Millennium Post

From Tokyo, with love

During his tenure as Gujarat Chief Minister, Mr Narendra Modi’s aim was to attract Japanese investment in Gujarat. He visited Japan twice before- 2007 and 2012. As Prime Minster of India, Mr Modi tries to re-write a new chapter on India- Japan relations with a paradigm shift from strategic economic relations to global partnership. He reiterated that India and Japan were the two oldest democracies in Asia and were among the three biggest economies. He asserted that 21st Century is to be decided by Asian countries and India and Japan bilateral relations would be the engine for 21st Century growth.  Mr. Modi is one of the three tweeters having the largest following. Mr Shinzo Abe follows him too. The commentators hailed Modi as ‘India Abe’.

Mr Modi’s summit focused on three issues. They were uptick in defence ties- an aberration from economic ties which India persisted under UPA, chided expansionism (vistarvad) interpreted as an oblique reference to Chinese incursion in Japanese controlled Senkaku Island and a special preference to Japanese investors, committing to set up special management team under the Prime minister.

Mr Modi’s assertiveness on dwarfing expansionism touched hearts of many Japanese. But, it left China bewildered, particularly when the Chinese President Xi Jinping is scheduled to visit New Delhi this month. A Chinese think tank, Centre for Globalisation Studies, was sarcastic in saying that the development in China- India strategic ties would jitter Japan and would be the key issue for Mr Shinzo Abe to divide China and India. Mr Modi’s shift to woo Japanese investment from automobile to defence and development of smart cities will make a new vista for Japanese cooperation in India.

India has raised FDI cap in defence from 26 per cent to 49 per cent under Mr. Modi’s prime ministership. Mr Modi yearned for Japanese technical cooperation in building US-2 aircraft in India, besides importing US-2 amphibious aircraft from Japan. His success in winning Japanese cooperation in the development of Varanasi a smart city – a non-economic area for commercial investment- will make a landmark move in Indo- Japanese relations. Back at home, it will win the hearts of millions of Indians.     

Japanese Prime Minster Shinzo Abe’s ambitious target for doubling Japanese investment within five years and his commitment for US$ 35 billion for different infrastructure projects glossed Mr Modi’s dream for the ‘Make in India’ brand. While welcoming the Japanese investors, he ensured a policy of red carpet minus red tape with his Minimum Government Maximum Governance approach.

Japanese wooing of India began with China’s assertiveness to dominate Asia. Visits of Japan’s Imperial couple Emperor Akihito and Empress Michiko (November 30-December 5, 2013) after five decades symbolized Nippon’s bent towards India. The visits stirred surprise as the Imperial couple don’t travel overseas on state visits often, given their fragile health due to old age. The visits unleashed a paradigm shift towards bipolar relations as well as embracing economy and politics.

Looking for alternative destinations for investment, after China turned a risky investment destination- China+1 strategy- is another factor to propel up Japanese interests in India. After a spurt in Japanese investment in China, its investment in the country plunged in 2013. It is said that much of Japanese Prime Minister Shinzo Abe’s economic reforms in Japan would not bear fruits without a significant contribution by emerging markets, such as India. In 2013-14, Japan was the fifth biggest investor in India. In fact, there was some slip in Japanese investment in India. In 2013-14, Japanese investment in India declined by 23 per cent to US$ 1,718 million. In 2012-13, Japan was the third biggest foreign investor in India. India’s share in Japan’s global outward investment was paltry. In 2013, it was 1.6 per cent of Japan’s global outward investment. Therefore, enough rooms are there to attract Japanese investment in India.

Along with Mr Modi’s 3D lure (democracy, demography and demand), the new global China+1 strategy, hailed by Japanese investors, should help India to woo Japanese investment. With the depletion of low cost regime in China and sagging export opportunities in the west, China is turning out to be an investment risk country for the Japanese investors. Instead of closing down their operations in China, the Japanese investors are contemplating to invest in other South East Asian countries for their expansion. They are of the thought that this investment will insulate their investment in China. Close on the heels, Thailand +1 strategy is also contemplated by the Japanese investors after Thailand was embroiled into political turmoil since the past two years.  The Japanese are the biggest investors in Thailand.

Till 2012, China was the second biggest destination for Japanese investors. In 2013, Japanese investment plunged in China. It nosedived by 33 per cent in China in 2013. In contrast, Japanese investment surged in Vietnam and Myanmar. In Vietnam, Japanese investment surged by over 75 per cent in between 2011-2013. Given China and Thailand are into investment risks, India should usher Japanese investment and ensure for a hedge for their risks in China and Thailand. Global FDI in India improved in 2013-14, despite drop in Japanese investment. The growth unveiled the foreign investors’ confidence in the country. The factors, which bolstered FDI confidence, were the bouncing back of the economy, strong parameters of the economy, reflected in stock market, liberal and forward looking of the new government towards foreign investment and the assertiveness to make India the manufacturing hub of the world. In other words, India moves forward on Chinese growth pattern with the help of foreign investment.

There are certain inherent problems which need to be addressed to attract Japanese investment. One such barrier is land acquisition. Unless the land acquisition problems are eased out, Japanese investors will dither to invest in India. Even if special management team is set up under Prime Minister, it will fail to cut the ice unless the land acquisition becomes viable. Former PM Rajiv Gandhi also initiated the Fast Track Channel to lure Japanese investors in late eighties. But the remedies recommended in the Committee remained on paper since they were stuck in the process of implementation. The second major issue, which desists the Japanese investors, is the old labour laws. The Industrial Disputes Act of 1947 stipulates that any company employing more than 100 workers cannot lay off workers without government permission. But, government rarely gives permission. In this perspective, a move by Modi government to relax the regulation in National Investment and Manufacturing Zone (NIMZ) will have positive impact. IPA
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