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Ira Majumdar
Since Plaza Agreement, Japanese investors have always been in the top of the mind of the Indian policy-makers and investors. They never missed any opportunity to invite Japanese investors. Scores of delegation visits were made to Japan and seminars and workshops were organised in that country to sell India's potential, which, as on today, is claimed to be one of the safest destinations for investment. But Japanese remained somnolent in the face of Indian liberalisation and Indian welcome.
Rather, the Japanese frowned at Pokharan test and imposed sanctions. They were anguished at the `swadeshi' policy and feared a cascading impact on their investment confidence in India. At every seminar and meeting they warned about the fallout of the impact. Ironically, if Pokharan test and swadeshi swagger were the only factors to daunt Japanese investment, then what happened before when there was no Pokharan and swadeshi; even then the Japanese investments were at a low ebb.
While all major trading partners of Indiaincreased their investment in India (excepting in 1998), Japanese investment has always been slipping down from its earlier position. Even developing nations like South Korea and Malaysia, who have never figured as major trading partners of India, have targeted India as the potential investment destination whereas Japan kept its investment decisions in abeyance, waiting for more openness in the economy.
Except in automobiles there was no major project where the Japanese have invested during the last three-four years. There was not a single infrastructure project with Japanese investments.
In 1995, there was a telecommunication project where NTT, Japan, and the Goenka group of India joined hands to set up a telecommunication services in the Tamil Nadu telecom circle. This was the first infrastructure project in which the Japanese evinced interest. Unfortunately, the project went haywire and the Japanese company withdrew its stake.
There was not a single industrial project like capital goods industry orchemical industry where the Japanese came forward to invest. This is despite the fact that the country portends for a large demand for capital goods in future in view of the large investment worth $350 billion projected in the infrastructure alone in the coming seven years.
The plight of Japanese investment in India is reflected by its overall gloomy trend of global investment and not the Pokharan or swadeshi, which were highlighted as bumpy ride for them to enter India. Japanese global investment declined by 28.6 per cent in the first half of 1998.
Even the largest recipient nation USA, which receives nearly 40 per cent of the annual Japanese overseas investment, received lesser investment from Japan in the first half of 1998 (a fall of 52 per cent). Other bigger recipients of Japanese investment like ASEAN-4 (Malaysia, Thailand, Philippines, Indonesia), China and Singapore too received less Japanese investment in the same period.
The factors attributing to this fall in the global outflow of Japaneseinvestment were the two successive years of economic recession, volatile financial market and bankruptcies of Japanese larger houses and banks who were the backbone of the Japanese investment abroad. For the first time in 23 years Japan's GDP shrank to a negative growth by 0.7 per cent in 1997-98 and the fall aggravated to 2.2 per cent in 1998-99. There are some signs of a hope for recovery of GDP during 1999-200, but they are not enough to bail out the Japanese economy from the deeply recession-hit situation.
The country's major banks were entrapped with huge bad loans and analysts warn that the bank's problem will persist because Japanese recession is likely to increase corporate bankruptcies. Electronics giants like Toshiba, NEC Corp, Hitachi, Sony, TDK, Casio Computer, the steel giant like Nippon Steel and Sumitomo Metal Industries and the large trading houses (popularly known as Sogo-Shosha) like Nisshow-Iwai, Tomen and Kanematsu have already rang the warning bell for their prospect.
Till the Asiancurrency erupted, the euphoria of the Japanese surplus enticed many countries to run after Japanese investment. The upshot of the situation was that FDI outflow from Japan boomed and the investment within Japan, including FDI, were languishing.
The situation took a dramatic turn after the Asian currency crisis when FDI outflow from Japan declined and inward FDI increased. This has evoked a widespread discussion at various economic fora, meetings and even at government levels that if it was really worth running after the Japanese and succumb to the sycophancy for Japanese investment.
The Japanese are strategic investors. They change their route of investment following the air of current global trend of investment pattern. With the global investment pattern converging to the mergers and acquisitions route, Japanese investors have changed their tunnel of investment from fresh projects to existing projects by enhancing investment.
During the last three to four years much of the Japanese investment in Indiacame through increasing stakes in existing joint ventures. Taking the advantage of weak financial capability of the domestic partners in view of the slump in the domestic market during the last two to three years, Japanese accelerated their investment by increasing their share capital in existing joint ventures instead of investing in any new major project. Honda increased its stake in both motorcycle and passenger car projects. Toyota Motor Co recently got FIPB approval to increase its stake from 74 to 82 per cent in its multi-utility vehicle project and Matsushita Electric Company mulls increasing its stake from 51 to 74 per cent.
Unlike in south-east Asian countries, Japanese investment failed to bolster India's export and disappointed the Indian policy-makers who were highly ambitious that Japanese investment would catapult India's export. In Thailand nearly 45 per cent of the country's export is geared by Japanese invested firms. In Indonesia, the share is 23 per cent, in Malaysia it is 19 per cent andin Philippines it is 27 per cent. In India only Maruti is exporting. But even the share of export in the total production of Maruti is merely eight per cent. Ironically, Suzuki Motor Co, the partner company, is exporting over 40 per cent of its production in Japan.
In conclusion, a new stage has arisen after the Asian currency crisis which has weakened the Japanese economy and India should have second thoughts before it runs for FDI only from those nations with whom it has larger trade relations. With the Japanese economy submerging into deep economic recession, Japan's potential to invest in India has receded.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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