Japanese PM's visit India should encourage investment

Subrata Majumder

A twist in India-Japan relation was witnessed with the increase in Chinese assertiveness in East Asia. Hitherto, India-Japan relation was encircled by only economic and commercial sectors. The departure from the earlier stance was noted with Japan introducing new defence guidelines on December 17, 2013, under new Prime Minister Shinzo Abe. 
The two strategic documents (National Security Strategy and National Defence Guidelines 2014), adopted under Prime Minister Shinzo Abe, identified a number of areas in which Japan would like to strengthen cooperation with India in the near future. This is believed to counter China's new air defence information zone (ADIZ) in East China Sea covering disputed islands of Senkakus and Diaoyus, declared a week before. 
The new defence guidelines of Prime Minister Shinzo Abe recognized the primacy of India. It noted that "as a result of change in the balance of power due to development of countries such as China and India -- multi-polarization of the international community is progressing". As regards security cooperation with India, it stated that "Japan will strengthen its relationship with India in a broad range of fields, including maritime security, through joint training and exercises as well as joint implementation of international peace cooperation activities." It sent a clear massage of India's primacy in Japan's defence strategies, not only covering maritime security, but also covering other aspects of Japan self-defence security. 

India- Japan relation is mired into the tussles between China and Japan. In the pretext of earlier Japan - India Declaration on Security Cooperation signed at Tokyo on 22nd October, 2008, People Republic of China scoffed that "Japan and India forge military alliance to attack China both from front and rear". With the China influence growing in the region more than USA and China inching towards India for better relation, the People's Daily of China highlighted the fact that Japan, which already has an alliance with the USA, has chosen India as the second country after Australia for signing a security accord. The relation between India and Japan since then has changed from bipolar to tri -polar with the political relation edging the economic and commercial relation. Therefore, the relation between India and Japan needs to be viewed from multilateral political and economic perspectives, instead of bilateral economic relation, which is a myth now. 

The sudden upsurge in India China relation after the new Chinese President Xi Jinping assumed office in November 2012 and the dashing visit of Chinese Premier Li Keqiang to India in May 2013 before the Prime Minister Manmohan Singh visit to Japan in the same month evoked a new chapter in the India-Japan relation. Chinese Premier visit lofted several questions on the future relation between India and China and its impact on India Japan relation. The relation between Japan and China, which was deteriorating with China grabbing global economic power and primacy in the Asian politics and the growing palatable relation between India and China, unleashed a triangular relationship between India Japan-China. It gives a new thought as to how India should tackle these three-cornered relations and move with a balancing tactic for bonhomie relations with both. India needs both Japan and China. India needs China because China has emerged the biggest trading partner of India. China has exhibited its real intension to co-partner with India in BRICS, when it endorsed India's proposal for BRICS Development Bank and launching of CRA(Contingent Reserve Arrangement) in the last summit at Durban. 
Japan has always been playing a true partner for India's economic development. Even in bad days, Japan extended its full cooperation to rescue India. During drought in 1967-68, Japan was the biggest donor to India. Today, India's crucial economic problem is widening current account deficit (CAD). In 2012-13 it was 4.8 percent of GDP. This was much above the comfort zone of 1.5 percent to GDP. It created turbulence in the balance of payment and exerted pressure on rupee. Rupee against US Dollar crashed by 11 percent in first nine months of fiscal year 2013-14. This caused spur in import cost, affecting huge burden on oil imports and import intensive exports. Indian economists raised alarm and warned for the renaissance of Asian currency crisis. With the tapering of US Federal bonds buying, the country's economists warned that not only fresh flows of FII investment from USA would stop, older flows would reverse to USA. 
In 2012, Japan was the second biggest foreign investor in the world, after USA. It accounted for 9 percent of world outward foreign investment. India gained prominence in this upward trend in Japan's global outward FDI. It improved from seventh rank of foreign investors in 2008-09 to 3rd rank in 2012-13. Nevertheless, India's share in Japan's global outward invest ment was paltry. In 2012, it was 2.3 percent of Japan's global outward investment. Therefore, enough rooms are left for India to attract Japanese investment.

Even though China continues to be the biggest recipient of Japanese investment, there was a sudden slip in the trend in Japanese investment in China since Lehman shock and migration to other Asian countries including India. During five months period of January- May 2013, Japanese investment in China dropped by 25.3 percent. In contrast, Japanese investment in India spurred by 34 per cent during the same period. Another factor diverting Japanese investment to India was that Japan was third biggest country to make acquisition in India, after USA and U.K. 
Japanese FDI played significant role in the process of industrialization in India. Japanese firms build up production zone as an extension of their domestic base and helped the less developing countries in industrialization. Thai land was one such country, which was the biggest beneficiary of Japanese FDI in the process of industrialization. Similarly, India too benefitted in developing its automobile industries in totality - with Japanese investment - from parts to assembly. 
Japanese investors can play important role in developing India's NMIZ (National Manufacturing Investment Zone) - a Prime Minister Manmohan Singh's zeal to make the country a manufacturing hub in Asia. Given the big domestic demand, with the backing of large pool of technology workers and increasing working age population and strong economic fundamentals, India has all factors to edge out ASEAN in manufacturing activities. It can warrant for a better destination for foreign investment. At this point, the visit of Japanese Prime Minister Shinzo Abe to India on January 24 owes dual purposes with political maneovrance to woo India to contain China for the first time and economic expansion, will make a breakthrough in India Japan relation. To enthuse Japanese investors, who are yet to be nudged by global slump, India should wake up to reduce its red tape and lure the Japanese investors. This will consequently help to reduce CAD also. (IPA)
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Courtesy: Subrata Majumder and The Daily Excelsior: 21nd January, 2014