All entries for Tuesday 26 April 2005

April 26, 2005

India beckons Land of the Rising Sun

Asia Times, 26.04.2005

After Chinese Prime Minister Wen Jiabao conducted his "most important trip of the year" to India, Delhi awaits yet another high-profile guest, set to arrive this Thursday. Japanese Prime Minister Junichiro Koizumi's visit will add a new dimension to India's "Look East" policy, one that offers more long-term opportunities for India than the "Middle Kingdom".

The visit comes at a time when the Indian economy is enjoying a sustainable growth rate of 7%, poverty down by 24.9% and buoyant stock markets – the time is ripe for Prime Minister Manmohan Singh to grasp the hand that has long been extended at Delhi by Tokyo, and long ignored. As with his much-anticipated handshake with Wen, the world will be watching.

The poorly defined political relationship has hampered trade between the two countries. Japan-India trade stood at about US$4 billion at the end of the 2003–04 financial year. Worryingly, the figure has stayed almost stagnant since 1997–98, and has even dipped on occasions. Contrast that with China-India trade, which grew almost 79% to $14 billion at the end of 2004. Japanese Defense Minister Shigeru Ishiba summed it up aptly at the seventh Asia Security Conference, "India is an invaluable ally. But economic ties are far lower than full potential."

This amounts to no more than an utter failure of Indian policymakers to realize the potential Japan offers. In fact, with typical foresight, it is Japan that has taken the first step to rectify this mistake. It has made a conscious effort to boost the poor infrastructure in India, to make it easier for its own companies to invest in the country. Already, India is Japan's largest overseas aid receiver, and on March 31 it announced another $1.3 billion as a "soft loan" for eight projects, varying from the Delhi Metro to building flyovers in Kolkata to irrigation projects in Rajasthan.

Although India-Japan joint ventures, such as Hero-Honda, Maruti-Suzuki and Toyota-Kirloskar, have been successful, actual inflow of direct investment from Japan to India is abysmally low.

While Delhi contemplates "the mother of all free-trade agreements" with China, a far better option for an FTA is Japan. Although India does enjoy a trade surplus with China, that may change soon after the Olympics in Beijing are held in 2008: the bulk of Indian exports to China are raw materials such as steel, which it needs for its soaring construction sector. Companies operating in "sexy" sectors such as software development and information-technology services have their most important client bases in the Western world, and such companies as TCS, Satyam, Infosys, etc are setting up in China to add to its export kitty.

Contrast this with Japan, which offers a vast and wealthy market for Indian companies to export to. Moreover, Indian manufacturing is still relatively heavily protected vis-a-vis the Association of Southeast Asian Nations and the US/European Union. With an FTA, Chinese manufactured goods will beat their Indian counterparts on prices, and because India is mostly a price-elastic market, the fate of Indian companies might be grim.

With Japan, the goods imported would compete with the quality tag rather than the price tag, thus providing some leeway to Indian firms. Moreover, if India manages to create a conducive investment environment with good infrastructure, generous tax breaks and flexible labor regulation, we might have a scenario on our hands where Japanese companies flock to India to set up base.

With FTAs, the most common fatalist cries are about foreign companies steamrolling into the Indian market. These arguments have some validity when applied to China, but fall flat if we study prospects of India-Japan trade, especially in the manufacturing sector. A vast majority of Japan's nearly $400 billion imports appeal to sectors with strong export prospects in India – machinery and components, metals, textiles and chemicals. In textiles, little needs to be said about India's prospects in the post-Multifiber Agreement world. Even going by conservative estimates, it should boost to $50 billion by 2009–10. In chemicals, Japan's Mitsubishi Chemicals has already recognized India's potential by erecting a massive plant in Haldia, West Bengal. In a recent report by McKinsey, it was stated that India had the potential to raise its exports in just four sectors from $10 billion currently to $90 billion by 2015. These were identified as textiles, automobile components, chemicals and electronic products, all high on Tokyo's import list.

Even Japanese investment into India is likely to be in sectors in most need of such a boost. Studying Japanese investment in China, we see that 31.5% of all investment has been in transportation and telecommunications. India's pathetic infrastructure and tele-density are well known; Japanese investment already is making a difference in transportation – with a higher dose, the effects can only be positive.

Putting aside all rhetoric of "Chindia", it seems that the economies of Japan and India are far more complementary. Thus should begin a "Japindia" story.

In fact, where Chindia falls short, Japindia could work in politics. The two countries share similar democratic ideals and have similar aspirations in the world. Japan is a member of the Group of Four (G4), along with India, and they are actively backing one another's bid for a permanent membership of the United Nations Security Council. China is opposed to the inclusion of both.

Indeed, China-Japan relations have been a lot frostier compared with Sino-Indian ones. Not to forget the ballistic missiles that remain aimed at Tokyo, the recent vehement protests and attacks on Japanese companies from Beijing to Guangdong in view of Japan's history books, and aspirations to enter the Security Council, Tokyo must be getting wary of keeping nearly 170 billion of her golden eggs (read dollars) in the China basket. India and China offer similar attractions – abundance of cheap skilled and unskilled labor and a huge domestic market. China has one up on India when it comes to its investment climate – something India has been trying to rectify, yet progress should be much faster.

By collaborating with Japan, India has a chance of cornering China it its own back yard, a trick China has played quite successfully on India over the years by cozying up with Pakistan and Bangladesh. Both Japan and India have long-standing border issues with China, and both view the latter's rise as a potential threat to stability in the region.

Going one step further, a paper submitted to Yale University last November by Shyam Sunder mentioned a possible "India-Japan-Taiwan Trialogue" to boost trade, investment and political relations. Interestingly, India is yet to show explicit support for China's Anti-Secession Law against Taiwan. Taiwan faces a similar dilemma as Japan – while its economic relationship with China is growing rapidly, politically the two are drifting apart. With US support increasingly uncertain in any dispute with China, Taiwan may well want to channel its investment elsewhere. India would be the natural substitute destination for redirected Japanese and Taiwanese investment.

The cadres in Beijing will be watching carefully as Koizumi lands in Delhi. They would be concerned with the prospects of a Japindia – the juxtaposition of two of its arch rivals in Asia and the world. The visit will put the ball in Delhi's court nicely. For decades, it has let other countries dictate and pace the direction of bilateral relations. Now it has a grand opportunity to seize the initiative and firmly entrench ties with Japan, a far more profitable bet for India than China. After all, why go for the second-largest economy in Asia when the largest is ready at hand?

Running after Ruin

The Telegraph, 26.04.2005

Ashok Mitra considers India to be awash with money (“A cynic on cricket”, April 18). While lashing out against the commercials on television during cricket telecasts, he forgets that money is not a crop which you can easily grow in a field. If everything were to be “doled” out by the state, then soon the state would have nothing left. Mitra asks readers to wake up to the damage economic liberalization has done to India. It is he, it seems, who is yet to wake up. As far as cricket telecast goes, until the mid-Nineties, we had to endure the terrible telecasts by Doordarshan. Sure there were less commercials, but cricket-watching is hardly fun if you cannot follow the ball on the screen. Where does the money to invest in better technology and hiring of competent commentators come from? Not from the fields in the author’s imagination. Even today, if a cricket match is being parallely shown on ESPN or Star Sports and Doordarshan, most people would prefer the “foreign” channels despite the greater abundance of adverts. Doordarshan has poor camera-work, second-string commentary and no pre- and post-match analysis worth speaking of.

The author is also utterly disdainful of India’s middle classes who, according to him, “hanker” for consumer goods. But it is the middle class which is the moving force of India. Mitra also seems to have issues with the corporatization of cricket. What is wrong with that, I say? It is only because cricket has been converted to an industry that we see sponsors coming forth, ensuring a better fare for viewers, setting up coaching centres and sponsoring aspiring players. And who can deny that India has improved its standing in international cricket in the past 10–15 years? I remember the times when loss was what people expected when India was playing. Today, our anger at India’s defeat shows how much we are winning of late. The same model should be applied to every single sport in India. Perhaps that will help India win some medals at the Olympics at last.

April 2005

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