A LITTLE OF JAPAN IN INDIA

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1 P A G E 1 INDIA - JAPAN A Little of Japan in India

2 P A G E 2 Japanese investments into India have been on a steady growth path since 1991 when the country s policies were liberalised. They are expected to touch US$ 5 billion over the next three years The Lemon Tree Hotel in Gurgaon holds an unusual distinction. It caters to only Japanese customers. It is always booked and the list of customers it has been refusing accommodation to, has been increasing. Responding to this need, the proprietor of the 40-roomed hotel now plans to have three such establishments exclusively for Japanese customers, with an environment that will make them feel at home. Almost like Little Japans in India. The number of Little Japans in India is likely to grow. Since there is a little of Japan in most Indian lives now what with Honda Cities vying for ubiquitousness with Marutis on the roads, the largely Japan-funded Metro subway system in New Delhi providing an alternative mode of transport, and plans of Japan funding a third of the 1,500-kilometre Delhi-Mumbai freight and industrial corridor, which is to begin construction in 2008 and be completed by Japanese investments into India have been on a steady growth path since 1991 when the country s policies were liberalised. They are expected to touch US$ 5 billion over the next three years, according to a DIPP (Department of Industrial Promotion and Policy) official. The 4th largest investor into India, Japan accounted for to US$ 2,585 million foreign direct investment (FDI) from July 1991 to July 2007, out of US$ 60.2 billion that the country received in total. Evidently, India is now a significant blip on the Japanese investor s radar. With positive indicators such as a stable 8-9 per cent annual growth, rising foreign exchange reserves of over US$ 256 billion, a booming capital market with the popular Sensex touching the 20,000 mark, the Indian Government targeting FDI flow of US$ 30 billion in fiscal 2008, and a more than 20 per cent surge in exports, India offers interesting opportunities to a potential investor. Such credentials are difficult to ignore as the Finance Minister, P. Chidambaram, told delegates at the World

3 P A G E 3 Economic Forum meet in Davos last year, You can't afford not to engage India... AT Kearney says India is the best place to start a business. India gets this unbeatable advantage because of its people. The country is at a one-in-a-100 year peak in the context of number of people entering the workforce The returns of being in India are substantial. Indian companies give a higher return on equity than other countries in Asia. It is 18 per cent in India compared to 11.5 per cent in China says JP Morgan. India subsidiaries of global companies often outperform their parent companies. And Japanese companies, in particular, are doing remarkably well. Of the 328 affiliates of Japanese companies in India, 70 per cent are making profits in operations, 69 per cent achieve profitability targets, while 83 per cent utilise 70 per cent of their capacities, reveals a FICCI survey on FDI. Corroborating this position, an AT Kearney report says that India is the best place to start a business. India gets this unbeatable advantage because of its people. The country is at a one-in-a-100 year peak in the context of number of people entering the workforce. This is the secret to India s success its demography, as much as its technology and outsourcing. And this trend will continue for years to come. The number of people entering the working age (15-64) population in India is now 14 million per year. This means that consumer demand is rising and so too is employment and the tax base. India will continue to be used as a human capital mine for the next 50 years, quite similar to what Ireland was in the 19th century, says Bernard Salt, KPMG Australia partner. The AT Kearney report, which ranks Indian manpower favourably in terms of education, experience and security of intellectual property, says that though the wage costs are not high in India, tax costs are. These, combined with infrastructure and regulatory hurdles, act as deterrents to investment. However, the larger picture continues to be positive. And attract investors. FDI into India nearly tripled last

4 P A G E 4 Foreign direct investment into India rose in the fiscal year ended March 31, to about US$ 16 billion from just US$ 5.5 billion a year earlier, says Commerce Minister Kamal Nath fiscal year as more overseas investors flocked to the country, Commerce Minister Kamal Nath has said. Nath said that foreign direct investment rose in the fiscal year ended March 31, to about US$ 16 billion from just US$ 5.5 billion a year earlier. These numbers do not include the billions of dollars that have been coming into the stock and bond markets. The sectors attracting maximum FDI inflows (from January 2000 to June 2007) from Japan are Transportation (42 per cent), Electrical Equipment (including computer software & electronics) (20.46 per cent), and Services Sectors (financial & non-financial) (3.36 per cent) Telecommunications (3.09 per cent) & Earth Moving Machinery (2.58 per cent). The top FDI inflows received (from January 2000 to June 2007) from Japan through Indian companies are Maruti, Escorts Yamaha, Yamaha Motor India, Sanyo BPL, Birla NGK Insulators, Welspen Productions, Toyota Kirloskar Motors, Toyota Kirloskar Auto Parts, Denso Haryana, Telco Construction Equipment among others. Top Japanese FDI projects Company FDI Description Name (US$ million) Maruti Udyog 699 New factory for car production and diesel engine plant MCC PTA 364 Increasing capacity of Haldia plant Toyota Motor 128 Increasing its capacity Corporation Honda 214 Increasing its capacity and building new factory Sakata Inx 54 Increasing its capacity Source: DIPP A survey conducted by the Japan External Trade Organization (JETRO) and Japan Bank for International Coop-

5 P A G E 5 A survey conducted by the Japan External Trade Organization (JETRO) and Japan Bank for International Cooperation (JBIC) indicates that India is the second most prospective investment destination abroad next to China for the Japanese business circle eration (JBIC) indicates that India is the second most prospective investment destination abroad next to China for the Japanese business circle. There is a reason for this. According to a study conducted by Bank of Japan, India s economy will overtake the Japanese economy by 2025 to rank third in the world after the United States and China in terms of purchasing power parity. Another indicator of expanding relations between the two countries is the increased number of visits by Japanese delegations to India in the past few years. Former Japanese Prime Minister Shinzo Abe visited India in August the third successive Japanese prime minister to visit India after Yoshiro Mori in 2000 and Junichiro Koizumi in 2005, and India is the only country with which Japan will have annual prime ministerial level talks. Abe was accompanied by 250 business executives, the biggest-ever business delegation from Japan to a South Asian nation. In order to strengthen cultural and academic exchanges and to promote people-to-people contacts, the two Prime Ministers decided to designate the year 2007 as the Japan-India Friendship Year. The year 2007 marks the 50th anniversary of the Japan-India cultural exchange agreement. India s Prime Minister Manmohan Singh s visit to Japan in December 2006 culminated in the signing of the Joint Statement Towards Japan-India Strategic and Global Partnership. The proactive initiatives at the state level are bearing fruit. The number of Japanese firms operating in India has grown by 50 per cent in the past three years. In fact, a third of the nearly 475 Japanese companies present in India made their investments over the past year. Little wonder then that the number of Little Japans in India is increasing at a feverish pace to keep up.

6 NOVEMBER 2007 P A G E 6 The is a public - private partnership between the Ministry of Commerce, Government of India and the Confederation of Indian Industry. The Foundation's primary objective is to build positive economic perceptions of India globally. I B E F c/o Confederation of Indian Industry 249-F Sector 18 Udyog Vihar Phase IV Gurgaon Haryana INDIA Tel: Fax: ceo@ciionline.org Web