Business Daily from THE HINDU group of publications
Tuesday, Dec 19, 2006
Industry & Economy - Foreign Direct Investment
`For Japan, India is a first mile investment'
The Prime Minister, Dr Manmohan Singh's delegation that went to Japan last week immensely enjoyed the attention and the adulation they received from their hosts. When Dr Singh spoke to the Diet, Japan's Parliament, his 25-minute speech was punctuated by applause 22 times. When he finished speaking, the Parliamentarians were, according to the Commerce Minister, Mr Kamal Nath, "jumping over one another to congratulate the Prime Minster".
The Prime Minister himself said, "When I went for a lunch with captains of Japanese industry, I found a new enthusiasm among them which I have never seen before. So I feel for the first time, the synergy involving both the Japan government and Japanese industry is most favourable as far as investing and trading with India are concerned."
As the delegation headed home, Mr Kamal Nath took pains to explain to Indian journalists the synergies between the two countries and the challenges ahead.
Here are excerpts from the interaction:
On the complementarities
The good part is the complementarities of our two economies. They (Japan) are not looking to export to us rubber-bands and pencils. They are looking to export hi-tech goods. That is not going to hurt us. If we bring tariffs to zero with them, it is not going to hurt us; our manufacturers will only benefit from lower raw material costs. In agriculture, Japan is a major importer of food products. Why not we export our fruits?
We do not want to export rice to them, because they do not eat basmati rice; they eat a sticky rice. Japan's agricultural interests are very different from ours.
On Japanese investment prospects
Japan is now focussed on India. For the Japanese, investment in China is a last-mile investment, in India is a first mile investment. The first tranche of it can easily be $2 billion, immediately, in the next 15 months. What they have not done in 15 years they will do in 15 months.
Japanese FDI in China is high, but if you look at their portfolio investments it is not so. Nomura Securities told me that (Japan) will be investing $10 billion in India as institutional investments in the current year.
Toshiba was one company that left India. They are looking at coming back. When they met me, they said they were looking at expansion plans. You know about Nissan.
I met Mr (Osama) Suzuki (Chairman, Suzuki Motors). He said, `I am going to come next month to inaugurate my second factory. I am going to be exporting 300,000 vehicles a year. For that I need a port.' The Japanese industry and their government work closely on this. Their priority will be on this.
Otherwise how would you export three lakh cars a year? Where are the port facilities for this scale? To load so many cars on a ship, what does it take? It takes 30 acres to park them. So they want to concentrate on the logistics. If we want to sustain our 9 per cent growth, our ports cannot measure up. Our trade basket has been changing over the past few years.
We are exporting iron ore now. As and when we put up pelletisation plants, we will stop exporting ore. We will export steel. Export of iron ore requires a different kind of port facilities from steel. All these issues have to be looked at a macro level. Our port capacities and handling will be crucial. You can have a large port, but the way you ship ore is different from shipping cars.
On strenghtening the ITIs
JETRO (Japan External Trade Organisation) will participate in the upgradation of Industrial Training Institutes. The future is going to lie in the State that has the best skills. As we move on in the next five years in the growth momentum we are in, we need people with skills. No one is going to set up factories where there are no skills. Today, Tamil Nadu is getting so much of investment because it has people with skills. So ITIs will play a pivotal role in attracting investments. The upgradation of the ITIs has to be at the core of our inward investment strategy.
On non-tariff barriers coming to the fore
In the next five years, tariffs are not going to be an issue in trade. It is going to be the non-tariff barriers. For instance, China has just 4-5 per cent duties on agriculture products, but their non-tariff barriers are going to be stiff: they will say the food must be packed in a specific way... India used to have non tariff barriers on crude palm oil, which was very wrong. We had put in a specific carotene (a naturally occurring substance in palm oil that is known to deteriorate on long storage and to get destroyed on processing) value that could not be met. By the time the produce reached India, the carotine value would have changed. So you can create any kind of non-tariff barrier.
Some countries want us to pack farm products in wooden crates, but these crates must be tested to be pest free. And it could take two years to do the test. These could be the kind of problems that would crop up. The future of trade wars will not be in tariffs, but in non-tariff barriers such as phyto-sanitary standards, health standards. These are the issues we will be confronting as the United States and the EU turn protectionist.
These countries were the champions of globalisation, and we were at that time not happy with globalisation. As we become more and more competitive, we are becoming champions of globalisation. We want to enter their markets.
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