The Hindu Business Line : Rising opportunities

The Japanese Prime Minister, Mr Shinzo Abe, will be visiting New Delhi later in the year, the hope being that when he comes substantial progress would have been made in drawing up a Comprehensive Economic Cooperation Agreement (CECA) between the two countries. In fact, the expectation is that by October the accord will be finalised and be ready for adoption. This is good news for both the economies because it should help to bring them closer to each other at a time when structural shifts are happening in the international economic power game requiring, among other things, fresh alignments in Asia. The Prime Minister, Dr Manmohan Singh's visit to Tokyo in December last year gave a big boost to this process when he specifically said that bilateral "trade and investment ties (were) well below potential ... which must change."

The problem is that while the exhortations are flowing thick and fast, the conditions on the ground for effective economic cooperation are not what they should be. The point has been raised at numerous meetings by Japanese investors who have said that unless there is a marked improvement in India's labour laws, taxes, legal and regulatory framework, and basic infrastructure, it would be difficult for them to respond to the call by Indian and Japanese leaders to take the bilateral economies ties to a higher plane. That the grievances are genuine is indicated by the remark of the Joint Study Group on strengthening bilateral economic relations, that in order to step up bilateral investment flows, "the two countries are required to improve their investment environments by removing constraints to foreign investment on an institutional basis." Clearly, the hurdles cannot be removed in a hurry because they are embedded deep in the Indian policy structure which, as experience has shown, is loathe to being reformed expeditiously.

This apart, and despite the sharp increase in Indian software exports to Japan in recent years, the structure of bilateral trade has remained basically the same over the past few decades. This fact has been underscored by, among others, the Joint Study Group itself which said that trade "is highly concentrated in a narrow range of products with India's exports dominated by raw materials and minerals and Japan's exports dominated by highly capital- and knowledge-intensive manufactured goods." Since Japanese investment in India is stymied by its own problems, it is clear that unless the trade pattern alters, there can be no quantum leap in India-Japan economic relations regardless of the institutional effort made. It stands to reason, therefore, that this is one area where the comprehensive economic accord should devote special attention if it is not be described in the years ahead as just one more wasteful exercise.

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