"Our relations have changed considerably over time and we now have a multi-faceted relationship. Japan is not just a source of development aid but an important investor and partner in building Asian co-operation"

Manmohan Singh


"Japan and India will strengthen their strategic global partnership."

Yukio Hatoyama

 

In quest of strategic global partnership

A ROCK solid relationship structured over half-a-century forms the foundation of Indo-Japanese cooperation today. The relationship has been further cemented with the pledge of both the countries to form Strategic and Global Partnership. The major planks of the aspired partnerships reflected in the Joint Statement issued by the two leaders during the Indian Prime Minister's visit to Japan in October 2008. Prime Ministers of both the country strongly felt that "...that there is still immense untapped potential for the further expansion of bilateral relations. The two Prime Ministers pledged to continue their efforts to broaden and deepen the relationship on the basis of the shared congruence of interests in order to develop it as an essential pillar for the future architecture of the region." The business leaders in both the countries are quite optimistic about bilateral trade and comprehensive economic cooperation in other sectors. A recent JBIC survey revealed India as the most favoured destination for long term Japanese investment. India is regarded by 70 percent of Jap manufacturers as the most attractive country to do business followed by China (67 percent), Russia (37 percent) and Vietnam (28 percent).

However, the Japan Chamber of Commerce and Industry in India (JCCII) has drawn the attention of the Indian government to 61 issues relating to infrastructure, taxation system and customs clearance that need to be addressed to step up Japanese investments in India. The Chamber also identified Indian tax system too complicated. The land acquisition and utilization of procedures are also seen as a complicated and a major obstacle to facilitate Jap investments in India.

Indian Prime Minister Manmohan Singh during his visit to Japan in October 2008 emphasized on "a high quality and mutually beneficial Comprehensive Economic Partnership Engagement". Welcoming Japanese  investment in India's efforts "to build a new dynamic India",

FDI Inflows from Japan into India
(In US$ billion)

Year

FDI Inflows

Total FDI inflows in India

Share of Japan in total FDI inflows

2002-03

0.41

3.13

13.15

2003-04

0.08

2.63

2.96

2004-05

0.13

3.75

3.36

2005-06

0.21

5.55

3.75

2006-07

0.09

15.73

0.54

2007-08

0.82

24.58

3.32

2008-09

0.23

21.15

10.7

Top five sector wise FDI inflows from Japan (2000-Nov.2007) 
Sector

Amount of FDI

% with FDI inflows from Japan
In Rupees (Million)
In US$ (million)

Automobile Industry

36203.8

792.7

40.6

Electrical equipments

16378.0

385.0

18.4

Trading

6086.9

145.7

6.8

Services Sector

2672.8

59.1

3.0

Telecommunications

2440.8

54.8

2.7


NOTES : (1)
Amount includes the inflows received through FIPB/SIA route, acquisition of existing shares & RBI's automatic route only. (2) The amount of FDI inflows in respect of the country/sector specific data is not provided by RBI, Mumbai prior to January 2000.

the Prime Minister told the business luncheon hosted by Nippon Keidanren: "We have begun to attract investment from Japan but it is much less than its full potential. To Japanese investors I would say – India today provides a large, growing and young market. The creativity of its people and their rising aspirations will drive the real economy in the foreseeable future to scale new heights"

The Japan-India Business Leaders Forum also emphasized on Economic Partnership Agreement (EPA) as "an institutional infrastructure to further accelerate and consolidate these business activities. The second JIBLF report underlined the importance of continuous improvement in the investment and business climate in India even after the entry into force of the JIEPA to strengthen the competitiveness of India as an investment destination. This includes the simplification of the land condemnation system as well as the taxation system, the relaxation and abolition of FDI restrictions for

retail trading, and the simplification of working visa procedures. The business leaders share "shares the perception that further efforts should be made to liberalise trade and investment and to build a global legal and institutional framework for that purpose, thereby strengthening the fundamentals of the global economy.....(They) agreed to contribute to sustainable economic development of Asia and the world by taking a joint initiative towards building the CEPEA (ASEAN+6) that embraces the AJCEP and the ASEAN-India FTA." In 2008 Indo-Japan bilateral trade stood at over US$ 13 billion and was in favour of Japan with US$2.6 billion. During current year (2009) till July the bilateral trade between these two countries totaled at US$ 5.46 billion with US$ 1 billion balance in favour of Japan.
 


A multi-faceted relationship*: Indian PM

“I am absolutely delighted to be here before such an impressive array of leaders of Japanese business and industry. I thank Chairman Mitarai and the Nippon Keidanren for giving me the opportunity of speaking to all of you. I also extend my warmest greetings to the captains of Indian industry who have specially travelled here for this very important occasion.

My personal association with Japan goes back many years to my early days in the Government beginning with 1970s, well before I became the Prime Minister of India.

Japan was and remains a generous aid donor and we are extremely grateful for the support the Japanese Government has always given for India’s development.

Our relations have changed considerably over time and we now have a multi-faceted relationship. Japan is not just a source of development aid but an important investor and partner in building Asian co-operation. For me, each interaction with Japan has been a most pleasurable, educative and rewarding experience. It has revealed to me how much our two countries can do together, and how little we have done thus far.

It was in recognition of this that Prime Minister Shinzo Abe and I established our Global and Strategic Partnership in December 2006. I have come to Japan to consolidate this partnership.

We meet at a time of great turbulence in the world economy.The international financial crisis, which still continues, has revealed the extra-ordinary vulnerability of the global financial system even in the industrialized world. The crisis has choked credit flows and predictably spilled over to the stock market. We have to prevent the liquidity crisis from becoming a crisis of confidence in the international monetary and financial system.

The Governments and central banks of the major economies have taken strong and even innovative steps to deal with the crisis.The global nature of the crisis calls for a coordinated global response.

Developing countries like India are also affected by the crisis and have to be part of the solution. We cannot afford to risk the gains we have made in the last few years. Nor do we wish to remain vulnerable to infirmities in international surveillance, supervision and regulatory mechanisms in the future.

We have taken several measures in India in the last few weeks to ensure adequate liquidity and confidence in our financial system. The fundamentals of Indian economy have been and continue to be strong. Our banking system is well capitalized. But, we have experienced a shrinking of liquidity and we are responding by injecting additional liquidity to ensure that the rhythm of economic activity is not disrupted.The Reserve Bank of India stands ready to respond quickly to address the emerging needs of our economy.

The short-term outlook is somewhat cloudy but I am confident that the Indian economy has the resilience to sustain its growth momentum in the medium run. We hope to build on India’s many inherent strengths as an emerging market economy that is now ready for rapid and sustained growth. Over the past four years, we have averaged 9% GDP growth per year. It looks like slowing down in the current year because of conditions in the global economy. But, once normalcy returns, we can and we are determined to regain the 9% growth trajectory. We have a tradition of a high rate of domestic savings averaging 35% of our GDP. This is like most Asian countries, and we also have a strong and a dynamic private sector.

As we work to put India on a higher growth path with greater inclusiveness, India and Japan can cooperate in many ways. Japan is the economic and technological powerhouse of the world. India is a major developing economy on the threshold of rapid economic growth. Both of us are located in Asia, to which the 21st century must undoubtedly belong. Both of us have the wherewithal to become the magnet of growth in Asia and globally. India and Japan can cooperate in the coming period of global slowdown to devise effective counter-cyclical strategies to create a new Zone of Growth and stability in the world.

The record of our economic and trade interaction in the last few years bodes extremely well for the future. Although the share of India in Japanese Foreign Direct Investment overseas is insignificant right now, there has been a surge in Japanese investment into India last year. The number of Japanese business establishments now operating in India has increased to over 500.

Discussions have moved forward on implementing the flagship Dedicated Freight Corridor railway project and the Delhi-Mumbai Industrial Corridor Project. Technical issues relating to the Dedicated Freight Corridor have been resolved to our mutual satisfaction and we are in the process of finalizing an ODA loan for this very important infrastructure project.

The Delhi-Mumbai Industrial Corridor has the great potential to emerge as a global manufacturing and trading hub supported by world-class infrastructure and an enabling policy framework.

Bilateral trade between India and Japan has been growing, and has reached 10 billion US Dollars for the first time in fiscal 2006-07. At the current rate of growth, we can hope to achieve our target of 20 billion US Dollars by 2010.

We are deeply grateful that India has been the largest recipient of the Japanese ODA for the last 5 years. Its most visible symbol is the Delhi Metro.

At the government level, the India-Japan Policy Dialogue set up in 2005 at the official level has been upgraded to the Ministerial level. An India-Japan Energy Dialogue was established in December 2006, and cooperation initiatives have begun in the urban development, tourism and civil aviation sectors.

We have established a high-powered Business Leaders Forum to lead the widening economic engagement between us, and project the views and concerns of the private sectors in both our countries.

Our infrastructure financing requirements over the next five years are estimated at 500 billion US Dollars. Financing this level of investment presents a special challenge in view of the uncertainties now prevailing in capital markets of the world. We must look for new sources of finance. And Japan here becomes very important for us. We also have an ambitious plan for upgradation of our soft infrastructure in the areas of health, education and social welfare. We have put in place schemes to revitalize agricultural growth and focus on rural development.

We welcome Japanese investment in our efforts to build a new dynamic India. We have begun to attract investment from Japan but it is much less than its full potential. To Japanese investors I would say – India today provides a large, growing and young market. The creativity of its people and their rising aspirations will drive the real economy in the foreseeable future to scale new heights.

Above all, India provides stability and transparency in its decision making processs. Our institutions have stood the test of time. With every challenge, they have emerged stronger and stronger. Our process of decision making may appear cumbersome but decisions once taken rest on the solid foundation of consensus in our well functioning democracy.

Based on the above, I would identify the following areas particularly sfor our future engagement.

Ø Cooperation in high-technology areas and the building of a knowledge economy through transfer of technology. Japan can become our preferred partner in areas of established Japanese competence such as energy efficient technologies, power generation and distribution, including development of ultra-mega projects based on super critical technology, and in the development of new and renewable sources of energy, including clean coal, solar and nuclear energy.

Ø The early finalisation of a Comprehensive Economic Partnership Agreement is high on the list of our priorities. This will broaden our trade basket and enhance reciprocal investments. It will provide economies of scale and allow India to serve as a global manufacturing hub for the Japanese industry. The Agreement should promote further export of our goods and services into Japan through the removal of tariff and non-tariff barriers. I would like to once again state that the negotiation of a Comprehensive Economic Partnership Agreement with Japan remains very high priority for the Government of India.

Ø Upgrading of India’s infrastructure through more effective use of public-private partnerships and joint ventures offers yet another area of exciting opportunities in the future.

Ø For greater cooperation in the fields of skill development, education and advanced research and development through more intensive exchanges between our universities and institutions, we should establish greater connectivities, both physical and intellectual, to underpin deeper engagement between our two countries.

Ø Working towards an integrated Asian Economic Community should be a common endeavour of both India and Japan. Our “Look East” policy and Japan’s vision for the integration of the Asia-Pacific provide a meeting of minds which can be translated into concrete initiatives. The newly established Economic Research Institute for ASEAN and East Asia is ideally suited to contribute to the finalization of a Comprehensive Economic Partnership in East Asia among the EAS participants.

Ø The relationship between India and Japan transcends the economic domain. Our two countries understand the language of democracy and rule of law.We share the common values of freedom, an open society and a free market economy. We share close civilisational links, and believe in the Asian approach to problem-solving and wealth creation. We wish to learn from the Japanese style of management and the premium it places on humane qualities and traditions.

Finally, I wish to say that new investors often worry about the difficulties that they may face in a new environment. Let me however point out that the increase in India’s bilateral trade with China in the past one year alone is more than the whole of India’s total trade with Japan. Korean products dominate our white goods sector and have high brand recognition in India. I suggest to this august audience that improving upon that should be a common challenge for industries of both India and Japan.

A vibrant democracy often presents new challenges. However, I urge you to have faith in our economic system and our resolve to transform our economy and polity.We are committed to creating a congenial climate for private initiative, risk-taking and enterprise both domestic and foreign enterprise.

The British economist Lord Keynes once said, in our world of uncertainties, investment is both an act of faith and also an act of great adventure. I urge all of you to have faith in India. The India of 2020 or 2040 will be far more educated, far more skilled, and will have far greater purchasing power. It will be an engine of growth for the global economies.

I invite each of you to be our partner in this exciting journey. We wish to see Japan occupy a central role in our quest for sustainable development and poverty eradication.

I thank you for your kind attention.”


* PM's address at business luncheon hosted by Nippon Keidanren, Tokyo on October 22, 2008
 

 Updated September 2009

 

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