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Friday, Dec 03, 2021
Outlook.com
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Opinion

No Yen For India?

The Japanese are still waiting and watching. They may be lavish with their praise, but the assumption that they are lining up to come here is a delusion. The issue is not India versus China but India versus Thailand.

No Yen For India?
No Yen For India?
outlookindia.com
-0001-11-30T00:00:00+05:53

But are they? Far from it, although it is, no doubt, true that with the souring of their love affair with China, the Japanese have begun to cast their gaze India-wards. Signs of this new mood were indicated when Japan’s Prime Minister referred to India as a "major power", when he visited the country earlier this year. A telling fact is also that a major Japanese business delegation visited India after a long gap of five years -- led by Hiroshi Okuda, chairman of the world’s most profitable car company, Toyota Motor Corporation.

Like the Japanese premier, Okuda too is gracious in his praise for India’s growing manufacturing capabilities. His delegation comprised the Nippon Keidanren that is dominated by Japanese big business interests. At a recent luncheon meeting with the Confederation of Indian industry (CII), Okuda candidly stated, "India and Thailand are growing fast because of their focus on quality in manufacturing", adding that they soon would "overtake Japan if Japanese companies do not pay attention to quality."

To buttress his statement, Okuda mentioned that despite appeals at the highest levels to pay greater attention to quality, Japanese companies are not interested in winning awards like the Deming prize while the total quality movement was spreading in India and many companies are winning this coveted prize. When he headed the Deming award committee last year, three Indian companies -- Indo-Gulf Fertilizers Ltd, Lucas-TVS and SRF Ltd -- comprised the six Deming awardees. No Japanese company has won this award of late.

No doubt, all of this sounds like music to India Inc. But if the expectation was that Keidanren would announce dramatically higher investment intentions in the country, this didn’t come to pass. The Japanese, for their part, are known to be unfailingly polite and lavish with their appreciation of India’s immense potential. But when it comes down to business, their exposure in the country leaves much to be desired. With actual FDI of only $101 million in 2004, they don’t have the yen for big-ticket investments in India.

Okuda’s company is, of course, already present in India’s booming car market and has plans to rollout a small car to take on Suzuki’s bread and butter model, the Maruti 800. Toyota indeed has high comfort levels operating from the state of Karnataka -- its local subsidiary’s vice-chairman Vikram Kirloskar mentioned an interesting fact that the company could indeed roll out the first vehicle within 18 months with 75 per cent local content -- the fastest implementation as yet in Toyota’s overseas plants!

Similarly, Suzuki-controlled Maruti Udyog Ltd is also stepping up its investments to set up another assembly plant and diesel engine facility in the state of Haryana. There are also reports of Mitsubishi Chemicals ramping up capacities to produce purified terephthalmic acid. Honda, too, is thinking of expanding its operations although a dark and troubled shadow hangs over its plans due to the brutal lathicharge on workers of Honda Scooter and Motorcycle India in Gurgaon, Haryana on July 25.

All these plans aggregate to investments of $500 million per annum over the next three years but still represent only a teeny-weeny fraction of Japan’s exposure to China and ASEAN. For all the talk of investment plans, India accounts for less than 4 per cent of the 4,100-odd Japanese companies worldwide while more than a half of them do business with China. For a sense of perspective, the cumulative actual Japanese investments in India since 1991 are less than its investments in China in a single year!

In this regard, the subtext of Okuda’s praise of India offers a clue as to why they will not come here in a bigger way: the issue is not India versus China but India versus Thailand. With Japan’s love affair rapidly souring with the dragon, the beneficiaries of its higher investments are likely to be Thailand and ASEAN. India can hope to leverage these inflows only if it’s able to align duty structures in line with ASEAN. Japanese companies also have operations in Thailand that has a free trade agreement (FTA) with India.

The upshot is that instead of investing here, the Japanese have the option to do so in Thailand. This possibility of FDI diversion indeed is why Indian automobile industry opposes the Indo-Thai FTA. While, no doubt, the trade balance has shifted towards Thailand since the FTA, the fear of local manufacturers and component suppliers is that the Japanese companies will use bases like Thailand increasingly as a staging ground for their assault on the Indian market in automobiles, consumer electronics and so on.

All these factors raise concerns regards India’s attractiveness as a destination for Japanese FDI. The assumption that they are lining up to come here is a delusion. Nothing of the sort will be in prospect unless India harmonises its business practices with ASEAN. Although the Honda episode is unlikely to trigger an exodus of Japanese from Haryana, the fact is that Keidanren raised queries regarding labour relations during the luncheon with CII. The Japanese are still waiting and watching.


N. Chandra Mohan is a Delhi-based commentator on economic issues.

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