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Our Bureau

New Delhi, July 26 The second India-Japan Strategic Dialogue on Economic Issues was held in Tokyo recently. The dialogue assumes significance as it sets the agenda for the visit of Prime Minister, Dr Manmohan Singh, to Japan in October.

The dialogue focused on Japanese support for two flagship infrastructure projects —Delhi-Mumbai Dedicated Freight Corridor and Delhi-Mumbai Industrial Corridor.

While the Indian delegation was led by Dr D. Subbarao, Finance Secretary, the Japanese side was led by Mr M. Kohno, Deputy Minister, Ministry of Foreign Affairs of Japan. An official release said that Japanese support for the new IIT coming up at Hyderabad as well as collaboration in information technology and basic science research were the other items on the agenda.

Separately, Dr Subbarao addressed a roundtable conference of a select group of Japanese businessmen, industrialists, bankers and financial analysts. The Finance Secretary said that Japanese investment in India, although sizeable, is still far short of the potential of Japan to invest or the capacity of India to absorb.

India, he said, offers a huge market with a growing middle class and rising incomes, and, hence, very rewarding investment opportunities, particularly in the infrastructure sectors. There was need to exploit the natural complementarities between India and Japan and increase Japanese engagement in India to the mutual advantage of both countries.

The Finance Secretary expressed optimism that the India growth story was still credible and intact. India clocked an annual growth of 8.9 per cent on a compound average basis over the last five years. India’s growth was based on strong fundamentals and the current expansion was not a one off episode. Growth this year could, of course, moderate because of pressures of inflation and the global downturn, he said.

Responding to whether India could decouple from the rest of the world, the Finance Secretary said that in a rapidly globalising world, it is not possible for any country to ‘decouple’ from the global developments. If any large economy could, in fact, decouple, it is India. This is because India’s growth draws largely from domestic demand and investment unlike a number of other fast growing Asian economies.

However, even India is impacted by the global downturn through the trade and credit channels. Also, India is dependent on imports for oil and is a price taker in the world market, and is impacted by the rising crude prices.

Questions from Japanese businessmen centred around bridging the infrastructure deficit, streamlining the tax structure, skill development and the pace of reforms, especially in insurance and foreign investment. Dr Subbarao responded by saying that reforms are a continuous process, that the Indian track record on reform implementation is credible and that second generation reforms inevitably take time to implement, especially in a democratic and decentralised system.

The Japanese side attached importance to early conclusion of the ongoing of Composite Economic Partnership Agreement. The Japanese side also noted that while large business houses have the capacity to do pre-investment research, there is need to set up systems for facilitating investment by SMEs.

The Finance Secretary said that the inflationary pressures at the global level will subside when the supply response takes effect over the next few months.

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