industry (CII) organized a national
summit on Corporate Social Responsibility (CSR) in New Delhi in the
first week of May. Representatives of the government, NGOs and
civil society participated in the summit. Also participating were
senior officials from Coca-Cola, GE Electric, Microsoft, Boston
Consulting Group, Hero Honda, the Chief Minister of Rajasthan, a
Member of Parliament, Secretary of the Ministry of Corporate
Affairs, a Member of the Planning Commission, and press. The summit
emphasized that in order for both companies and the country to
develop, it is important to adopt an index to measure the impact on
human development around the company's operations. This will help
avoid mistrust toward industry, unrest among the community
surrounding the area of operation and contribute to inclusive growth
in real terms.
NEW DELHI 00001354 005.2 OF 005
17. (U) Panel discussions were held on India's experience with CSR
and where it is going. Discussions considered whether privatization
is a solution, since India's social infrastructure has not kept up
with the growth and needs. The sessions tried to explore how
government and industry can partner together to make widespread
inclusive growth.
The companies agreed upon working towards protecting and preserving
the environment. Stress was laid on improving education, health
care and water management through Public Private People Partnerships
(P4). Further, there were very positive discussions on empowering
rural India and adding millions to the economic mainstream.
18. (U) Visit New Delhi's Classified Website:
http://www.state.sgov/p/sa/newdelhi
MULFORD