'Encourages direct two-way investment'

JAPAN’s bilateral relationship with India has been improving since the Narasimha Rao administration launched economic reforms in 1991, so feels Mr. Osamu Watanabe, Chairman of  the Japan External Trade Organization (JETRO). In a wide ranging interview with Amitabha Sen, he points out that in the mid 1990s Japan stepped up its direct investment in India. The JETRO Chairman said that the Japanese government regarded bilateral cooperation in the IT industry as a particularly important field for future Indo-Japanese relations. IT investments are relatively inexpensive, and the investment environment in Japan is improving. He does not think that high cost of investment should be a barrier to India’s investments in Japan.

JETRO has two offices in India-in Mumbai and New Delhi- and investment advisor in Bangalore, which provide information on direct two-way investment. JETRO has opened its "new" Invest Japan Business Support Center (IBSC) in Tokyo on May 26, 2003 which is a one-stop centre poviding investment-related information and services. With staff including advisors on IT, biotechnology, industries etc. and free of charge office spaces, the IBSC welcomes to assist Indian companies.

AS: The Indian Prime Minister during his visit to Japan in 2001 has termed Japan the ‘Sun of the East’. To extend it further, how do you as JETRO chief find the prospects of East and South-East Asia’s emergence as a more powerful economic force the rest of world has to reckon with and what could be the possible role of Japan and JETRO in particular, in such a scenario?

OW: Up to the 1980s, Japanese businesses exported directly from their manufacturing bases in Japan. Since the 1990s, however, on account of the strong yen, not only major corporations but also small and medium sized enterprises have adopted a more dynamic corporate strategy and have been expanding their operations to East and Southeast Asia.

Future economic integration in the region is anticipated, as can be seen from the recent developments of economic talks such as practical implementation of the Japan-Singapore Economic Partnership Agreement (JSEPA); Japan’s consideration of bilateral economic partnerships with Thailand, Malaysia, the Philippines and ASEAN; discussions between Japan and Korea on a possible Free Trade Agreement (FTA); and FTA negotiations between China and ASEAN.

If Japan is to maintain its leadership role in the prospering the region as well as co-leadership in the global economy, it must continue its pursuit of structural reform and strive to attract greater inflows of essential high-level sources including capital, technologies, know-how, and human talent. JETRO will continue its efforts to promote further economic development in the region through activities that encourage direct two-way investment as well as export-oriented and supporting industries in ASEAN.

AS: JETRO, in today’s globalization perspective, is acting as a turbo charger not only for the Japanese economy, but it is being gradually recognized as a stimulator for the global economy as well.  In the East and South-East Asian region in particular, JETRO’s influencing role to strengthen the regional economy cannot be overlooked either. Still, Indo-Japanese bilateral relations that spanned over half-a-century do not reflect that strong and expanded trade structure, if compared, for example, with Japan-China trade and economic relations. What do you feel could be the limiting factors that slow the growth of India’s bilateral trade with Japan?

OW: After World War II, India played an important role in the recovery of Japan’s steel industry as a major supplier of iron ore (mainly from Goa). Also, as you can see from the fact that Japan’s first postwar yen loan was to India, the two countries enjoyed a very close relationship in the postwar era.

But soon after India began adopting a more socialistic and domestically oriented economic policy, the relationship entered a period of stagnation that continued for some time.

However, since the Narasimha Rao administration began its economic reforms in 1991, our bilateral relationship has been improving, and in the mid 1990s Japan stepped up its direct investment in India. The Japanese government regarded bilateral cooperation in the IT industry as a particularly important field for future Indo-Japanese relations – in 2000, then Prime Minister Mori took measures to advance the “Japan-India IT Promotion and Cooperation Initiative” by facilitating the issue of multiple visas for IT specialists from India, inviting the IT Minister, members of the IT Eminent Persons’ Group and IT specialists from India’s private sector to Japan for the “Japan-India IT Summit,” and dispatching an IT Mission to observe IT businesses in India.

Indo-Japanese trade has a vertical structure – with India’s major exports to Japan being fishery products, jewelry and textile products, while Japan’s exports to India consist mainly of machinery, electronic products and transport equipment. Sino-Japanese trade was formerly similar in structure, but Japanese companies with operations in China are now focused on reverse-imports, manufacturing products in China for the Japanese market. Moreover, with the increasingly high quality of such products made in China, Sino-Japan trade has come to have a complementary rather than a vertical structure.

It should also be noted that Japanese investment in India is driven by Indian domestic demand, and that for reasons such as geographical factors, high tariffs and other regulations, it would be difficult to expect the same level of growth as in Sino-Japanese trade.

AS: As Japan’s trade partner how do you rate India today vis-ŕ-vis its position in early 90s when the country launched the economic reforms?

OW: As already mentioned, the consistency of India’s economic reforms initiated by the Rao administration (Congress Party) in 1991 and continuing in the present Vajpayee administration (Bharatiya Janata Party; BJP) is greatly appreciated.  Japan is now carrying out structural economic reforms, and it is our hope that the government of India will likewise continue its programme of economic reforms, which are crucial to economic development.

We also view as significant the fact that privatization has progressed in recent years under the leadership of the Minister of Disinvestment, Communication & IT, Dr. Arun Shourie. This is a clear indication of the direction of Indian government measures in economic reform. The latest selling off of government holdings at Maruti Udyog, and the fact that they were sold out in just three hours, are ample proof of the Indian people’s concern for privatization.

Additionally, the Indian government is currently working on the establishment of closer economic relations with ASEAN – for example, by considering the possibility of FTAs with Singapore, Thailand and ASEAN.  On the basis of past precedents, we can anticipate facilitation of structural reforms through FTAs.

However, India’s insufficiency in the area of general infrastructures (ports, roads and power) places huge restrictions on the country’s economic development. The power situation in particular, with its frequent blackouts and high cost of industrial electricity, is in urgent need of reform.

There is also the issue of fiscal deficit – central and state government deficit totals approx. 10% of India’s GDP. Measures for a sound fiscal budget are urgently required. Economic disparity is also an issue that needs to be dealt with, possibly through expansion of the overall size of the economy.

AS: Indian government has opened up many sectors like infrastructure, telecommunications, information technology, energy and textiles and textile machinery but the response in terms of foreign investment is not too encouraging. Is it because the foreign investors including Japanese corporations would like to wait and watch more before they decide to step up their investment in over a billion market? As JETRO chief, do you think the Indian government’s policies are stable ones to instill the required amount of confidence in foreign investors or is there a gap between the government’s good intention, honest endeavors on the one hand and socio-political compulsions in executing them on the other?

OW: Although investments in IT and automobile industries are increasing thanks to deregulation, further economic reform and deregulation are required to attract foreign investment.

Specifically, the retail and real estate industries are still closed to foreign investors, and respective deregulation measures are urgently needed. While there have been governmental efforts to reform inflexible labor laws, implementation is still to be seen.

We greatly appreciate the establishment by the Ministry of Commerce and Industry of the Foreign Investment Implementation Authority (FIIA) to facilitate smooth procedures after approval of direct investment projects. However, we also hope that the Indian government will use currently available channels (such as the Japanese Chamber of Commerce and Industry in India, India-Japan Investment Dialogue etc.) to directly obtain feedback from Japanese businesses in India, and that it will respond to their requests in a positive manner. Such governmental actions will enhance the trust of foreign investors.

AS: Maruti, Haldia Petrochemicals or Delhi Metro Rail are the symbols of a very strong commitment of Japan to building up a strong India. Still when compared with other neighbouring countries like China, the achievements do not look impressive. It is strongly felt that JETRO has a very big role to play to bring greater momentum in Indo-Japanese trade and economic relations. Could you kindly share some of your thoughts that aim at strengthening Indo-Japanese bilateral trade and economic relations in coming years?

OW: JETRO has in the past conducted various programmes focusing on the highly competitive Indian IT industry – by organizing exhibitions, receiving/dispatching related missions to and from India, etc. – with the object of increasing packaged software exports and outsourcing orders for system development and customization. Our latest endeavour is the “India IT Exhibition,” to be held from June 24 to 27 in Tokyo, co-organized by the Confederation of Indian Industry (CII). Approx. 30 exhibitors from 20 companies and six organizations are scheduled to participate, while Dr. Arun Shourie, Minister of Disinvestment, Communication & IT will be visiting Japan specifically for this event. A seminar will be held concurrently with the exhibition, aiming to promote Indian exports to Japan and two-way investment between the two countries.

Additionally, new India-Japan business matchmaking events have been scheduled this fiscal year in the biotechnology industry. We will focus particularly on bio-informatics, for which there is a great demand by Japanese companies. Specialists will be dispatched to India where they will meet with related organizations/companies and research centres to provide information on Japanese industry/market trends, while specialists from India will likewise be invited to Japan. Through this programme we ultimately hope to invigorate the Indian industry, promote exports to Japan and lead the way to bilateral technical tie-ups.

We also think there will be opportunities for Japanese environment-related companies, with their leading technology/products, to make contributions in India’s current endeavours to deal with environmental issues.

AS: Japan has identified certain sectors like IT, Biotechnology, Medical Care and Environment for greater private sector and foreign participation. How do you find the response from India? Could you tell us specifically areas where Indian corporations could play a much better and effective role? Could JETRO identify the reasons of slow investment flow from India to Japan? Is it the size of investment requirement that is largely limiting Indian investment in Japan or are there some other reasons behind it?

OW: India’s exports of IT software/services in fiscal year 2002 totaled US$ 9.5 billion. Although India’s exports to Japan in this field came 4th, they account for a mere 3%. There is still room for potential growth in this area. At present, 50 to 60 IT companies from India already have offices established in Japan. We think that through technology developments and joint research projects for the Japanese market, there are possibilities for increased investments by Indian IT companies in Japan.

We also anticipate that more Indian companies in the bio-informatics industry will make use of JETRO’s business-matchmaking programme to enter the Japanese market.

IT investments are relatively inexpensive, and the investment environment in Japan is improving (for example, land costs in the metropolitan area have been falling in the past ten years) – so I do not think that high cost of investment should be a barrier to India’s investments in Japan.

AS: In India, as you are aware, there are hundreds of small and medium sized companies in the manufacturing and other sectors. How can JETRO help those Indian SMEs contribute to the industrial growth of Japan as a whole in their own way?

OW: JETRO currently has two offices in India – in Mumbai and New Delhi – and a foreign investment advisor in Bangalore, which provide information on investment in Japan.

JETRO has also opened its "new" Invest Japan Business Support Center (IBSC) in Tokyo on May 26, 2003, which is a one-stop centre providing investment-related information and services. A staff of 36 including 11 advisors (special advisory staff on legal, accounting and labour matters; advisors on IT, biotechnology industries etc.) are available to assist companies with investment-related inquiries. The facility also has 24 individual office spaces that can be made available to applicants free of charge for up to two months. Indian companies are naturally welcome to make full use of these spaces. As of May 2003, 105 Indian companies have used our facility (out of a total 2,675 companies globally, and 439 companies from Asia), which is the largest number in Asia. Some examples of investment in Japan by Indian IT companies are:
(1) Patni Computer Systems Ltd : After making use of the BSC (precursor of IBSC) facility twice and participating in JETRO’s Invest Japan Individual Program (IJIP), it successfully established a computer software development/technology assistance service operation in Tokyo.
(2) Polaris Software Lab Ltd: After using the BSC’s free office space for three months in 2001, it successfully established a Tokyo Branch near JETRO Headquarters. (Details will be provided during the India IT Investment Seminar, to be held concurrently with the India IT Exhibition on June 25.)

JETRO also provides an online service, known as “Trade Tie-up Promotion Program (TTPP),” that allows companies to search for potential business partners.  As of June 12, 2003, 754 Indian companies (out of a total 45,131 companies globally and 6,829 companies in Asia) have registered in the TTPP – India has the third largest number of registrations in Asia, following China and the Republic of Korea.

An important point to bear in mind is that communicating in Japanese brings huge advantages when conducting business in Japan or with Japanese people. We strongly recommend foreign businesspeople to make the extra effort – the JETRO Business Japanese Proficiency Test (JETRO Test) is provided to assist and assess proficiency in the language. The opportunity to take the JETRO Test is offered in 15 countries and 26 cities worldwide, and the number of applicants from India is the largest - approx. 30% of examinees outside Japan last year (547 out of a total 1,902) were from India. This year’s JETRO Test will be conducted in two cities – Mumbai (jointly held by the Indian Merchants’ Chamber) and Bangalore (jointly held by the Greater Mysore Chamber of Industry) on Oct. 18. (Details concerning the JETRO Test are available on the JETRO website at

A considerable number of Indian businesspeople who have taken the JETRO Test are currently working in Japanese branches of Indian companies, conducting business in fluent Japanese.

As you can see, JETRO through its various activities is providing continuous support for economic, trade and investment promotion between Japan and India. 50 years have now passed since the establishment of diplomatic relations, and we hope that the ties linking our two countries will continue to grow stronger in the years to come.

June 23, 2003

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