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Ira Majumder
The yen crashed to its eight-year low of 147 per US dollar on August 11 and the Japanese shares plunged to their 12-year lows on August 28. Though the yen bounced back in the later stage to 132 on September 2 and the shares made subtle recoveries, the volatility continues. The Japanese economic planning agency minister Taichi Sakaiya acknowledged the plight of the Japanese economy and expected that the GDP would pose negative growth in the first half of 1998.
The Japanese economy has been reeling since the past six years and is in a severe situation for the last one year. It's GDP touched the lowest growth of 1-2 per cent among the G-7 countries since 1992, except in 1996, and there is no respite from this sluggish growth in the near future. The Economist's poll forecast a fall in GDP growth by 1.0 per cent in 1998 and the recessionary pressure is feared to continue till 1999.
The financial market is in a mess and the swelling of bad debts is engulfing the Japanese banking and financial markets. Theparadise of consumer boom is over and imports are slated to decline by 4 per cent in the current year.
The Japanese flu is spreading to the Asean economy, which was striving to resurrect since April, and is threatening to plunge it into a crisis for the second time. The first was due to the soaring short-term and cheap loan and the second crisis can be attributed to the sliding yen and the sluggish Japanese stock market.
The Asean boom, which planked upon the concept of an export-based economy, depends substantially on Japanese imports. Nearly one-fifth of the nine- nation Asean exports go to Japan. Coupled with a sliding yen, China's consideration to devalue the remnibi portends further dark days ahead for the Asean economy.
Japan is the biggest investor in the Asean block. Annually, over 25 per cent of the FDI in the four major Asean nations Singapore, Thailand, Malaysia and Indonesia is made by Japanese firms. With the yen losing its value and the economic slump in these countries, the Japaneseinvestors are discouraged to invest there in the short term.
The Japanese global charm to invest abroad is ebbing. Japanese FDI outflow was steering in a reverse gear since 1996-97. Its FDI in overseas (notification basis) declined by 5.3 per cent on 1996-97 (against an increase of 23.5 per cent in 1995-96) and further crumbled to 4.4 per cent in the first half of 1997-98. Many Asians in the Asean region and China, the major destinations of Japanese investment, feel the worst is round the corner.
The situation has changed dramatically after the yen slumped and the financial upheavals in Japan. The euphoria of Japanese investment abroad is waning.
Japan's own problems threaten to dash their hopes of investing in India rather than the Indian deterrants like high tariff, red tapism, inadequate infrastructures, which were perennially pronounced as the roadblocks for the Japanese to invest in this country.
Domestic compulsions forced Japanese major Mitsubishi Heavy Engineering Corporation to shelve itsplan to set up an elevator-manufacturing unit in India. Japanese giant the Okura Trading Corporation has decided to close down its shop in India and all its overseas offices owing to a serious financial crunch.
Apart from extending soft-term loans, Japan's contribution to India's macro- economic parameters is at a low ebb. Take the case of technology transfer. In none of the Japanese joint ventures, active R&D facilities have been established with a goal to indigenise the technology. No doubt, the Japanese have fulfilled the Indian statutory obligations of indigenization by procuring indigenous components, but this indigenization is known for its backdoor dependence upon imports from Japan. As a result, most of these ventures depend on the parent firms for the technology transfer. The Japanese joint ventures are functioning merely as manufacturing bases in this country.
Similarly, the Japanese contribution in the overall industrial growth of the country has been meagre. In the name of improving thequality of consumerism, Japanese investment has substantially been made in consumer durables, which constitute only 2 per cent of the weight of the country's industrial index. On the contrary, Japanese investment has been shallow in the other strategic areas like capital goods and industrial intermediates, which constitute one-third of the weight of the index.
On the external front, the Japanese are far behind other nations. There is no Japanese joint venture, which is among the top 20 corporate exporters in this country. Even Maruti Udyog, which over 70 per cent market share in the passenger-car segment in India, exports only 7-8 of its sales. Ironically, the export ratio of Suzuki Motor Co, Maruti's joint-venture partner, in Japan is over 45 per cent.
Therefore, the time has come to have a second look at the Japanese charisma from the angle of FDI in this country. It is imperative for domestic firms to develop their own R&D activities to increase the competitiveness of their merchandise rather thandepending more on imported technology and foreign funds
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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