The emphatic comeback of Shinzo Abe as Japan’s prime minister is an opportunity for India to provide greater vigour and dynamism to its economic engagement with Japan. The outspoken and hawkish Mr Abe has promised to restore growth to the Japanese economy, saying: “A strong economy is the source of energy for Japan. Without regaining a strong economy, there is no future for Japan.” Shinzo Abe has long viewed India as a natural ally and had raised Japan’s engagement with India in 2006 to a strategic partnership level, equivalent to that of its partnership with USA.
Japan for several decades had been the leader in manufacturing-led growth, innovation in transportation, efficiency in logistics management and improving the quality of life of its people. During the last three decades, Japanese companies invested heavily in China and played a key role in China’s emergence as a manufacturing destination. Can India be Japan’s China in terms of investment and trade in the coming decades?
The OECD forecasts Japan’s gross government liabilities at 204 per cent of GDP at the end of 2011 and net liabilities at 120 per cent. The government’s fiscal deficit is beyond 7.5 per cent of its GDP. Economists wonder whether Japan can afford additional spending. However, the Japanese private sector runs a financial surplus which is enough to cover the government’s deficit and export substantial capital abroad. Japan is the world’s largest creditor at 253 trillion yen, with net external assets equivalent to 60 per cent of GDP. In essence, the assets of Japan’s private sector vastly exceed the liabilities of its public sector. The government’s debt is a way for the Japanese to owe money to themselves. Japanese companies are getting increasingly aggressive abroad. With a stubbornly strong currency and shrinking demand at home, Japanese companies prefer to become overseas investors.
During 2011, Japan’s FDI doubled to $116 billion, reflecting a string of big M&A deals, new production bases and enhancement of existing facilities. Japanese companies feel they have no choice but to battle it out abroad. Marubeni is buying US grain handler Gavilon Group LLC in a deal worth $5.6 billion. Takeda Pharmaceutical Company acquired a Brazilian drug maker. JVC Kenwood’s overseas production ratio is almost 90 per cent of sales. TDK now makes 84 per cent of its products overseas through a network of plants abroad. Chemicals company Kuraray has plans to invest four-fifths of its Y240 billion capital expenditure outside Japan. Even traditionally domestic and smaller-size companies from Asahi to Tomy Co are showing aggressiveness overseas. The strong yen, cost of power and labour, proximity to markets and ease of logistics have all contributed to the rush of acquisitions abroad. The research wing of J P Morgan has estimated that by 2014 more than three-quarters of Japan’s cars will be produced overseas. The Japanese are also securing rights in energy, oil and gas abroad. Four of the top 10 acquisitions in 2012 have been made by the Japanese in the oil and gas sector, with projects in UK, USA, Canada and Australia. This venturing abroad of Japanese companies is a sign of the vigour and energy in corporate Japan.
When the consumer goods sector rapidly opened up in India, the Japanese shunned investments in local manufacturing, citing low volumes. The Japanese firms left the field wide open to the Koreans. The Koreans provided superior products as compared to domestic players, used local film stars as brand ambassadors and penetrated the retail distribution network. The Japanese missed the opportunity, simply because they were at that point of time dazzled by China’s promise. Their priority was China’s market. After the recent territorial dispute led rioters to vandalise Japanese cars in China, sales of Japanese brands have plunged by about a third at outlets. Japanese companies feel that they are overexposed in China.
They also realise that India is not merely a potential but a reality. They are determined to capture the market. Hitachi recently held its first board meeting outside Japan in its 120-year history in New Delhi. This is also demonstrated by their investments, in production, distribution networks and enhancing market budgets. The Japanese also realise that India’s future is in infrastructure and urbanisation. In both these fields the story has just begun in India, whereas it is almost over in other markets. India needs next generation technology to leap-frog. In cutting edge technology, the Japanese companies are highly advanced — they innovate, they are perfectionists and several companies work together in a consortium. Since infrastructure gets created for several decades, India needs to get over its obsession with the lowest costs and move towards analyses based on life-cycle costs of technology and do a like-to-like comparison of technology.
Japanese companies need to take more risks, become cost competitive by relocating manufacturing bases to India and learn to participate aggressively in public-private partnership (PPP) projects. India needs to learn lessons from Japan in creating sustainable infrastructure. Until 1990 Japan was the most successful economy of the world, but a highly polluting one. They took the challenge to create recycling-based cities which have become unique examples of pollution control, recycling and green technology. Today, Kitakyushu city recycles everything from water to waste, and is an example of smart development. Yokohama has reduced waste generation by almost 38.7 per cent, leading to a saving of $1.1 billion on capital goods and a reduction of 8,40,000 tonnes of CO2 emission.
Japanese companies have demonstrated their excellence in the Delhi-Metro. They are partners in the western stretch of the Dedicated Freight Corridor and the Delhi-Mumbai Industrial Corridor project. Leading Japanese companies are working on creating the smart cities of the future. These projects, along with the Chennai-Bangalore Industrial Project, open up a vast array of opportunities. These are programmes which will make a paradigm shift in India’s manufacturing and infrastructure creation. Long-term lending at reasonable rates alone can make them a reality. The vast resources of Japanese technology and savings and their ability to provide long-term lending at reasonable rates makes Japan a natural partner.
Shortly after Japan was struck by earthquake and tsunami in March, 2011, Professor Donald Keene, who had taught for more than 50 years at Columbia University, announced his decision at the age of 89 to become a Japanese citizen and live his last days in Japan. He said, “If any civilisation has constantly suffered tragedies and yet always bounced back, it is Japan. I want to live with these people, I want to die with these people.” Keene’s perspective on Japan went beyond the usual clichés used to describe the country — “lost decade”, “change-resistant”, “aging and greying society”. He clearly understood the fallacy of unlimited growth.
Ezra Vogel, whose 1979 classic, Japan as Number One: Lessons for America, became a bestseller, is a believer in Japan’s ability to manage tradition and transformation successfully. He feels that Japan will revitalise itself through integration with Asia. If India has to sustain its growth over a long period and if Japan has to radically revitalise itself as an economic powerhouse, both need to intertwine themselves in a long-term economic relationship.
The writer is CEO & MD of the Delhi-Mumbai Industrial Corridor Development Corporation. These views are his own
