The Telegraph
Monday , June 9 , 2014
CIMA Gallary

FDI diplomacy with Japan at play

New Delhi, June 8: The new Narendra Modi-led government plans to change the way Indian diplomacy is conducted by focusing on what moves the world — money.

With that aim, Modi will look to work his charm on cash-rich Japan for investment and trade. New Delhi is keen to offer strategic engagement and preferential status to Japanese businesses trying to find a second home after China turned costly and at times threatening.

Modi, who’s also being courted by China whose foreign minister Wang Yi is currently here, will be visiting Japan early next month. Japan will be his second state visit after Bhutan.

India, Japan and the US will also hold three-way talks later this month, focusing on foreign direct investment (FDI) and defence ties.

Terms of endearment

India is likely to offer to Japanese investors enclaves along the Delhi-Mumbai industrial corridor, rollback of retrospective taxation that saw tax demands of $3 billion from companies such as Mitsubishi, preferential treatment in investment-related clearances and regular economic dialogues on the lines of India-US talks.

Besides, India is likely to allow FDI in railways, paving the way for an India-Japan joint venture to build a bullet train using the Japanese Shinkansen technology that has been preferred over French and Chinese offers.

The carefully crafted diplomatic move follows a series of visits Modi made to Japan as the chief minister of Gujarat.

After Modi won the elections last month, a bout of public bonhomie followed with Abe tweeting, “Great talking to you, Mr Modi. I look forward to welcoming you in Tokyo and further deepening our friendly ties.” The tweet from the usually dour Japanese Prime Minister was unusual. But Abe has long treated Modi as a kindred spirit. Both are ultra-nationalists, committed to making economics the cornerstone of diplomacy.

Modi, as the chief minister of Gujarat, has long been involved in the Japan-funded Delhi-Mumbai corridor as it passes through his home state, Gujarat.

Modi hopes the indus- trial zone will draw Japanese investment not only in Gujarat but also in northern and western India.

Sea link

Tokyo is also in talks to partner India in developing ports along the eastern coast to improve sea connectivity with Southeast Asia. This will lead to better maritime links with Japan as part of an Asian supply chain network and can be seen as a rival project to China’s sea-borne Silk Route under which the latter has developed ports in countries surrounding India.

“We are interested in this project and are involved in a survey on this,” Shinya Ejima, chief representative, Japan International Cooperation Agency (JICA), India, told The Telegraph.

The ports, which will be improved to enable them to receive more traffic, will include Haldia, Vizag, Ennore and Chennai. The JICA has committed around 700 billion yen to the Delhi-Mumbai corridor.

According to finance ministry officials, Modi’s advisers see infrastructure projects driving Japanese investment in India. A survey by the Japan Bank for International Cooperation in November 2013 showed Japanese businessmen placed India as “the most promising country” ahead of China, Brazil, Vietnam and the US in the long term.

Around 87 per cent of the companies surveyed appreciate the “future growth potential of local markets”, though more than half said “underdeveloped infrastructure” was India’s Achilles’ heel.

Sanjeev Sinha, a Tokyo-based fund manager who advises Japanese companies investing in India, said, “The top management of Japanese firms recognise the strategic importance of India as an investment destination… (which is backed by) commitment from political leadership starting from the Prime Minister.”

Beijing concerns

Higher wages in China, tough stand of the state towards Japanese firms doing business there, lack of transparency in administering rules and intellectual property rights and anti-Japanese demonstrations in 2012 because of tensions over Senkaku islands have made Japanese companies wary of investing further in the giant neighbouring economy. Japan is the largest foreign investor in China’s $5-trillion economy.

Southeast Asia has been the biggest beneficiary of the shift in Japan’s choice of investment destinations. The region now accounts for 7.2 per cent of Japanese overseas equity holdings, up from 4.3 per cent in 2010. In India, Japan has invested over $16.26 billion over the last 14 years, including nearly $7 billion in the last 5 years.

Production push

Automobiles are expected to be the biggest draw for the Japanese in India. NYK Line, which dominates global shipping of cars, expects India to step up production of automobiles to 5 million by 2015 from 3 million now.

Much of that increase will come from Suzuki, which is planning a Rs 5,000-crore plant in Gujarat. Nissan, Honda and Toyota along with a clutch of auto parts makers are also expected to be major investors in India over the next three years.