Millennium Post

India on a fast Nippon flight

Imagine the world’s third largest economy, Japan, joining hands with the 4th largest, India, to create a global super economic powerhouse in the next decade and beyond! The blueprint is already there in the form of a joint statement by Indian prime minister Manmohan Singh and his Japanese counterpart, Naoto Kan, signed on 25 October 2010. The document is official and, as such, legal. A small first step to realise the dream economic unity with Japan has already been taken. A lazy progress towards the setting up of a $100 billion Delhi-Mumbai industrial corridor project, in which Japan has agreed to have a 26 per cent equity stake, is underway. A lot more needs to be done. And, they need to be done fast, encompassing vast areas of Indian economy, its industry and infrastructure, to lift the country from the current morasses. Japan has money and top class technology. India has a vast domestic market and a large pool of skilled and semi-skilled manpower. They must marry to benefit each other.

With Japan’s help and co-operation, India can emerge as a major exporter of manufactured goods, which it is unable to achieve due to lack of technology. India’s exports are shrinking. Even neighbouring Thailand has clocked a double-digit export growth this year despite economic turmoil in parts of the European Union and the slow-down in the US. Japan, on the other hand, can expand its economy and market and use India as its next global export platform to regain its past position in world economy. The listing of more blue chip Japanese and Indian companies in Indian bourses will make India among the world’s top financial hubs. A global fund rush will boost both the Indian and Japanese primary and secondary markets. A loose monetary union can also be thought of in due course. The positives from such a strong strategic economic cooperation package far override the negatives, if any.

According to the latest World Bank report, India’s estimated GDP in 2010-11 in absolute terms was $1.729 trillion. Japan’s was $5.498 trillion, up from only $44 billion in 1960. However, going by the more relevant purchasing power parity (PPP) method, India’s GDP in 2010 stood at $4.00 trillion as against the third placed Japan’s $4.31 trillion. The US topped the list with $14.66 trillion, followed by China $10.09 trillion. The others among the top seven by PPP were: Germany [$2.940 trillion]; Russia [$2.223 trillion], the UK [$2.217 trillion] and Brazil [$2.217 trillion]. China’s GDP was fuelled by a massive 47 per cent contribution from the industrial sector, which also worked as a strong growth engine for China’s exports. The industrial sector normally plays the key role as a GDP mover in fast developing economies. The services sector plays a much bigger role only in developed economies having a near-saturated manufacturing sector.

The two biggest weakness of the Indian economy are the performance of its industrial sector, which contributes only 26.3 per cent to the country’s GDP, and growing export-import gap leading to alarmingly high current account deficit – 4.6 per cent of the GDP as against the maximum permissible limit of 3.5 per cent, last year. The newly released India’s industrial production index showed the industrial growth rate at 2.5 per cent. The agriculture sector contributes as much as 18.5 per cent of India’s GDP as against China’s 10 per cent. The share of the services sector of the country’s GDP is as much as 55.2 per cent compared to China’s 43 per cent.

To ensure a faster economic growth, India’s GDP-contributor ratios have to undergo a sea change in the next 10-15 years. Industry’s contribution has to be doubled, say, 50-55 per cent. The contributions of the agriculture and services sectors will adjust themselves accordingly at lower levels despite their higher rates of growth in real terms. This can’t be achieved at the present pace of growth of each of the three sectors. India will require a massive injection of funds and technology to help its industry take a quick pick-up and higher acceleration for the final big leap. Japan is the only country that has come forward to help India in its own national and economic interest. An Indo-Japan strategic economic co-operation will certainly boost Japanese economy, its exports, employment and, finally, its GDP numbers. Although it may not be able to overtake China too soon or even later as the world’s second largest economy. But, a perfect Indo-Japan economic combine is bound to provide tough competition to many large economies, including China, and which, in the process, may lead to a more balanced growth of other super economic powers such as the US, Germany, the UK and France. With India, Japan means business. Its muted official or diplomatic response to the latest violence by a section of the workers at Suzuki Motor’s automobile plant at Manesar [Haryana], leading to loss of life, property, production and factory shutdown, is a great example of the country’s business understanding and maturity. Instead of embarrassing India with unsavory remarks on matters such as law and order situation in the country, Japan treated the incident purely as an industrial strife and expressed full confidence that the concerned state and the national government would punish the culprits and the Suzuki-Maruti management will be more cautious and tactful about dealing with trade union threats and militancy, in future.

Japanese technology, exchange of scientific research data and collaborative ventures in such important and diverse areas as energy, including joint exploration of hydrocarbon across the globe, electronics and telecommunication, space research, social and industrial infrastructure, shipping and ship building, avionics, defence production, civil nuclear cooperation, steel and aluminum, heavy machinery and equipment, automobile, consumer electronics and electrical products, underground mining, undersea mineral exploration, deep sea fishing and river control will help Indian economy take a quantum jump in the coming years, benefiting both the economic partners.

Both India and Japan are energy starved. A joint cooperation and research can benefit both the countries. Similarly, industrial raw materials-starved Japan can immensely benefit from India’s rich mineral resources, much of which is yet to be fully explored. Indian rare earth can be of immense value to Japanese electronics industry, especially after China threatened to slash its export.

Unfortunately, politically paralysed India is unable to move fast to realise the dream of a strong Indo-Japan economic cooperation as envisioned by the two highly mature leaders and economic thinkers of the two countries – Manmohan Singh and Naoto Kan. With senior economic ministers from his own party and extra-administrative authority enjoyed by some of the top Congress party functionaries outside the government are often speaking at cross purposes, the prime minister seems to have lost or chosen to surrender much of his power and authority to get even some of his most important decisions and open commitments implemented.

How else can one explain the miserably slow pace of implementation of the lofty ideas that Singh and Kan shared in the joint statement almost two years ago? How can one blame overseas governments and institutions for taking a dig at India’s non-performing administration? It appears as though some of India’s policy-makers and administrators are consciously playing in the hands of internal and external elements that don’t want the country grows fast and becomes economically stronger.
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