A yen for Japan

Prime Minister Narendra Modi’s five-day visit to Japan couldn’t have been better timed. Manufacturing today accounts for barely 15 per cent of India’s GDP; this share needs to rise by at least 10 percentage points in order to absorb a significant amount of the 12 or 13 million that join the country’s workforce every year. The key to this is attracting foreign direct investment, which is well encapsulated by Narendra Modi’s slogan “Come, Make in India”. In this context, the Prime Minister has chosen the right country for his first major bilateral visit. Japanese companies are known for their just-in-time production approach, under which every original equipment manufacturer (OEM) seeks to source components and parts from vendors whose units are in the vicinity of its plant. Proximity and close coordination with ancillary manufacturers ensures supplies at the right time and low costs to the OEM. Over time, this leads to the creation of manufacturing clusters, as other OEMs are also encouraged to set up shop and, in turn, helps diversify the client base of the ancillary-makers.

The stimulus to manufacturing from such Japanese investments has been seen most clearly in Gurgaon-Manesar, where we have a host of units supplying pistons, crankshafts, fuel injection systems and other components to Maruti Suzuki’s car factories. One can point to similar Japanese-promoted manufacturing clusters that have sprung up elsewhere: Khushkhera-Bhiwadi-Neemrana in Rajasthan (Honda Motorcycles/Cars, Daikin, Hitachi, Nissin Brake), Bidadi (Toyota) and Narasapura (Honda) in Karnataka, and Jhajjar in Haryana (Panasonic, Denso). In general, Japanese manufacturing investments are taking place mainly along the Delhi-Mumbai and Chennai-Bangalore Industrial Corridors (DMIC/CBIC). A sprawling 1,600-acre township that will house more than 60 Japanese companies and have a residential zone is coming up south of Chennai, to tap into the growing Japanese interest in Tamil Nadu as an investment destination.

The most useful by-product of Modi’s visit could be to put implementation of the DMIC/CBIC projects in his government’s top priority list. Modi has, in fact, announced setting up a special management team in the Prime Minister’s Office to facilitate Japanese investments. He has even proposed that this team have two nominees from Japanese industry. There is no doubt that Japanese investments can play a huge role in realising India’s unfulfilled manufacturing potential. Rising labour costs and increasing difficulties — political and otherwise — in doing business in China has made India more attractive than before for global manufacturers. It was no accident that Hitachi’s board meeting in New Delhi, the first held by the company outside Japan, was accompanied with an announcement of its India strategy. But there is a lot of work required to translate growing interest into big investment. Modi has promised a red carpet instead of red tape, but his government will have to follow this up with action.

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