We Are Up Against Time Consuming Procedures
If the importance that Japan attaches to India is indicated by the kind of diplomat it has sent to head its mission in New Delhi, then it could not have done better. Sakutaro Tanino (60), a graduate from the elite law faculty of the University of Tokyo, has served in the former Soviet Union, China, the US and South Korea. He has also had two stints in the Japanese prime minister's office, the last one before coming to India in 1995. He talks here on a wide range of subjects ranging from the Japanese presence in India to reforms in his country.
Where exactly would you place Japanese investment interest in India?
Japan is already the fourth largest investor in India, in terms of total amount. First come USA and the UK, and then a strange country, Mauritius, for good reason (being a tax haven, offering a lucrative channel for third country investment). So we are virtually the third. Many Japanese business people based in India and I myself are confident that in due course, not shortly but in the future, Japan can even emerge as the biggest investor in India. Of course, a lot more has to be done, jointly and especially by the Indian side, to come up with a better environment for foreign investment.
Can you highlight the most important features of the Japanese presence in Indian business?
Japan came to India in a somewhat noticeable way in the latter half of the eighties. The main area of our interest was first automobiles and secondly, electrical appliances. That was followed by auto components. Most recently, Japan has advanced into areas such as food processing (a joint venture in Karnataka is producing instant noodles), textiles, chemicals and even in the financial sector. We are also greatly interested in insurance, which is still not open to foreign companies. Two Japanese companies have obtained permission to open liaison offices in Delhi, which hopefully will pave the way for full-fledged operations to do business. So the area of interest is expanding.
What are the continuing impediments to large-scale Japanese investment in India?
I noted with satisfaction that Japan is the third or the fourth biggest investor, but I will also have to tell the other side of the story. Viewed from the Japanese side, whatever amount we have invested upto now is still very small. It constitutes only about 0.1 per cent of the entire Japanese overseas investment, which goes foremost to the United States, China and Southeast Asian countries. China opened up much earlier. That means there is plenty of room for expanding our investment in the future. Certainly, a lot more has to be done by the Indian government to bring about a better climate to induce foreign investment.
Does political instability in India affect Japanese attitudes?
Those of us who have lived in India for some time like myself know that there is a pretty strong consensus among different political parties on the need to liberalise India's economy. So liberalisation enjoys popular support, irrespective of party lines. Those big Japanese companies which have had some interaction with India in the past also feel that the process of liberalisation, which started in 1991, will continue, whichever political group comes to power in Delhi. But medium and small companies which know very little about India tend to go by the mass media. It is in their nature to report the situation in South Asia in a rather dramatic way, emphasising instability, terrorism, corruption and epidemics. Most recently, they have reported the political fluidity. instability, change of one government after another in India and elsewhere. This will certainly influence those Japanese companies and may create a mental barrier for them about coming to India.
What are the specific impediments to large-scale Japanese investments?
Of course, the low quality of infrastructure. My strong view is that this is the time for action. Many people are of the view that the budget has not addressed this issue aptly enough. If you claim this is something to be left to the private sector or foreign investment, there should at least be some long-term plan to address this problem. Second, your import tariffs are still very high. I know that Mr Chidambaram and this government are committed to further lowering it, eventually to the level of Southeast Asian countries, and that is good. But as of now, it is still very high.
Third, there is the serious problem of red tapism. I mean bureaucracy at the lower, operational level. The officials still seem to be prisoners of the erstwhile controlled economy. This, I am sorry to say, often leads to high-handed and questionable practices distorting the system. Bureaucrats are the same all over the world and I don't claim Japanese bureaucrats are free from the problem. That is why our present government led by Prime Minister Hashimoto is seriously addressing what it calls administrative reforms. But surely you do seem to have a serious problem as well.
Fourth, there is still no effective system of single window clearance. Thailand and Malaysia have a well-functioning single window system. Of course, the FIPB is there, but in many cases the incoming investor himself has to adjust to the diverse interests of different ministries. He has to coordinate by visiting many ministries. Plus, there is the unique situation in India where you have the central government and the states.
In a typical case, a company had long, frustrating negotiations with a state government. After several months, it was told, your project has been cleared by the state government and then, suddenly, at the last minute, it was asked to take back the project to the central government for further clearances on certain issues. Imagine the frustration of that company.
India has to realise that it has a strong competitor in East Asia and the Asean for Japanese investment. They are much closer to Japan and can provide a better environment. More recently, the Philippine economy is picking up fast.
What would you tell the Indian opinion maker?
Those like myself and businessmen based in India for some time have become admirers of India. My mission as such is really to convince those Japanese businessmen, who know so little about India, to come here. Therefore, please give us good ammunition so that we can continue to fight this battle and convince Japanese companies that there is now a changed India, a big business opportunity beyond Burma that awaits you. We, the Japanese friends of India, have very strong and positive feelings towards India. We seek weapons, ammunition to fight a really good fight, hoping to see India emerge as a strong and steady partner. While we do our part, you have to do yours. You just can't sit and complain that the Japanese are not coming. That's not fair.
You have been here for over a year. On the balance, are you frustrated or happy with the results?
(Emphatically) I am happy. But it has been a strange mixture of high hopes and frustrations. In my case, it is 70 per cent hope and great admiration for what you have achieved, coupled with 30 per cent frustration. I am greatly pleased that a strong interest in India is developing among Japanese businessmen. The last International Engineering Trade Fair held in February 1997 in Delhi was a big success. I know there is going to be a good follow-up. But at times, in our daily interaction with diverse governmental branches, we cannot remain free from frustrations. Even in our official dealings, when it comes to official development assistance, which is my mission's major job, we find we are up against time-consuming procedures.
What is the likely impact of yen depreciation over the last few months on Japanese foreign investment?
I think, despite what is happening in Japan since the last several years, we have come to a point of no return. We will continue to address the issue of industrial restructuring. That means, where we have lost our competitive edge, we have to relocate our centres of industrial production outside Japan. I think this will continue. But of course what is happening with regard to the yen may have some impact. I am told, our foreign direct investment did not increase between 1992 and 1994. But in 1995 and 1996, it began picking up again. However, towards the end of 1996 and the first quarter of 1997, it has somewhat decreased, maybe due to the depreciation of the yen. But the overall direction of structural change by way of transferring our production facilities outside of Japan will continue.
How can India benefit from the change in the consumption habits of the Japanese as they take more and more to imported consumer goods?
Indian exports to Japan remain mostly confined to a few items like gems and jewellery, iron ore, marine products and textiles. You need to diversify your exports through more active multinational participation to improve product quality. When you talk about consumer goods, I find India has one unique advantage which it must exploit. I am personally very interested in ayurvedic cosmetics. Once you succeed in capturing the minds of Japanese women, the gains would indeed be enormous. China has also been very successful in this segment. There are also great prospects in electrical appliances, if you can be competitive. Here comes in the role of Japanese trading companies, which have a well-established global network. They can help Indians export their products to the neighbouring countries, Southeast Asia, Middle East or Central Asia.
You do not have to aim at the Japanese market alone. As the Asean countries are lowering their tariffs, the Japanese companies are taking advantage of it by making some inputs and exporting products after some value addition. So a new trade pattern is emerging. Countries A, B, C may be producing different components, which are being assembled in country D. I hope SAPTA and SAFTA will aid this process, picking up in this region as well.
I made an attempt to address broader issues at the recent regional meeting of Japanese ambassadors in Islamabad. I invited some 10 heads of Japanese companies in the region to offer ideas on how intra-regional trade could be increased. I know what is happening in Southeast Asia and my one hope is that in this region also, people should look beyond their national borders and move from the conventional bilateral to trilateral trade. For example, active cooperation can take place between Singapore and manufacturing centres in south India for export to third countries.
How are recent changes in Japan affecting Japanese companies' ability to invest abroad?
Japan is on the recovery track. The progress is slow but steady. We are confident we are on the right track but the Japanese people are yet to feel that recovery has taken place. The feel good factor, as it is called, is not yet there in any significant measure. At any rate, growth of eight per cent to nine per cent is a thing of the past. We cannot hope to go back to it and have to be content with two per cent to three per cent growth.
The national agenda of various reforms is aimed at ensuring recovery. The future of the economy will depend on the success of these reforms. There is a strong consensus in Japan on the need for the reforms and it is to be hoped that the prime minister can come up with a strong leadership, which I am confident he will, to carry the reforms through. Japan cannot be competitive in today's borderless world economy without the reforms.
How do you feel Indo-Japanese joint ventures are doing?
The Japanese attitude to doing business and selecting business partners is quite different from that of other advanced industrial countries. Our realisation rate (the percentage of intended investment that actually materialises) is much higher than that of any other industrial country. The Japanese take a long time and undertake considerable study before embarking on a policy or project but once the decision is taken, the results follow quickly.
As part of this approach, I always advise Japanese businessmen to take time to find a good partner who has an important role to play. It is through joint ventures that you can expect technology transfer to take place. I consider it important to add here that the Japanese joint ventures have also been sensitive to the welfare of the local community. Several of these ventures are providing community health and welfare services to communities neighbouring their factories and plants.