The 60th anniversary of India – Japan diplomatic relationship marks a milestone for strong political and economic relation. It is one of the rarest foreign relations of India, where all throughout the friendship with Japan remained cordial and was harping on each other cooperation. There are few occasions when the relation between the two countries turned sore with India engaging into nuclear testing. Interestingly, in the history of India’s foreign relation Japan is the only country, which acted always a true economic partner of India notwithstanding it remained politically a passive ally to India. Some twitted that both India and Japan required minimum efforts to strengthen the political platform as a precursor to foster a strong economic relation between the two countries.
In contrast, Japan had to buckle down to Chinese pressure on several occasion to keep floating its swelling economic relation. During the decade of 2000’s, China emerged the paragon for Japanese investors. Japanese investment in China surged from a paltry US $ 935 million in 2000 to US$ 7252 million in 2010. But, the pace of Japanese investment in China slowed after the Lehman shock. Japanese investment in China increased merely from US$ 6496 million in 2008 to US$ 7252 million in 2010. In contrast, Japanese investment in India spurred, defying the global Lehman crisis. India attracted Japanese investment in between US$ 124 million to US$ 175 million a year during the period of 2000 to 2006. It spurted to US$ 5,551 million in 2008 – the year Lehman shock spiked the global investment. Thereafter, Japanese investment in India averaged between US$ 2 – 3 billion a year.
India has always been compared with China by the Japanese investors. This is because both countries area complementary to each other in terms of huge workforce, low wage and a faster economic growth. But, China’s sustainability of super economic growth is now under global debate. So also India’s power to sustain spurring growth in the coming years after its debacle in 2011-12. But, the global economists and investors repose more hope on India for rebounding of the economy than in China
The factors which are forecasted to dampen the China’s sustainability for super growth in the economy are the pressure on exports due to global turmoil in the wake of Lehman shock, which will be accelerated by Greece exit from Euro, slender hope for growth in domestic demand, growing aging society due to one child policy and its impact on the saving ratio of the country (currently 51 percent of GDP) and the imbalances in the investment between SOEs ( State Owned Enterprises) and the private sectors. These underline the long term problems of China which may damage the hope for recovery. Accordingly, these may detract the foreign investors from the binge to invest in China.
Notwithstanding India’s gloomy situation in the previous year and marginal hope for bouncing back to the golden period in the next year, the global investors are optimistic for investment in India from the long term point of view. The sparkling rise in overall FDI in the post-Lehman crisis period and the Japanese investors following suit portray India an attractive destination for the Japanese investors. The total FDI in India ballooned to US$ 46,847 million in 2011-12, spurring a growth by 86% over the previous year. Japanese investment followed suit. It grew by 90 percent, amounting to US$ 2,972 million in 2011-12. What do these statistical figures mean? This means that India has not yet lost its mesmerizing image as a global destination and attract the Japanese investors.
Some cases will further evidence the Japanese growing interests in India. While the Japanese electronic giants are plunging into red in Japan, their India operations are thriving. Sony India Head was ecstasy over its healthy growth in 2011-12. India operation is the sixth largest for Sony globally. It is planning to elevate to the fifth largest operation in 2012-13 and increase the employment from 3,000 to 3,800 by March 2013. Similarly, the Indian arm of Panasonic notched a 72 percent growth in 2011-12.
The suspicion over China’s faster growth in the coming years unleash challenges to India to attract Japanese investment in terms of their competiveness. Undoubtedly, currently China continues to be the top competitor to India for foreign executives. Yet, India’s strong growth in domestic demand excels India’s position more competitive than China in future. China relies more on export. China’s manufacturing faces rising wages and production costs. India too is facing rising wages. But, the upsurge in the domestic demand, the high tariffs on imports and frequent currency fluctuations insulate India from global turmoil.
During 2011-2012, Japan leapfrogged fourth big foreign investor in India, from 9thh position in 2008-09. Keeping aside Mauritius as the top investor, which should not be comparable with the country base investment since larger investors from Mauritius are other than the Mauritius investors, Japan ranked the third biggest investor in India in 2011-12. It accounted for 7 percent of the total FDI flowed during April 2000 to March 2012. According to a survey, in 2010 and 2011, Japan emerged as India’s second largest investor, in terms of number of projects and employment generated.
Japan is the biggest donor to India in its various economic projects. Delhi Metro is one of such major projects. This led thousand of Delhites to breath a sigh of relief from their day to day transport hazards. The other big project is DMIC – Delhi Mumbai Industrial Corridor Project, which will , when completed , create a strong platform for manufacturing base in the Western Ghat covering six states. Unfortunately, unlike the Delhi Metro which was rated a big success, DMIC is embroiled in land acquisition controversy.
Even though Japan has been the biggest donor and fourth largest investor in India, it did not include India in its “Asian Embrace’” till mid-2000. India went on reform binge in 1991 and tried to woo Japanese investors who were flooded with Yen cash. But Japan lend a deaf ear. It was in 2005 the visit of Japanese Prime Minister Koizumi re-kindle the Japanese interests. He reiterated the ‘eight fold’ initiative to strengthen Japan’s global partnership with India.
In summing up, India can be the next trend-setter for Japan’s global prosperity. With its strong economic fundamentals, such as strong domestic demand, huge workforce coupled with a big pool of human skill and a large scope for investment in infrastructure, India portent for a big potential for Japanese investment. Externally, its strong foothold in BRIC (Brazil, Russia, India, China) – the next arm of global economic growth and its rising relationship with Africa may unleash a strong arm for Japan to establish its global partnership.
S. Majumder is the Adviser, Japan External Trade Organization, New Delhi and he can be contacted at [email protected]
The views expressed are author’s own