With increasingly congenial Indo-Japan ties, a souring political relationship with China, and India’s strong economic fundamentals, Japanese companies are investing in India like never before.
The lure to invest in India could not be resisted even by the world’s second largest economy. Japanese companies are eyeing to invest in new ventures as well as to expand their present operations in India. On the back of a strong economic performance and increasing FDI, India has become an attractive investment destination. Japan’s increasingly deteriorating political relations with China have also forced Japan to search for other options. With significant pick-up in manufacturing exports, outsourcing contracts and new investments, India has become the hottest destination for foreign investors. India’s proximity with Japan makes both countries all the more dependent on each other. It was an investment boom for India in 1997 when Japan put in $500 mn, and analysts now anticipate a ‘second investment boom’ in India. But there are a few barriers for the Indo-Japan trade, and hence, need to be eliminated.
The reasons for the increasing interest of Japan or any other country in India are not difficult to identify. According to analysts, India’s $700 bn economy— Asia’s third largest and world’s fourth largest economy in purchasing power terms—is set to expand by 7% in the fiscal year ending March 31, 2006. The number of high-income households is expected to hit 44 million by 2009. Around $7 bn FDI is expected this year, which is 25% more than $5.6 bn worth of inflow in 2004-05. Masao Nakamura, Professor and Konwakai Japan Research Chair, Sauder School of Business and Institute of Asian Research, University of British Columbia, Canada, says, “India’s economic fundamentals (e.g., economic growth) and political environment (e.g., restrictions on foreign control, protection of intellectual property rights, etc.) are improving and some Japanese firms see potential business opportunities from their foreign direct investment in India.” Increasingly, deteriorating political relations with China have also forced Japan to look beyond China for expanding business operations. Nakamura further says, “The Japanese government may be inclined to favor Japanese firms’ investment in India (in terms of the government subsidies, financing, insurance, etc.) to counterbalance Japan’s excessive involvement in the Chinese economy.” According to the World Investment Report 2005, released by UNCTAD (United Nations Conference on Trade and Development), transnational corporations find India the most attractive global business destination after China. India has been ranked the third most attractive global destination by 42% of the investment experts and the second most attractive location by 51% of the corporations in the above-mentioned survey. |
