The Hindu Business Line : Stress on comprehensive economic agreement

Given the big strides in economic co-operation between India and Japan in the last few years, and the 2006 meeting between the two Prime Ministers taking bilateral relations forward to a “strategic and global partnership”, the Japanese Prime Minister, Mr Shinzo Abe’s visit to India could usher in a new era in the relations between “two natural friends,” says N. KRISHNASWAMI
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The year 2007 has been designated the Japan-India Friendship Year by the governments of both the countries. The Prime Minister, Dr Manmohan Singh, visited Japan in December 2006 to flag off the Friendship Year and his counterpart, Mr Shinzo Abe, is paying an official visit to India for three days from Tuesday — August 21-23. The Friendship Year is being observed in both the countries with cultural events, educational and economic lectures and seminars to remind us of our hoary connections and about the opportunities for working together in the future. Mr Abe’s visit appears to be part of this exercise, a reciprocal gesture, though a little ill-timed — both the Prime Ministers are currently under siege at home in their respective countries.

There is not much hype or high expectation about Mr Abe’s visit, as was seen during his predecessor, Mr Koizumi’s visit to India in 2005 or during Dr Manmohan Singh’s visit to Japan in 2006. Nevertheless, Mr Abe’s visit is significant. Successive Prime Ministerial visits alternately since 2000, initiated by Mr Yoshiro Mori, the first by a Japanese Prime Minister after a decade, have helped the two “reluctant friends” get closer and understand each other better.

Mr Mori’s initiative to bring together India and Japan in a “global partnership” led to “strategic partnership” between the two countries — to a higher level of dialogue to boost the economy, security, energy and other areas of cooperation, thanks to Mr Koizumi’s efforts.

During the Summit between Mr Shinzo Abe and Dr Manmohan Singh, the dynamic and forward-looking Abe took Indo-Japan bilateral relations forward to a “strategic and global partnership” to impart stronger political, economic and strategic dimensions to contribute to greater regional peace and stability. All these initiatives helped open a new chapter in friendly and co-operative efforts in diverse fields between the two countries, after half a century of tepid diplomatic relations.

Rising FDI

Experts as the Japanese are in statistics, the Japanese government has quantified the strides in economic cooperation between Japan and India in the last few years. According to data released by the Japanese Ministry of Finance, Japan’s FDI in 2006 was 59.8 billion Yen ($515.5 million), which doubled from 29.8 billion Yen ($254.7 million) in 2005 — the largest annual FDI inflow from Japan to India. In addition, Japanese companies are also investing in India through their subsidiaries in third countries, especially those in Asean; between April and November 2006, Japan invested about $5.15 million through subsidiary companies.

There has also been an increase in the number of portfolio investment funds. The number of such Japan portfolio funds doubled from eight to 16 between November 2005 and March 2007 and the Net Assets of the Japan India Portfolio Investment Funds as of March 2007 was $8.2 billion against $4.7 billion in November 2005. Joint ventures in India are also contributing to India’s exports to third countries and there is a quantitative increased presence of Japanese business in India in the form of business establishments in different parts of the country — which have increased from 231 to 475.

Flattering though these numbers are, they stand no comparison with Japan’s China involvement — in terms of investments, trade and establishments.

No other country in Asia has benefited more from Japanese economic interest than China, but there is hardly any political bonding between these two countries, for various reasons. However, there is in Japan a sudden awakening of interest in India, thanks to Goldman Sach’s now famous BRIC Report, which projects India, along with China and Russia, as one of the great economic powers by 2050.

It is amazing, though, that in spite of an awareness of India’s potential among the higher echelons, it is “still an unfamiliar country” for a large section of Japanese people, besides many persisting misconceptions about the country.

It is a good augury that the Joint Statement issued by Prime Ministers Abe and Manmohan Singh in 2006 attached great importance to people-to-people exchanges and endorsed a number of incentives to qualitatively upgrade such contacts.

Economic agreement

According to Japan Bank for International Cooperation (JBIC), India ranks No.1 as investment destination for Japan in 2007 against No.2 ranking given by it in 2005. A recent Survey by Japan External Trade Organisation (JETRO), the investment and trade promotion wing of Japan’s Ministry of Economy, Trade and Industry, puts India at the top of the list with regard to business prospects for 2007 for the subsidiaries of Japanese companies.

Yet, a section of Japanese business speaks of the “difficult business climate” in India. The two Prime Ministers are convinced that a comprehensive economic agreement between the two countries must be a core element of the strategic partnership, and the Joint Task Force set up for the purpose has been asked to expedite its exercise in reconciling differences and facilitating the conclusion of the Economic Partnership Agreement between Japan and India before the target year of 2009.

Myriad areas of cooperation between Japan and India have been identified, including political, economic and strategic sectors. With Japan set to break its self-imposed constitutional fetters on military affairs, the time is right for an Indo-Japan defence collaboration. The Indian military has always admired Japanese technology. Instead of stopping at cooperating with coast guards and patrolling sea-lanes there could be structural cooperation between the two countries to mutual advantage.

Both India and Japan are energy-importing countries. While the two countries have agreed that energy security should be the key component of their bilateral relationship, no concrete visible action has been taken so far. The two areas where Japan and India could cooperate are solar and civilian nuclear energy — possibly, geothermal too. Japan might consider technical assistance in harnessing solar power.

SME interaction

A long neglected area of mutually beneficial cooperation is strengthening interaction among small and medium enterprises in both the countries. India may claim to be an ‘industrial’ country but it is basically a country of SMEs. Japan’s big business too owes a lot to millions of small and medium enterprises for its success, through their system of “contracting”. Ninety per cent of Japan’s manufacturing industry is composed of SMEs, though they are currently languishing after a decade-long recession.

A mechanism should be evolved to bring together SMEs in both the countries for matching the technology of Japan with the skills of Indian artisans. Various State governments are coming out with special packages for the development of SMEs.

The Government of Tamil Nadu, for instance, is working on a special industrial policy for tiny, small and medium industries. Product-specific economic zones, SME clusters, and special incentives through State promotional agencies are some of the efforts being taken to rejuvenate the SMEs in the State. Japanese technology and marketing methods would help to give this sector the needed push to surge forward.

The visit of Mr Shinzo Abe to India may be a symbolic gesture but it offers both Prime Ministers an opportunity to take stock of the progress of the various issues agreed upon in their joint statement last year. Mr Abe is a “lover of this beautiful country”, and given his dynamism and determination to carry things through, the Abe-Manmohan Singh Joint Declaration of 2006 could usher in a new era in the bilateral relations between “two natural friends”.

(The author is the Secretary-General of the Indo-Japan Chamber of Commerce & Industry.)

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