In search of a friendlier India

N Chandra Mohan

Did India find any love in Tokyo? Not much, would be the response of Japan-watchers. But Prime Minister Atal Behari Vajpayee and his entourage did return in an upbeat mood after their five-day state visit. The delegation appeared bowled over by the charismatic Japanese Prime Minister, Junichiro Koizumi, and his foreign
minister Makiko Tanaka. The glow in their faces was also because they had put the bilateral economic relationship back on track.

This relationship was derailed after India’s nuclear tests in 1998 and the subsequent imposition of sanctions by Japan. Naturally, with the lifting of sanctions and the imminent resumption of Japan’s official development assistance, there will be greater “synergies” between such aid and India’s development needs. But the upbeat mood reflected India’s successful pitch for Japanese foreign direct investments. The masterstroke in this regard was disinvestment minister Arun Shourie’s China card.

India’s officialdom believes that Japanese businessmen are paying renewed attention to our country as a possible counter to China’s rise. Mr Shourie used the Japanese unease regarding the fiery dragon to hammer home India’s requirement for more FDI: “You are not strengthening a potential rival when you invest in India”. By investing instead in China, Japanese businessmen need to consider “whether they were not creating a potential problem”, argued the articulate minister.

However, the minister doesn’t realise that Japanese don’t invest where they are not comfortable. India indeed happens to be one country where they are not comfortable. To get an idea regarding this, observe them at the Japan Airlines lounge in Delhi airport before they emplane homewards. The relief on their faces is palpable, as they clutch their mandatory gift packages of Indian “Kocha” tea and impatiently await the boarding call. It is obvious that they are keen to get the hell out of this country ASAP.

India is a punishment posting for most Japanese expatriates. But why are they so uncomfortable here? The country’s vastness. The heat and dust. The grinding poverty. The regional and linguistic diversity—all of which does challenge those who come from smaller and more homogeneous societies. “You must make India a better place for the Japanese to live in,” said N Kawamoto, chairman of the Indo-Japanese Business Cooperation Committee to the visiting Indian delegation last week.

Mr Kawamoto knows what he is talking about. He is a former head of Honda Motors, which has a major presence in India. There are only five specialised Japanese restaurants in the country as a whole, according to him. That fact alone tells a tale of its own. Japanese prefer to eat their own cuisine: their sushi, sashimi and sake is simply unavailable in India. Until recently, most expatriates undertook shopping expeditions to Kathmandu or Bangkok to stock up on their choice delicacies, including tuna fish.

Mr Shourie should realise that the discomfort of expatriates is the worst publicity for Japanese FDI in India. Such investments amounted to a paltry $156 million last year, working out to only 8 per cent of total actual FDI inflows into the country. Japanese investments in India are less than 3 per cent of their entire Asian exposure. The amount that the Japanese are ploughing into China in a single year is much higher than what they have cumulatively invested in India since 1991.

The Japanese discomfort regarding India also arises from the “troika of obstacles” comprising poor infrastructure, redtapism among the bureaucracy and the aggressive stance of tax authorities both at the centre and the states. “I hope the understanding is reached that FDI is like precious ducks, which lays golden eggs. If you squeeze them prematurely, you would lose the geese and the eggs that will be produced,” stated Japanese envoy in India Hiroshi Hirabayashi to The Financial Express.

Japanese businessmen are put off by the “troika of obstacles”, which makes then somewhat cynical of operating from India. Quite a few have cut their losses and quit India. There are currently 220 odd major Japanese companies with offices and plants here, “but it remains peanuts compared to what we are doing in China and South East Asia”, added Mr Hirabayashi. There is also an interesting north-south contrast to their presence in India, with a distinct preference for the south of Vindhyas in recent years.

More than 60 per cent of the Japanese companies thus operate from south India, with a major presence in metros like Mumbai, Pune, Chennai and Bangalore. The friendlier investment climate in states like Karnataka, Chennai and Maharashtra clearly have attracted more and more Japanese businesses. By contrast, their presence in north India is dominated by Delhi and Gurgaon—reflecting perhaps the solo success story of Maruti Udyog Ltd which was set up in the early 1980s.

What Maruti did for Japanese FDI in north India, Toyota bids fair to do the same in south India. The car giant has systematically set up its own industrial park for its suppliers and sub-contractors. Its venture to make the Qualis has clicked and the company plans to launch more models in the passenger car segment. Toyota’s presence in Karnataka is a tribute to the farsighted approach of Karnataka’s chief minister and officialdom—surely a model that deserves to be emulated by other states in India.

If there are more such success stories like Toyota, the decks are bound to be cleared for more Japanese investments. There is no need for high profile delegations to visit Tokyo to invite FDI. They will come on their own, if their self-interest so warrants it.

That’s why they are in China in a big way. Potential rivalry is far from their minds. If we need their FDI, the government must get its act together to make India a more attractive investment destination.

Providing better infrastructure in the form of better roads, power and ports should assume paramount importance. Till such time, there will be not much love from Tokyo. Or Washington or Bonn or Paris or London for that matter.