Japanese investments:  
oral evidence not enough

Every time a prime minister (or even ministers) goes to Japan he returns with a plain-load of hopes spiced with huge money coming in. Often the cargo is unbundled on the flight home. For the Prime Minister Dr.Manmohan Singh too it was work-to-rule. 
What Dr.Singh told his Japanese counterpart and vice-versa we will never know. The press releases were cut and polished stuff with the inevitable references to several joint efforts. Wait for all those things to show up. Blame India's continental size if their visibility is poor. 

In a way Dr.Singh was lucky. The nuke deal with the US came handy to ensure headlines. Throughout his sojourn in Japan it made news. With the contentious deal popping up now and then the question why Dr.Singh went to Japan is well in order. To discuss bilateral problems or the nuke deal? 
On balance the Indian prime minister being good-natured, always gets the benefit of doubt. Scribes covering him leveraged brand new ways to map out the Japanese regard for Dr.Singh. It was noted, for instance, the house was full when Dr.Singh addressed the joint session of the Japanese parliament. 

Do we ever keep a tag on the applauses a speaker gets from the audience? The union commerce minister, Kamal Nath did just that. The Japanese lawmakers clapped their hands 22 times during the 25-minutes speech, he told the journos in right earnest. 

Coming to the vital issues of economic cooperation, let us not set store by Dr.Singh's oral evidence. Independent India was never on Japan's investment radar. For sound business reasons, perhaps. A few projects of course came up here and there. That is all. May be consolation prizes. 

Even with a bestirred economy, Japanese interest in India is far below par. A magnifying glass is needed to see the real dimensions of their presence in the country. Around $66 million came in each of the two years through 2004. It doubled to $122 million in 2005. Low at any rate by world scales. Given its strong currency Japan could have done much more. 

As a rule Japan (to be precise its corporates) confident of its competitive might has less fascination for asset creation abroad. By habit they are doubly cautious. Even that extra caution came to nothing in crucial days. With a high yen in the eighties, Japan cornered American assets as never before. That was the time when the possible sale-proceeds from Japan's imperial palace could have bought the whole of New York City. But the Japanese burnt their fingers. The returns from the assets pile were low and went lower with the rising yen. To bone up their balance sheet the Japanese sold their assets for repatriation. That made things worse by ratcheting up the currency further. 

It is not being contended that Japan never made or makes cross-border investments. Its stakes in the manufacturing sector across the world, especially America and Europe, are stupendous. But those investments are more in the nature of insurance against trade sanctions and not to hone their competitive skills. They also muted, to some extent, calls for currency revaluation against the backdrop of its huge exchange reserves. 

Japan shuns the BPO route to cost cutting. Unlike the US. But it has a wide range of production centres all over South East Asia. In the process, there are over 6,000 Japanese companies on the Mainland China. More if Taiwan is also taken into account. Even the tiny Thailand can boast of 2000 of them. Only 300 in India. It is too naïve to hope, as some people do, that the stray anti-Japanese protests will frighten the entrepreneurs to fold up their shops in China and flee to, of all places, India. At $7 billion Japan's direct investments last year in China were 10 times more than what India received. 

Meanwhile, it is a fact that the Japanese institutions are investing more in India. But it should not be read as a sign of growing interest at the cost of the Chinese. A line up of India retail funds in Japan indeed snapped up shares worth $4 billion in 2006 till July. Of the total $2 billion invested in July, bulk came from Japan. A securities house in Tokyo privately assured him, says Mr.Kamal Nath, that they would soon come over with $10 billion for similar investments. 

Kamal Nath may be right. On a closer look, however, institutional investments are a variant of the yen-carry trade indulged in by the hedge funds. That is to take advantage of currently low exchange rate of the rupee and the chances of its appreciation. In plain words, speculative funds in action. Will they stimulate growth? 

Language is another barrier between the two countries. And it is a determining factor. The Japanese are not taken in by our 'Queen's English'. They do business in their language and foreign companies spend a fortune translating documents to and from Japanese. China did their homework on the communication gap in time and so are better placed. How many students in India are learning Japanese? 

Still Japan will have business ties with India. But that is for the sake of its iron ore reserves. So the illusion of bigger things to come will be kept up. That way the investments will come, but in trickle. The floodgates will remain shut. 

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