|
|
|
|
SPEAKING
FREELY
India beckons Land of the Rising
Sun
By Aruni Mukherjee
Speaking Freely is an Asia Times
Online feature that allows guest writers to have
their say. Please click here
if you are interested in
contributing.
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
Chinese 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?
Aruni
Mukherjee is based at the University of
Warwick, UK, and takes a deep interest in the
political economy of the Indian subcontinent. He
is originally from Kolkata, India.
(Copyright 2005 Aruni Mukherjee.)
Speaking Freely is an Asia Times
Online feature that allows guest writers to have
their say. Please click
here if you are interested in
contributing. |
|
|
|
|
|
|
|
 |
|
|
|
|
|
All material on this
website is copyright and may not be republished in any form without written
permission.
© Copyright 1999 - 2005 Asia Times
Online Ltd.
|
|
Head
Office: Rm 202, Hau Fook Mansion, No. 8 Hau Fook St., Kowloon, Hong
Kong
Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
|
|
|
|
