1. Shinzo Abe’s visit: Moderate expectations

Shinzo Abe’s visit: Moderate expectations

Japanese PM Abe’s latest visit would be more about expediting ongoing negotiations on deals and political issues rather than signing new agreements

By: | Updated: December 11, 2015 2:06 AM
shinzo abe india visit

PM Narendra Modi with Japanese Prime Minister Shinzo Abe.

Since 2005, the Japanese and Indian premiers have had annual summit meetings, alternately in each other’s capital. Today, for the thirteenth such engagement, Japanese Prime Minister Shinzo Abe comes to New Delhi to meet his counterpart here, Narendra Modi, who, only last September, made a high-profile trip to Nagoya and Tokyo. This regular exchange of views has provided the requisite momentum to strengthen bilateral relations and brought about a high degree of closeness and alignment in stands on most global issues. Such official visits have also provided the leaders of the two countries a platform to announce the launch of big-ticket projects. For instance, during last year’s interaction, a commitment was given by the Japanese PM for the investment of $35 billion over the next five years in India. There are now expectations of similar headline-catching announcements from every such visit, including the present one.

By all accounts, this visit of Abe, to New Delhi and Varanasi, would be more by way of expediting the ongoing negotiations between the two countries on economic deals and political issues rather than the signing of new project-agreements altogether. It can be reasonably expected that the joint statement to be issued at the conclusion of the visit would mention the substantial progress made during the last year on the Japanese ODA for the 505-km high-speed rail link between Ahmedabad and  Mumbai, the acquisition of Japanese-made US-2 amphibian aircrafts by the Indian Navy, and the status of the Indo-Japan civil nuclear co-operation agreement.

While broad mutual understanding has been reached on the desirability of all three topics, a few critical issues have yet to be resolved. The extent of concessional finance for the $16 billion (R105 lakh crore) rail-project, including assuming of commercial risks by Japanese suppliers of equipment and rolling stock by way of taking equity, remain to be agreed upon. The feasibility of fulfilling the 30% offset requirement in the sale of naval aircrafts by Shinmaywa, the Japanese aircraft-maker, continues to be a sticking point. Before signing the civil nuclear cooperation agreement, the first with any country by Japan, the Japanese government has to also handle the strong domestic anti-nuclear sentiment. Expanding nuclear power continues to divide the Japanese public and remains a hugely sentimental issue in the only nation that has had the traumatic experience of coping with the devastating capability of atomic weapons.
The new infrastructure projects posed by India, for years the largest recipient of Japanese ODA, could also come up for discussion. The Japanese government does not, prima facie, seem averse to supporting three Navi Mumbai development-projects, viz., establishing a new international airport to complement the existing, heavily-used Mumbai airport; a 20-km trans-harbour sea-link from Sewri, to directly open up Mumbai to the hinterland of Maharashtra; and the development of Navi Mumbai as a smart city. All make ample economic sense and could significantly help decongest Mumbai.

Modi could also seek a more proactive role of Japanese business in the manufacture in India of liquified natural gas (LNG) cargo vessels. Natural gas, with its falling prices, is quickly becoming the preferred fuel for power generation as our dependence on coal reduces. However, given our hydrocarbon endowment, that entails greater imports of LNG, the current preferred mode of transportation. Making shipping vessels capable of carrying large gas-volumes in cryogenic conditions requires complex technology and is currently the monopoly of a handful of countries, including Japan. In pursuance of our Make-in-India vision, combined with Japan’s Abenomics, characterised by the availability of credit easier to Japanese businesses, a couple of greenfield shipyards could also be promoted to make such next-generation ships and submarines. Japan, with its vast strength in ship-building, could be interested if there is assurance of product-offtake by India.

The visit by Abe would also provide an occasion to review the bottlenecks being faced by foreign investors in India. While we continue to gradually improve, doing business in India, especially measures conceived to specifically facilitate Japanese investments, have yet to take off. Following the two PMs’ decision in Tokyo last year, it was agreed to have a Japanese official working in the Indian PMO to help address Japanese business’ concerns. However, this arrangement came to be housed under the nom de plume Japan Plus in the department of industrial policy and promotion (DIPP). Feedback from Japanese investors has not been positive. Understandably, a wing or an arrangement under a single department, with the 30-odd ministries existing, cannot be more effective than the department’s own assigned role and jurisdiction. It would be more productive to attach it to the PMO, which has the necessary reach and influence in both, the Centre and states. Incidentally, a recent Japanese-government-sponsored survey, conducted amongst the Japanese manufacturing companies, showed that 78% of them wanted to expand or set up their operations in India in the next one or two years—much higher than the 47% in China and 60-odd per cent in Vietnam, Indonesia and Thailand. But Harvard professor Larry Summers rightly pointed out last week, most of them also lament the extremely slow decision-making process in India. Reassigning Japan Plus could assuage this valid concern.

Another recent publication, by the Nomura Research Institute, about future Japanese investment in India, points out that there is likely to be significantly greater presence in India of machinery, electrical equipment and electronic manufacturers than in the auto industry, which currently constitutes 62% of the roughly 1,300 Japanese firms present in India. Unlike the auto-component producers who like to locate themselves in the backyards of car assemblers, machinery and equipment-makers prefer industrial parks near mega-cities due to their easy access to international living conditions. (In fact, as many as 30% Japanese companies find living conditions in India poor compared to other emerging countries in Asia).

Conceiving the Delhi-Mumbai Industrial Corridor (DMIC), and the Indian government quickly approving its
setting up in 2007 and creating the DMICDC (a company to coordinate its orderly development) was done to address such concerns. For several conceptual misgivings, its development has got delayed and and it is only recently that the first work orders for 2 of the 12 identified hubs were awarded. Instead of 2012, the corridor will now come up 8-9 years later, in 2020-21 and that too in bits and pieces.

Occasions like the visits of the prime ministers to one another’s capitals, inter alia, provide opportunities to review ongoing co-operative efforts and also make the necessary course-corrections. While progress is expedited on reaching understandings on new projects and issues, their deliberations also set the direction and pace for ground-level people and teams involved in project-implementation. This visit by Abe, an avowed friend of India, should serve both these purposes well.

The author is a former secretary, ministry of commerce and industry. He was the Indian co-chair of the Indo-Japan Task Force to prepare the concept paper for DMIC

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