By Subrata Majumder
Some 110 Japanese firms went bankrupt in China last year, according to a Japanese research report. In 2015, Toshiba and Panasonic had announced that they would stop producing television sets in China. These are some of the manifestations of Japanese frustrations in China and underscore a trend of the Japanese exiting from that country. China has been losing its status as the hub for Japanese investment due to a drop in low cost competitiveness on account of wage hikes and heightened political tensions. A majority of these 110 firms were Japanese apparel manufacturing companies in China.
Any loss to China is a gain to India. This is the catchphrase trending in foreign investment circles. Against this backdrop, India has the potential to emerge as an alternative destination for low cost manufacturing. The report said that to offset high cost manufacturing in China, the Japanese apparel companies have shifted to Vietnam and Myanmar, two countries that are most cost effective for Japanese investors. But India has an edge over these two countries in many respects.
According to a Deloitte survey in 2016, India will be the ‘New China’ in low cost manufacturing in the next five years. India is expected to rise to the 5th position in the global manufacturing competitiveness index in 2020 from 11th position in 2016, the survey said. Besides low cost manufacturing, the other factors favouring India include a vast reservoir of English speaking scientists, researchers and engineers. With China losing the powerhouse status in terms of low cost manufacturing competitiveness, five Asia Pacific nations are expected to emerge as the new choice, according to the survey. These include Malaysia, Thailand, Indonesia, Vietnam and India. But the survey puts India as the frontrunner, with the others chasing.
Given the global upgrade in India’s manufacturing strength, the Japanese could consider India as a viable option as Japan’s investment in Asia Pacific is on a downturn while it is on the upswing in India. Between 2014 and 2016, Japanese overseas investment (according to Japanese sources) in China dropped by 21 per cent while it plunged 36 percent in Hong Kong and 27 percent In Thailand – known as the Detroit for Japanese automobile manufacturers.
In contrast, Japanese investment in India and Vietnam was on the rise between 2014 and 2016. But the overall Japanese investment witnessed a much faster growth and higher value in India than in Vietnam. While it increased by 53 percent in India, the growth was only 12 percent in Vietnam. In 2016, Japanese investment in India was double that of Vietnam (US$ 3.7 billion in India compared to 1.9 billion in Vietnam).
Besides foreign direct investment, the Japanese also deployed huge amounts in private equity and venture capital in India. During the first half of 2017, Japanese firms invested at least US$ 1.43 billion in Indian private equity and venture capital. This was three times more than US$ 459 million of similar investments in 2016, according to Japan Times.
In fact, India-Japan relations took a new dimension after China launched its ambitious OBOR plan, with Prime Minister Narendra Modi emphasizing a shift from bilateral strategic economic relations to a global partnership between the two nations aimed at a global role in economy and geo-politics. He asserted that the Indo-Japan global partnership should be the engine for 21st century growth
Modi wooed Japanese investment in automobiles to infrastructure to defence and development of smart cities. India has accordingly liberalised its FDI policy in railway infrastructure and defence, permitting 100 percent FDI in railway infrastructure and high speed train projects and raising the FDI cap in defence from 26 percent to 49 percent.
Japanese Prime Minster Shinzo Abe has set an ambitious target for doubling Japanese investment within five years, committing US$ 35 billion for different infrastructure projects to bolster the Make in India programme. The Japanese involvement includes India’s first high speed rail from Ahmedabad to Mumbai and institutional framework for transfer of technology. Japan is the third biggest investor in India and its ODA programme was a key player in the country’s infrastructure development, including power, transport and environment related projects. Delhi Metro – a breakthrough in India’s mass transit – was largely financed by Japanese ODA. (IPA Service)