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Japan, India break trade impasse over luncheon
Sheela Bhatt in New Delhi
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August 22, 2007

It was a rare function where money power supported by political power had an awesome effect in dazzling the participants.

Some 250 rich, powerful and serious-looking Japanese gentlemen were waiting for the arrival of Japan's Prime Minister Shinzo Abe and India's Commerce and Industry Minister Kamal Nath.

Around 1 pm, Nobuyuki Minowa of Toyota's Global Strategic Division asked excitedly, "Who is he? Who is he?"

I said, "He is the richest man in India. His name is Mukesh Ambani."

Mukesh received so much adulation and attention as he entered the room that Minowa thought he was Kamal Nath!

Abe and Nath addressed the cream of Indian and Japanese businessmen, from the head of Toyota to bankers, investors, export giants and a dozen educationists.

The function, organised by Indian industries associations, clearly suggested that both countries have lost a lot of time in developing a robust partnership in spite of many commonalities and complementarities.
And the speeches by Abe and Nath underscored the point.

Last night Prime Minister Shinzo Abe, head of the world's second largest economy, and Prime Minister Dr Manmohan Singh, head of the world's second fastest growing economy, met over dinner.
Abe has come to India a little late but on a brief and important visit.

He is expected to offer around $20 billion worth of investment in the next three years. He spoke with great enthusiasm about co-operation in environment, economy, education and energy; but in spelling out support for the Indo-US nuclear deal his country will wait, till India goes to the Nuclear Suppliers Group and the International Atomic Energy Agency.

It is expected that before leaving India he will only say that Japan is "considering" giving support on the issue, said a report in The Japan Times.

According to reports, Abe has already suggested that Japan may support the deal in future, but today is not the right time because it's been only days since he pledged at ceremonies in Hiroshima and Nagasaki to make efforts to eliminate nuclear weapons.

In return for support to the deal -- after going through minutely the terms and conditions of the India-specific agreement with IAEA -- Abe expects India to halve its emissions of greenhouse gases by 2050. Japan, like many Western powers, believes that India will become one of the worst polluters in the world. Global warming will be high on the agenda when Japan hosts next year's G-8 summit.

Abe mentioned that later in the day, in his meeting with Dr Singh, he will be talking about climate change.

The tone of Kamal Nath's speech was such that it must have made the pragmatic Japanese feel a little awkward � since it contained so much emotion for a business lunch.

Repeatedly praising the new thrust in India-Japan relations, Nath said, "PM Abe spoke from the heart in Parliament."

He also declared that Abe's delegation is the largest-ever to visit India in recent times.

Abe will term his visit a success after witnessing the warmth he received from Dr Singh and Nath.

Japan needs to be taken seriously because in spite of spectacular symbols of Indo-Japan co-operation like Maruti [Get Quote] Automobiles and the Delhi Metro service, Indo-Japan trade figures defy logic. 

Speaking at the function, Sunil Mittal of Airtel and now of Wal-Mart fame remembered fondly how in the early '80s Honda and Suzuki's arrival heralded a new era in India's manufacturing.

Industrialists at the luncheon generally agreed that Japan and India have lost a lot of time. Abe and Dr Singh are trying hard to speed up and Kamal Nath was mentioned by many businessmen for taking a "personal interest" to boost relations.

Nath pointed out that in the last one year the maximum number of business delegations to India have come from Japan!
As a result, like Maruti and Delhi Metro, new partnership is emerging in the form of the Delhi-Mumbai Industrial Corridor project in which Japan will invest huge sums to develop infrastructure and industries in the 1,400-km stretch.

Kamal Nath said, "The entire project is worth around $90 billion which is expected to double employment opportunities, triple investments and quadruple exports."

However, among the audience there seemed to be mixed response.

Howard Ozawa, director of Canon who was sitting at my table, lives in Beijing, China. He said, "There is a great potential for business between the two countries but India's duty structure is still high. And infrastructure is not ready, yet. " 

He sounded hopeful yet guarded. He has visited India more than 20 times, which perhaps is the reason for his cautious optimism about India-Japan trade relations.

A look at the trade statistics, mentioned frequently in the function, also shows that from 1993-94 to 2005-06, Japan has slid from being India's third largest trading partner to ninth position.

According to a FICCI report, during 2005-06, India's exports to Japan were worth US$ 2.48 billion, constituting just 2.4% of India's total exports. This is in sharp contrast to a decade back when India's exports to Japan made up 7.8% of its total exports.

Similarly, Japan's share of India's imports has actually gone down from 6.6% in 1993-94 to 2.7% in 2005-06.
On the other hand, India's imports from Japan witnessed a robust growth of 45.3% in 2003-04, 21.3% in 2004-05 and 25.5% in 2005-06.

FICCI says while India's exports to Japan have remained confined to gems and jewelry, marine products, minerals, iron ore and textile products, India's imports from Japan have concentrated around machinery, transport equipment, electronic goods, chemicals and metal products.

If you compare Japan's trade figures with ASEAN countries and China, Japan's interest in India so far is a non-starter, says Nimesh Kampani of JM Financial [Get Quote]

He says Japan's long-term investment in Indian stocks is around $ 4 billion, which is quite low compared to its investments in China and other South East Asian countries.

Those who think that India and Japan should come together to contain and compete against China may have to rethink because the equations are not so simplistic. As in the case of US and China, Sino-Japan ties are intertwined through business and economy.
Up to 2004, Japan's outward FDI flow into India was $97 billion while in China it was a whopping $4567 billion.

According to a former Indian diplomat, Japan-India relations have not been successful because Japan is a hardcore anti-nuclear nation. Precious time was lost after India's nuclear tests in May 1998 when Japan took strong objections and retreated from the trade scene.

"Japan is the world's second biggest economy and it could afford to ignore India," says the diplomat.

Things changed only after the United States, with whom Japan has an exclusive strategic axis, intervened. The US wants Japan to play a vigorous role in South Asia.
In the last two years New Delhi has seen that Kamal Nath has shown an energetic interest and has activated trade organisations to push the relations in order to strengthen strategic relations between the two nations.

Recently, Ambassador Yasukuni Enoki told a weekly that a paradigm shift has taken place in the way Japan looks at India. He said, 'The Indian Ocean is critical for Japan's energy security. The sea lanes from the Gulf to the Indian Ocean to Malacca Straits to East Asia are very congested. With the Indian Navy as the only reliable navy in this zone, Japan expects it to maintain security in case something happens. We need to have mutual confidence. It is about maritime safety."

Japan's changing strategic calculations will hopefully bring money into India. Abe informed the audience that 480 Japanese companies are present in India and Indo-Japan partnership is growing by leaps and bounds.

The Japanese prime minister has favoured early conclusion of the Comprehensive Economic Partnership Agreement to boost India-Japan economic relations. Kamal Nath also expressed his commitment to it but meanwhile, hopefully, sectors like culture, education and tourism will take a faster route.
Mittal mentioned that Buddhism and the re-building of Nalanda University is one such endeavour.
In the end, if nothing works, Taj Mahal and Indian curries are always there.

Toyota's Minowa summed it up best, "In my town Nagoya there is Akbar hotel where we enjoy curry with pork. My wife Marico wants to visit India and see the Taj Mahal."

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