The Hindu Business Line : Prime Minister's visit to Japan — To the land of rising opportunities

The India growth story has caught the fancy of Japanese investors. The complementariness of the economies has much to offer each other, across sectors. The four-day visit to Japan of the Prime Minister, Dr Manmohan Singh, should take the bilateral ties to a higher level, says AJAY KHANNA

The Japanese Prime Minister, Mr Shinzo Abe, and the Prime Minister, Dr Manmohan Singh. Seeking the right company.

No two economies are, perhaps, as complementary to one another as India and Japan. The latter is a relatively small (in terms of size), labour-scarce and capital-abundant nation. The former is a large nation, with a massive labour force. While the majority of Japan's workforce is ageing, over half of India's population is below the age of 25. Moreover, India's prowess in the software sector complements Japan's excellence in hardware. And India's abundance of raw materials and minerals matches Japan's capabilities in technology and capital to produce high-value-added manufactured goods.

Today, India holds tremendous promise for Japanese investors. During the first half of the current financial year, the economy recorded a growth rate of 9.1 per cent. The fundamentals of the economy have never been better. Investments are at over 40 per cent of GDP and the manufacturing sector is growing at nearly 12 per cent.

A new chapter

Japan, the second largest economy in the world in terms of GDP, is fast realising the benefits of strengthening its economic ties with India. The Prime Minister, Dr Manmohan Singh's four-day visit to Japan beginning Wednesday is, therefore, expected to add immense value to bilateral ties. The two countries are set to open a new chapter in their relationship as Dr Manmohan Singh, with his Japanese counterpart, Mr Shinzo Abe, launch the `India-Japan' Friendship Year 2007.

That the India growth story has caught the fancy of Japanese investors is well reflected in the increase in investments from Japan over the last few years. Japan has emerged the third largest source of Foreign Direct Investments for the period 1991-2006 (July 2006). FDI inflows have grown from $78 million in 2003-04 to $126 million in 2004-05 and $208 million in 2005-06.

Growing presence

In the current financial year, FDI from Japan is expected to increase three fold — to over $500 million. Japanese companies are planning to increase significantly their presence in India. These include Suzuki, Asahi India, Toyota Motor, Honda, Kansai Paint, Koito Manufacturing, Sanyo, and Marubeni.

It would not be an exaggeration to say that the Japanese investors' confidence in the Indian economy has played a role in boosting the Sensex. Japan has invested nearly $6 billion in the stock market.

Japanese institutional investors made a net investment of $2.26 billion (21 per cent of the total) and emerged the top FII source country the last financial year. Japan will be the partner country at the 17th International Engineering and Technology Fair (IETF) 2007. This is expected to be the largest Japanese exposition in India so far. With over 85 Japanese companies displaying their products, this fair is sure to lead to sizeable diversified investment in India.

Areas of interest

In the financial services sector, Japanese companies such as Mitsubishi UFJ Financial Group Inc. and Mizuho Financial Group Inc. have established a base in India. The Nomura Group, the largest securities firm in Japan, is also setting up operations. It plans to tap the growing financial market and provide Indian firms and individuals an opportunity to invest in Japan.

Japan has been a major supplier of technology to India. Around 840 collaborations are operational. Indian industry, which is earning accolades for its quality and cost-consciousness worldwide, owes much to its Japanese partners. Best practices such as Kaizen, Just-in-Time, TQM (toal quality management) and `Lean Manufacturing' have come from Japan. While setting up their operations in India, Japanese firms ensured that their management practices were also followed.

India is also drawing the attention of Japanese small and medium enterprises (SMEs). Five business delegations from Japan, covering 126 enterprises including several SMEs, have visited India. This is good news as SMEs account for approximately 40 per cent of India's industrial production. Over 90 per cent of industrial units in India are SMEs and they account for 34 per cent of exports, and employ nearly 29 million people.

Indian and Japanese SMEs have a lot to gain from one another. The former can leverage the brand, technical expertise and quality standards of Japanese partners, while the latter can leverage the marketing and distribution channels to tap the growing Indian market.

New Delhi has taken steps to strengthen the SME sector by introducing the Small and Medium Enterprises Development Bill, 2005 in Parliament.

Industries with vast opportunities for SMEs include the auto-components, textiles and garments, and pharmaceutical.

New opportunities

India's infrastructure sector too offers massive opportunities for investment and technology partnerships.

The Investment Commission of India estimates that investment opportunities worth $250 billion exist in India's infrastructure sector over the next five years.

The time is ripe for Japanese companies to enter the India market under the public-private partnership approach. Roads and highways, Special Economic Zones, urban infrastructure, airports — all offer excellent opportunities for the high-technology Japanese firms.

Both India and Japan are keen to foster the existing friendship. In January, when the Japanese major, Mitsubishi Chemical Corp, offered another huge dose of FDI at Haldia in West Bengal, the Chief Minister, Mr Buddhadeb Bhattacharjee, offered the Japanese an island off the port town to build a Japanese township and a golf course.

As per the Goldman Sachs BRIC report, Japan and India would be among the top four economies by 2050. With both the nations eager to strengthen their economic ties, that target can be realised a lot sooner.

(The author is CEO, India Brand Equity Foundation. The views are personal.)

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