The Hindu Business Line : Indo-Japan ties: Future perfect?

The Manmohan Singh Government is acutely aware that once the Japanese overcome their reluctance to move into India, which is dictated by this country’s poor infrastructure, cumbersome procedures and corrupt bureaucracy, there could be a deluge of investment into India, says KAMLENDRA KANWAR

The Japanese have time and again proved that they are hard bargainers. They move with calibrated caution on foreign policy and revel in wearing down those who negotiate with them until they substantially achieve what they want.

It is small wonder then that Indo-Japanese relations have been characterised by painfully slow progress. When the Prime Minister, Dr Manmohan Singh, told business leaders in an interactive session on a visit to Tokyo last month that the growth in India’s bilateral trade with China in the past year had been more than the entire trade with Japan in a year, the subtlety was not lost on the Japanese, but they remained unaffected.

Dr Singh returned from the visit without a free trade agreement between the two countries, which had earlier been expected to be signed by mid-2008. He also found the Japanese unwilling to enter into a civil nuclear deal of the kind that India inked with the US. What he did manage to sew up was a strategic partnership between the two nations which forms part of the new Asian security architecture.

While Dr Singh struck an almost apologetic tone in reassuring the Chinese that the security partnership was not meant to target them, the Japanese draw a clear distinction between geopolitical interests and economic exchanges and have no qualms about anything that is in their national interest.

New Asian order

Significantly, in his book A Beautiful Country, former Japanese Prime Minister Mr Shinzo Abe has described India as a key component of a new Asian order whose other pillars would be Japan, Australia and the US.

The current Prime Minister, Mr Taro Aso, who as Foreign Minister in Mr Abe’s government actively canvassed for a trilateral security dialogue linking Delhi, Tokyo and Washington, is also a proponent of this sort of Sino-centric architecture.

The Japanese have reason to fear a China that may seek to lord over the waterways to dominate all of Asia. They see merit in tying up with India to protect these waterways against Chinese designs. Before the Japan-India accord on security co-operation, Japan and Australia had entered into a similar agreement.

The present focus in Indo-Japanese naval co-operation has been on maritime piracy, and on possible maritime terrorism. The littoral States of the Malacca Straits – Singapore, Malaysia and Indonesia – would be more comfortable with an Indian role in ensuring maritime security against pirates and terrorists than an American or Japanese or a Chinese role.

So long as it is confined to this, the Chinese too would not mind. But any attempt by Japan and the US to involve India in the actual patrolling of the Malacca Straits would be frowned upon.

Nuclear co-operation

On the civil nuclear co-operation issue, the Japanese have left open a window of opportunity. As things stand, there are no legal obstacles to Japanese firms like Hitachi and Toshiba supplying reactor components for safeguarded nuclear power projects in India.

On the eve of Dr Manmohan Singh’s visit to Tokyo, Mr Taro Aso in an interview to PTI sidestepped a question on whether Japanese firms would be allowed to export nuclear components to India, saying “Japan has pursued steadily the construction of nuclear power plants, while making an effort to conform with “non-proliferation standards”.

At the same time, he did plug Japanese capabilities in the field, saying, “Japan’s nuclear industry, which has a solid record of constructing power plants even during difficult times for the industry, is one of the most experienced and the most advanced industries.”

Barriers to FTA

On a Japan-India FTA, which Dr Singh has said is likely to be signed before the year-end, the real stumbling block has been India’s reluctance to give tariff concessions on a blanket basis. This is based on principles of protecting domestic manufacturers.

For instance, Indian auto part makers oppose the opening of the market to imported components.

The Japanese insist that India should allow Japanese inputs duty-free into the country and in turn they would allow Indian pharmaceuticals and agricultural products into Japan. These are currently barred by Japanese non-tariff barriers.

If the FTA were signed, Japanese carmakers would be able to import parts duty-free and then produce vehicles in India cheaper, to cater to overseas markets.

Japan’s free trade agreements with ASEAN and eight other countries allow parts of a product to be made at one place, assembled elsewhere and sold anywhere. The Japanese are able to produce each component where it is deemed to be cheapest, and co-ordinate production in factories in different East Asian countries as if they were one country.

India is not in favour of this, as unlike these countries which have small domestic markets, it has a huge internal market.

Compromise

Overcoming reservations on both sides, India and Japan now seem on the threshold of a compromise whereby an FTA may well be on the anvil. Once that happens, India expects Japanese investment to flow in on a massive scale. That is why it is keen to clinch it. The Commerce Minister, Mr Kamal Nath, who is normally very hawkish on what he perceives to be Indian interests, is confident that Japanese agricultural products being very expensive, an FTA would not affect the competitiveness of Indian farm products.

Currently, Japanese investment in India is nothing to write home about. Japan is the sixth largest investor in India and though it invested $1,506 million in 2007 against $512 million in the preceding year reflecting a quantum jump, it is still small when seen against the potential. According to the Japan External Trade Organisation’s annual survey of Japanese firms operating in ASEAN and South Asia, India is the most attractive destination in the medium term. Indo-Japanese trade too is growing. It almost doubled to $10 billion in the past three years, and is expected to touch $20 billion by 2010 – mostly Indian iron ore against Japanese machinery. The Manmohan Singh Government is acutely aware that once the Japanese overcome their reluctance to move into India, which is dictated by this country’s poor infrastructure, cumbersome procedures and corrupt bureaucracy, there could be a deluge of investment into India and trade with this country. That is why it is banking on the FTA and is prepared to wait for the Japanese to shed their diffidence.

It is not for nothing that India is the recipient of one-third of Japan’s total aid flow and Japan is growing increasingly receptive to funding major infrastructure projects the most notable of which is the 1,483 km dedicated freight corridor (DFC) between Delhi and Mumbai offering high speed connectivity for high axle load wagons, and an industrial corridor, which would have a depth of 150 km on either side of the DFC.

After years of anticipation, there is reason to hope that Indo-Japanese economic relations are poised for a leap.

(The author is former Editor (Tamil Nadu), The New Indian Express, Chennai. blfeedback@thehindu.co.in)

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