Japan’s business ties with India look set to expand further as the pace of investments by Japanese firms continues to accelerate, despite a recent slowdown of the Indian economy and the country’s twin deficits, experts and people involved in bilateral relations said at recent events in Tokyo.
Growth in India’s gross domestic product in the January-March period was 5.3 percent — much slower than the double-digit growth that the country achieved as recently as in 2010. Industrial output in March was down 3.5 percent from a year ago. Confronted with fiscal and current account deficits, the country faces a possible sovereign debt downgrade by credit rating agencies.
Still, the situation does not appear to have deterred the growing trend of Japanese investments in India, which hit record figures in 2011 in both the number of cases and the value, said Go Yamada, principal economist with the Japan Center for Economic Research.
In that sense, the importance of India for Japanese businesses will likely not change, Yamada said at a symposium organized by the Keizai Koho Center on June 5. He added that this is all the more reason that reform of India’s structural problems is needed, including cuts to the heavy fiscal burden of various subsidies as well as liberalization of the retail and financial service sectors.
P.P. Shukla, joint director of the think tank Vivekananda International Foundation and India’s former ambassador to Russia, said India’s unique position as a large economy driven by domestic demand makes it a “good long-term bet as the global economy seems to be heading for a prolonged period of slow growth and stagnation.”
Unlike the East Asian model of growth, which relies more on overseas demand, “the strength of India is that its exposure to the global economy is much less and the nation is much less vulnerable to all the ups and downs” of the global economy, Shukla said.
Yamada agreed that consumer spending remains steady, despite various negative signs in other sectors of the economy. Total savings to GDP ratio, which hit a peak of 37 percent in 2007, is still high at 32 percent, and about two-thirds of the savings are in households — meaning that Indian consumers still have the money to spend if good services become available, he said.
Speaking at another symposium on Japan-India relations, Yasukuni Enoki, a former Japanese ambassador to India, noted that bilateral ties used to be driven by the initiatives of political leaders in both countries until the late 2000s. Today, business interests apparently drive the relationship, setting the stage for a new phase in Japan-India ties, Enoki said at the symposium held by the Keizai Koho Center and the Japan-India Association on July 2.
Japan’s presence in India today — in various measurements such as the number of investments, the number of Japanese residents and visitors — is still said to be about one-thirtieth of Japan’s presence in China, Enoki noted.
But the pace of increase in Japanese investments is noteworthy, with the number of plants and offices of Japanese firms in India having increased up to fourfold over the past five years and continuing to pick up speed, he said. While 70-80 percent of the investments used to go to the auto and auto parts sectors, new investments are now being made in much more diversified areas including pharmaceuticals, securities and food, he added.