2019-08-11_Business_Today

ne of the policy priorities of the current
Narendra Modi government is the continu-
ation of high economic growth. Further vi-
talisation of economic activity is essential to
become a $5 trillion economy by 2025 and
grow into one of the largest economies on
the same scale as Japan. Infrastructure development and
improvement of the business environment are critical chal-
lenges to achieve this target, and no further delay in policy
implementation should be allowed.
Over the past 20 years, Japan has been the third-largest
investor in India in terms of cumulative FDI, with about
1,400 companies, mainly manufacturing firms, currently
operating across 5,000-plus bases. The number of Japa-
nese companies entering the Indian market has increased
2.5 times in the past 10 years, and over half of them plan to
expand their businesses here.
Most companies focus on fully
internal sales as they wish to
leverage the humongous con-
sumer demand potential of the
Indian market. According to
recent surveys conducted by a
Japanese government agency,
the country’s investment in In-
dia will continue to rise.
But it is also true that the
lack of infrastructure, uncertain
operation of law (including taxation) and delay in land ac-
quisition are major obstacles for investors to start their busi-
nesses or expand their corporate activities. We have often
heard of companies having trouble to deliver precision ma-
chinery due to poor road conditions or lack of adequate power
supply to industrial parks even after factories have been set up.
On the other hand, Indian authorities seem dissatisfied
with the relatively low pace of investment from Japan in
spite of their consistent efforts to improve the business en-
vironment. This leads to a ‘recognition gap’ between players
of demand and supply – the gap between delivery by state
authorities and the following low growth of the investment.
This recognition gap in the business environment can
affect the speed and depth of policy implementation. In

our view, state government officials in charge of commerce

and trade tend to be confident about the current business

climate in their respective states. On the other hand, accord-

ing to our survey of industrial estates in India several years

ago, out of some 200 sites, there were only a few five-star in-

dustrial parks like those found in the ASEAN. In fact, there

is only a limited number of excellent sites with all-in-one

services such as packaged infrastructure (logistics, electric-

ity, water supply, telecommunications and waste treatment

facilities), a sound incentive system (tax exemption/reduc-

tion) and other one-stop services, including customs clear-

ance and placement of skilled labour.

Also, there exists another recognition gap between the

set of promises offered by the states and the actual realisa-

tion of those. For example, even when a newly established

factory does not get 100 per cent power supply as required

and promised, it is requested by

the authorities to commence

operations. It is difficult for

the company to do so as it is a

breach of obligation. This kind

of trouble, caused by a recog-

nition gap related to fulfilment

of promises, will continue un-

less the authorities thoroughly

imbibe a customer-first policy.

The Japan International

Cooperation Agency (JICA)

will continue to contribute to-

wards the improvement of business environment as well as in-

frastructure development under the Indo-Japan co-operation

framework. As for investment promotion, policy-based lend-

ing that facilitates priority actions (necessary for a better in-

vestment climate) has been provided to Tamil Nadu and Gu-

jarat. These priority actions include transparent investment

procedures, reformation of vocational training and develop-

ment of high-priority infrastructure that directly contributes

to commercial and industrial activities. In this context, we will

play an important role to shrink the recognition gap through

the realisation of policy actions.

The writer is chief representative, JICA India

Capacity Building

Is Crucial for India

OVER THE PAST

20 YEARS, JAPAN

HAS BEEN THE

THIRD-LARGEST

INVESTOR IN

INDIA IN

TERMS OF

CUMULATIVE FDI

By KATSUO MATSUMOTO

JAPAN SPECIAL > COLUMN

THE GAP BETWEEN WHAT THE AUTHORITIES DELIVER AND

WHAT FOLLOWS IN TERMS OF INVESTMENT CAN AFFECT

THE SPEED AND DEPTH OF POLICY IMPLEMENTATION.

August 11 I 2019 I BUSINESS TODAY I 101