Financial Daily from THE HINDU group of publications
Tuesday, Oct 18, 2005
Financial Daily from THE HINDU group of publications Tuesday, Oct 18, 2005 |
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Opinion
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Foreign Relations Industry & Economy - Foreign Trade CBMs for India-Japan trade ties Raghu Dayal
India was the beneficiary of Japan's first loan in 1958; India is among the largest beneficiaries of Japan's ODA (overseas development assistance). But things changed as Japan engaged its neighbours in East and South-East Asia. The India-Japan economic and commercial exchanges declined. From being the second main destination of India's exports in the early 1990s, , next only to the US, with a 6 per cent share of the total in 1996-97, its share dropped to 2.7 per cent of India's exports in 2003-04. The share of Indo-Japanese trade in India's total declined from 5.7 per cent to 3.08 per cent during the period. While 45 per cent of Japan's foreign trade is with Asia, India's share is a paltry 1 per cent in it, while China has the largest, at 34 per cent. As the Japanese Ambassador to India, Mr Yasukuni Enoki, put, Japanese investments in China is 30 times that in India; likewise, their bilateral trade is 30 times more. If Taiwan and Hong Kong are also counted as part of China, the trade turnover exceeds $200 billion to the region. Even in terms of tourist arrivals, the difference is enormous — some 80,000 Japanese tourists come to India every year against over two million to China. With the Japanese economy finally coming out of the long recession, it is perhaps a good time for India to engage with it. But India and Japan would do well to factor in the comparative lags and strengths of the two economies to complement each other. Some 70 Indian information technology companies already have a presence in Japan with about 4,500 professionals working there. Japan's IT sector outsources to China worth $1.2 billion but only a fraction of that to India. There is immense scope for Indian IT firms is such sectors as financial and telecom services. Japan has been aging faster than any other country. In the 25-year period 1970-1994, the number of those over 65 doubled, from 7 per cent to 14 per cent of the population. By 2015, more than a fourth of its population would be over 65, a higher proportion than in any other country. The birth rate has also been declining since the 1960s. Marriage has gone out of fashion. Against this backdrop of Japan's shrinking active workforce, India has almost 40 per cent of its population below 18. By 2015, some 550 million Indians would be under 20. There is surely scope for the two countries to complement each other's requirements, in particular, for Indians to explore opportunities in the services sector. With two varying cultural strands, India and Japan need to foster strengths of commonality. Favourable track record of Japanese companies in India should spur many more to explore the vast potential that India offers. The successes achieved by Maruti-Suzuki, Toyota-Kirloskar, Sona Koyo, Mitsubishi Chemicals, Toshiba, Sony, Matsushita and others should encourage many more to come to India. According to a JETRO survey, about 76 per cent of the Japanese firms envisaged additional investment in India, 50 per cent of them opting for expansion and diversification, and over 40 per cent for high value add. Specific sectors identified for a Japanese thrust include infrastructure, including power and construction; material sciences; pharmaceuticals and chemicals, and IT. As a confident and resurgent India's profile and potential beckons, Japan and its corporates recognise that they are dealing with a hugely changed country. Goldman Sachs predicts India becoming the third largest economy by 2030; Deutsche Bank thinks this will happen by by 2020 itself. A.T. Kearney's Global Index of FDI Acceptability for 2004 ranks India third, after China and the US. Yet, India has its task cut out. As the Indo-Pak éntente is predicated on CBMs (confidence building measures), so also should Japan and India, in a different context, devise CBMs for the two peoples to forge sustained and abiding relationships. Let there be a liberal exchange of people of the two countries through tourism, cultural festivals, scholarships, students exchange schemes, language courses, and deeper interaction between entrepreneurs and intellectuals. The auto industry is one example of Japan's general concentration on product rather than price competition. The ability to manufacture flexibly was a dominant part of the industrial strategy of Japanese firms in the high-growth period. An Australian expert, invited by the Japanese government had this to say in his report, as excerpted in Japan Times of August 18, 1915: "Japan commercially, I regret to say, does not bear the best reputation for executing business. Inferior goods, irregularity and indifferent shipments have caused no end of worry... . My impression as to your cheap labour was soon disillusioned when I saw your people at work. No doubt, they are lowly paid, but the return is equally so; to see your men at work made me feel that you are a very satisfied easy going race who reckon time is no object. When I spoke to some managers, they informed me that it was impossible to change the habits of national heritage... First class managers... are required to wake things up and get out of the go-as-you-please style that seems universal at present... " Far from a mere copycat country, Japan emerged as the undisputed technological powerhouse of the world. In 1987, for the first time ever, the top three recipients of patents in America were Japanese: Canon, Hitachi and Toshiba. By 1984, Japanese firms got more US patents than those of Britain, France and West Germany combined. The rest, as they say, is history. (The author is a former Managing Director of Concor.)
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