The 7th Summit of G-20 at Los Cabos (Mexico) witnessed India taking a lead role in reviving the crippled world economy. While sending massage to the world leaders, Dr Manmohan Singh believed that large investment in infrastructure in the less developed and developing countries was the prime pillar for survival of the debt trodden global economy. It makes a strong foundation for a longer and sustainable growth in the world economy. This is possible if less developed and developing countries can access to long term capital to finance their infrastructure projects. He urged developed nations to pour more funds through FDI in infrastructure. He also urged to strengthen IMF hand for rescue operation. The joint declaration of the Summit endorsed Dr Manmohan Singh’s views and agreed that the only course available for global growth revival was the large investment in infrastructure. In this perspectives, Japan portends for a bigger role in India.
Japan is the fourth largest foreign direct investor in India. Japan defied Lehman shock and spurred investment in India. The investment spurted to US$ 4,469.95 million in 2008-09 from US $ 815.20 million in 2007-08. The flurry of Japanese investment in India continued thereafter amidst global crisis and is expected to rise further with the weakening of Chinese attraction as a potential global investment destination for Japan. Since last five years, China was the biggest investment destination for Japanese investors.
So far the Japanese investments in India were confined to automobile sector. A shift towards other areas other than automobile was noticed since Japanese company Daii Ichi Corpaoration acquired Ranbaxy Laboratories in 2008, India’s largest pharmaceutical company. There after Japan has begun to diversify its investment in various fields of manufacturing and service sectors such as in life insurance and telecommunication sector.
Investment in infrastructure sector has, however been a non lucrative area for the Japanese investors in India. Even though a big potential exists for investment in infrastructure, the policy delay and red tape stymied Japanese investments in infrastructure. DMIC (Delhi Mumbai Industrial Corridor) project is a case in point. Notwithstanding the fact that it embraces big investments of US $ 100 billion to create an industrial corridor infrastructure in six states and was committed to be funded by Japanese financial and technical aid, the project is in limbo. DMIC is yet to get a nod for implementation. Almost six years have passed after the MOU was signed betwteen India and Japan and still the project remains a far cry. Land acquisition has become the biggest bottleneck in implementing the project. The new Land acquisition Bill hangs in balance in the wake of politically inflicted aims of various oppositions parties. The revised bill, which is expected to be laid in the monsoon session of Parliament, portends a slender hope. In this circumstance, how can India’s message in G-20 for large investment in infrastructure may act as boon to the foreign investors to investment infrastructure in India? India should have made a smoother road in its home ground before urging foreign investors and multilateral banks to invest in infrastructure.
India embarked on US500 billion investment in infrastructure in 11th Five Year Plan and proposed to double the investment to US$ 1 billion in 12 the Five Year Plan. In the wake of inadequate financial resources at the government exchequer, government seeks private participation , including FDI. Government introduced model of PPP project to attract private participation. In terms of ratio to GDP, investment in infrastructure jumped from 5 per cent in 10th Five Year Plan to 8 per cent in 11th Five Year Plan. Public sector continued to dominate the investment. Of the investments, public and private investment accounted for 5 and 3 percent shares respectively.
Against this scenario, FDI presented a poor show in the investments in infrastructure. During the decade of 2000-2010, FDI inflow in the infrastructure was US$34 billion. This included FDI in power, housing and real estate, telecommunication, construction and petroleum pipelines. This accounted for 16 per cent of the private investment in infrastructure and only one percent of the total investment including public sector in infrastructure during tenth and eleventh five year plans (2003-04 to 2006-07 and 2007-08 to 2011-12) .
Notwithstanding Japan being the fourth largest foreign direct investor in India, its investment in infrastructure was paltry. During 2000-2012, investment in infrastructure accounted for 2.5 to 3 per cent of its total investment in all sectors in India. Telecommunication (US $ 314 million) was the main area to attract Japanese investment. Had the DMIC project commenced in schedule time, Japanese investment in other areas of infrastructure would have soared in the country. The project includes eco-friendly infrastructure for the new cities planned in the DMIC.
A host of Japanese companies like Mitsubishi Corporation, Toshiba, JGC, Itochu and Tokyo Electric Power Company thronged and signed MOUs with the State governments. Japanese companies committed investment about US $ 10 billion in the first phase of the DMIC corridor project. In addition, an equity stake of 26 per cent by the Japanese Government in the US$ 100 billion DMIC will swell Japanese investment in infrastructure.
Japanese companies who are flush with easy money should be allured to invest in infrastructure. DMIC can prove to be a model case to attract Japanese investment in infrastructure. Given the new Land Acquisition Bill to be passed through Parliamentary process a far cry, a consensus between State Governments of six states and the Central Government will be a quicker process to resolve the issue. In this regard, a Fast Track Committee, which will include Chief ministers of six states and Cabinet Members of infrastructure ministries of Central Government, will be a congenial platform for effective negotiations. Even though all the six states are not ruled by UPA, the states ruled by oppositions are known for their progressive attitudes towards economic development. Land is listed in Concurrent List of Constitution of India. Both Central and State governments are empowered to frame their own regulations for land. In this perspective, a mutual consensus between Centre and respective states will give a leg up than waiting for resolving the land issue through Parliament. Similar Fast Track Channel was set up by late Prime Minister Rajiv Gandhi in late eighties to attract Japanese investment when the country was reeling under control regime.
(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)