The Hindu Business Line : Japan seems ready

Tokyo must realise that the promise of profits generated by a market as large as India far outweighs any problems currently faced in operating conditions.

The setting of an India-Japan bilateral trade target of $20 billion by 2010 against the $8.5 billion achieved in 2006 is welcome for at least two reasons. The first is, of course, the increased level of economic interaction which the higher trade target entails, which is clearly within reach if the well-known complementarities of the two economies are considered. Second, the new trade target is the manifestation of a new, wider alliance envisioned between Japan and India w hich, if practicable, could alter fundamentally the political and economic geography of Asia in the next two decades.

This is the broad framework within which current India-Japan relationship and its immense potential are being viewed. Take, for example, the Mumbai-New Delhi industrial corridor and its proposed freight counterpart, which will be extended up to Kolkata. The proposed investment in the industrial corridor will be around $90 billion, which provides a satisfactory idea of the extent and nature of future Japanese investment in India. As India would require around $385 billion in investment funds in the next five years, the expectation in New Delhi is that Japan could provide a large part of this requirement. Clearly, the intention on the part of the two Governments to step up investment flows (albeit mainly in one direction) is there for all to see, but this is no guarantee that, despite the existence of a favourable policy framework, actual flows will materialise. After all, as the Commerce Minister, Mr Kamal Nath has pointed out, in 2006 not more than $540 million flowed in from Japan as Foreign Direct Investment, that is, just over three per cent of total FDI flows into India in that year.

What has been the reason for this poor Japanese direct investment flow? The India-Japan Joint Study Group (2006) pointed to hurdles such as high tariff rates, lack of infrastructure, poor transparency in the application of laws and administrative procedures, and unhelpful regulations on labour and worker welfare as impediments to greater investment flows. These problems cannot be wished away and it will be instructive for New Delhi to find out whether these have been addressed, if at all, during the past few years. Even if the hurdles are still there — they probably are — Tokyo would do well to accept the fact that the promise of profits generated by a market as large as India would far outweigh any problems currently faced in operating conditions. More than trade (where the scope for India is limited in the Japanese market), it is in the field of investment that the future of India-Japan economic cooperation lies (the Indian IT sector has great potential in Japan in this direction), a point that could be borne in mind by those currently entrusted with the task of drawing up a bilateral comprehensive economic cooperation agreement.

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India, Japan aim at $20-b bilateral trade by 2010
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