4 Months agoIndia provides a vast landscape of business relations and investment opportunities for Japanese companies. Know more here.
As two of the biggest democracies in the world, Japan and India share crucial values. Though the roots of their long-standing relationship lie in spiritualism, it is the evolution of their economic and strategic ties over the years that have captivated the interest of the world. When Prime Minister Narendra Modi visited Japan in 2016, the PMs of both countries undertook a comprehensive review of the Special Strategic and Global Partnership as outlined in the ‘India and Japan Vision 2025’ set forth in December 2015. ‘Vision 2025’ aims to strengthen Indo – Japan relations by synergising business partnerships, facilitating investments and creating an empowering environment in India for Japanese investments.
Indo-Japanese Partnership: A Historical Perspective
Japan’s business relations with India go back over two generations. Before World War II, India was one of Japan’s significant trade partners, accounting for 10–15% of Japan’s foreign trade until 1937.
In 1957, Japan’s Prime Minister Nobusuke Kishi visited India and received a warm welcome. PM Kishi expressed gratitude by making India the first recipient of Japanese Official Development Assistance (ODA) to promote economic development and cement strategic ties between the two nations.1
Indo-Japanese Business Collaboration
Japanese investments today have spread their wings beyond the traditional sectors to new ones such as infrastructure, information technology, food processing and agri-business. As of October 2016, there were 1,3052 Japanese companies registered in India. As compared to 2013, there has been a growth of 13% in the number of Japanese establishments. Collaboration in certain key areas is summarised below:
In 1978, the first Japanese company to enter India was the Suzuki Motor Corporation. Under the leadership of its Chairman Osamu Suzuki, the company mass produced the popular Maruti 800 in India.3 This micro-car went on to change the dynamics of the Indian car market. The cooperation in the automobile sector further continued with Honda, Toyota, Yamaha and Nissan setting base in the country.
Major Japanese automotive assemblers have identified India as a strong base for the production of small cars in their global strategy and have launched indigenously manufactured, cost-efficient cars specifically for other emerging markets.
The sales in automobiles, in India have witnessed a spike from USD 20 Billion to USD 30 Billion in the last five years (FY 2011-2016). The sector in India is predicted to reach a market size of USD 300 Billion in annual revenue by 2026. Furthermore, it is likely to generate 65 million additional jobs.
Apart from the automobile sector, Japanese electronics companies like Sony and Panasonic started setting up their manufacturing units in India in the 1990s and were amongst the country’s foremost consumer electronics brands. AC maker Daikin invested USD 163.69 Million and Sony USD 100 Million in 2014, about half of it in smartphones. Panasonic announced that it would invest USD 300 Million to make LED TVs, washing machines and refrigerators in the country.4
On the infrastructure front, the two countries have agreed to collaborate on the USD 100 Billion Delhi–Mumbai Industrial Corridor (DMIC) project in 2006. The core focus of the DMIC project is the development of 24 investment regions, 8 smart cities, 5 power projects, 2 airports, 2 Mass Rapid Transportation Systems (MRTS) and 2 logistics hubs. The project agreement is in line with India’s manufacturing policy, which aims to increase the share of manufacturing in GDP to 25% by 2025.5 The programme has been conceptualised in partnership with the Government of Japan. The Japan Bank for International Cooperation (JBIC) had earlier collaborated on the first phase of the Delhi Metro. For the second and third phase as well, the Japan International Cooperation Agency (JICA) has provided support to India.
Additionally, the project for India’s first bullet train, a 505-km line, which will run from Mumbai to Ahmedabad, will be completed by 2023. In a landmark move, Japan has offered to invest USD 15 Billion in the project.
With regard to the renewable energy sector, Japan’s SoftBank, Taiwan’s Foxconn and India’s Bharti Enterprises have collaborated to set up 20 GW of solar and wind energy projects across India, with investments worth USD 20 Billion.
Japan ranks third, accounting for 8% of the total accumulated volume of Foreign Direct Investment (FDI) inflow into India from April 2014 to March 2017. Japanese FDI into India increased 62% from USD 2,614 Million in FY 2015-16 to USD 4,709 Million in FY 2016-17.6
With the launch of the Make in India campaign, there has been an increase in interest among Japanese investors. Japan has extended its support to the campaign by setting up a Make in India Fund, approximately worth USD 12 Billion.7 In return for continued support from Japan, India has promised to devise a special package of incentives for attracting investments in & Japan Industrial Townships.8 Japan wants to develop 12 Industrial Townships in India with world-class infrastructure facilities, plug-in- play factories and investment incentives for Japanese companies.9
The way ahead
The future seems bright for Japanese firms in India. India’s demographic profile and positive economic outlook represent great opportunities for investment. Besides, the country's unrivalled youth population is contributing to India's consumption boom. India’s Consumer Market is expected to reach USD 61 Billion by 2025 making it the third largest consumer economy globally. 10
The Japanese Official Development Assistance (ODA) supports India’s efforts for accelerated economic development, particularly in the power and transportation sector and environmental projects. The total bilateral trade between India and Japan was USD 14.5 Billion in FY 2015-16 and mutual economic cooperation between the two countries is poised for expansion in the next decade.
1 http://www.thehindu.com/opinion/op-ed/coming- full-circle- shinzo-abe- in-india/article5614946.ece
4 http://www.businesstoday.in/magazine/cover-story/japanese- brands-are- on-the- rise-in- india/story/201863.html
7 http://economictimes.indiatimes.com/news/economy/finance/japans-12- billion-make- in-india- fund-to- push- investments/articleshow/50154789.cms
8 http://indianexpress.com/article/business/economy/japans-1- 5-trillion- yen-fund- for-realising- its-make- in-india- goals/
10 https://www.bcg.com/d/press/21march2017-new- indian-changing- consumer-149010