FOCUS: JAPAN

INAUGURAL ISSUE: OCTOBER 2015

I

age-old friends and close partners and share a warm relationship based

on common values. Japan has greatly assisted India in its development

mission, partnering on key infrastructure projects including the Delhi

Metro, Delhi-Mumbai Industrial Corridor and Dedicated Railway Freight

Corridor. The state visit of Prime Minister Narendra Modi to Japan in

September 2014 marked a new milestone in bilateral relationship as the

two countries elevated their ties further to a ‘Special Strategic and

Global Partnership’.

Economic engagement, particularly investment, has been accorded

high priority in the bilateral relationship. Building on the landmark

ndia and Japan, two of Asia’s three largest economies, have been

01

Indian members of the India Japan Business Leaders forum interacting with Japanese Prime Minister Shinzo Abe in Tokyo.

Director General’s MessageINSIDESTORIES

Message from Indian Ambassador03Message from Japanese Ambassador04Viewpoint:Naushad Forbes05CEO Speak: Baba Kalyani06PolicyBarometer10Industry Voices12

Comprehensive Economic Partnership Agreement A key recommendation of the Report was faster

(CEPA) implemented between the two countries in 2011, progress on infrastructure development, including

the Prime Minister of Japan, Mr. Shinzo Abe pledged $35 power, water supply, roads, railways, etc. Expanded

billion in investment in India’s public and private sectors cooperation in strategic areas including energy,

over the next five years. The two countries also set a environment, technology and advanced manufacturing

target of doubling Japanese FDI and the number of was also suggested. Joint Working Groups are being

Japanese firms in India by 2019. formed to identify opportunities and delineate specific

issues in infrastructure, energy, skill development and

innovation. Bilateral trade engagement more than doubled between

2006-07 and 2012-13. However, aggregate trade has

come down to $15.52 billion in 2014-15 from a peak of Both Indian industry and government agencies must

$18.5 billion in 2012-13. This is a matter of concern for strive to promote export of value-added goods to Japan.

us. Japan ranked fifteenth among India’s trade partners Japanese policies and recent reform measures have

in 2014-15. There is high potential for faster progress spurred interest among Indian entrepreneurs in sectors

on goods and services trade. such as food products, garments, pharmaceuticals, IT

and ITeS. CII suggests that market access issues and

facilitation of trade in services should be taken up with Regarding investments, India has been ranked as the

the Japanese side. Non-tariff barriers must be lowered, most attractive investment destination in the latest

testing and certification procedures and costs survey of Japanese manufacturing companies as

rationalized.conducted by the Japan Bank for International

Cooperation. Interestingly, $1.1 billion worth of Japanese

FDI came into India during the second half of 2014 alone, CII has had a long and valued partnership with Japanese

compared to about $17 billion between April 2000 and business and institutions which has greatly benefited

June 2014 in all. Indian industry. We have recently signed an MoU with

Hitachi India to implement pilot projects in the Smart

Cities mission. We also work closely with Japanese The unique Japan Plus team, as constituted by

professors on programs such as Visionary Leaders for Government of India in October 2014 to assist Japanese

Manufacturing (VLFM) and Visionary SMEs which have investments into India, has guided over 120 Japanese

helped improve the competitiveness of Indian industry.companies on various business verticals. The India-

Japan Public-Private Investment and Trade Promotion

Policy Dialogue held in April this year was another The India-Japan economic engagement today is

welcome step which outlined a road map for Japanese multifaceted, vibrant, and dynamic. CII believes that

industrial townships in India. given the strong interest of our leaders, the India-Japan

economic relationship will have transformational impact

on India’s development. We look forward to intensifying our The India-Japan Business Leaders’ Forum (IBJLF), led

engagement with our Japanese friends in years to come.by CII and Keidanren, held its last meeting concurrently

with the Annual Summit of the two Prime Ministers in

Tokyo in September 2014. In its Joint Report submitted

to the two leaders, the Forum members expressed

concern about declining bilateral trade and recommended

effective use of CEPA to improve the business environment Director General

and resolve barriers. A broader dissemination of the CEPA Confederation of Indian Industry

mandate amongst the authorities and businessmen of both

countries is required.

Chandrajit Banerjee

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DIRECTOR GENERAL'S MESSAGE

FOCUS: JAPAN 03

MESSAGE FROM AMBASSADOR

My best wishes to the Confederation of Indian Industry (CII) on the

launch of the new newsletter Global Watch, the inaugural issue of

which is focusing on India-Japan trade and investment links.

India is now the most preferred destination for Japanese

manufacturing companies, according to the Japan Bank for

International Cooperation (JBIC) Survey of November, 2014 in the

medium and long term, overtaking both China and Indonesia, which

led the listing in the past. India is preferred due to its market size,

which is at an inflection point in terms of growth appetite for consumer

goods andits ideal geographical location, both as part of the pan-Asian

supply chain, as well as a manufacturing base for markets in Africa and

the Middle East. Bilateral trade figures, however, belie potential and this is

clearly an area where both countries need to work on.

The good news is that the number of Japanese companies in India is

on a path of growth with around 10-15 new companies opening

offices in India every month. The cumulative figure now stands at over

1300 (with more than 2500 bases) in sectors such as infrastructure

development, manufacturing (led by the automobile sector), insurance

and retail. The Tokyo Declaration of September2014, signed during

Hon’ble Prime Minister Shri Narendra Modi’s visit to Japan, has the

joint objective of realising investments of ¥3.5 trillion and doubling the

number of Japanese companies in India, over the next five years.

The challenge is for the two governments and other stakeholders to

work in tandem to achieve that goal.

However, I am confident that the India-Japan economic engagement

will deepen at a rapid pace. The two flagship projects of Japanese

investment in India, the Delhi-Mumbai Industrial Corridor (DMIC) and

the Chenna i- Bengaluru Industrial Corridor (CBIC), together cover

almost 30% of our population and hold the promise of world-class

infrastructure along with manufacturing hubs. Besides this,

12Japanese industrial parks have been identified across the country

which will act as nodes for Japanese companies seeking to invest in

India. Several Indian state governments have also taken the initiative to

develop special ties with Japan. Just in the last six months, the Chief

Ministers of Rajasthan, Andhra Pradesh, Maharashtra and Madhya

Pradesh have led business delegations to Japan and promised to

ease the path of Japanese companies entering their States. These

high profile visits and measures have elicited a positive response

among Japanese companies and I, therefore, believe that the mutual

targets set by the leaders of India and Japan can easily be met, setting

the stage for an exponential growth in our economic ties.

H.E. Deepa Gopalan WadhwaAmbassador of India to Japan

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MESSAGE FROM AMBASSADOR

I congratulate the Confederation of Indian Industry on this Inaugural

Issue of “Global Watch”, which focusses on India – Japan

relationship.

The decades-old friendly relationship between the two countries

has witnessed marked progress and expansion in recent years. We

share fundamental values such as democracy, rule of law and

respect for human rights. We are located in crucial positions in the

Indo-Pacific region, which is of growing strategic importance.

Last September, Prime Minister Abe expressed his intention to

realize 3.5 trillion yen of public and private investment and financing

from Japan. In turn, Prime Minister Modi underlined his

determination to further improve the business environment in India,

in order to boost investment. The Delhi-Mumbai Industrial Corridor

(DMIC) is a symbolic project of cooperation between the two

countries. Chennai Bengaluru Industrial Corridor (CBIC) is another

major project and the Comprehensive Integrated Master Plan has

recently been completed. Japan Industrial Townships (JITs) are

already developing andcandidate sites have been identified

for special investment incentives.

Figures also show robust Japanese investment. When we

aggregate announcements made by Japanese companies in the

past year on large investments in India, it is already close to

11 billion USD.

Our relationship has been elevated to the Special Strategic and

Global Partnership. As Prime Minister Abe called it, our relationship

is “blessed with the largest potential” for further development. Our

robust and deepening economic ties are the key driver of this

special relationship. Let us take these economic ties forward

together.

H.E. Takeshi YagiAmbassador of Japan to India

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VIEWPOINT

ENHANCING INDIAN INDUSTRY’S ENGAGEMENT WITH JAPAN

Development stands at the heart of the India-Japan

relationship and India has benefited greatly from Japan’s

engagement with its development aspirations.The state

visit of Prime Minister Narendra Modi to Japan was his

first bilateral destination outside the Indian subcontinent

and marked Japan’s continuing central position in India’s

Look East policy. CII believes that the Tokyo Declaration

for India-Japan Special Strategic and Global Partnership

signifies an important landmark in the economic

partnership of the two sides.

For the business community, it was of special interest to

note the emphasis on Partnership for Prosperity, which

was further detailed with specific projects in a separate

Fact sheet. The Fact sheet appreciated the report

submitted by the India-JapanBusiness Leaders’ Forum

in which CII represented Indian industry. The

participation of Japan as partner country in CII’s

International Engineering and Technology Fair (IETF) was

noted as well. Almost 50 Japanese companies

showcased their technological prowess and offered joint

opportunities with Indian companies at the IETF held in

February 2015.

The India-Japan Investment Promotion Partnership was

announced by the two Prime Ministers to double Japan’s

foreign direct investment and the number of Japanese

companies in India. Japan pledged 3.5 trillion yen

through public and private investments as well as

financing and overseas development assistance over a

period of five years. Projects are planned in the areas of

next generation infrastructure, connectivity, transport

systems, Smart Cities, rejuvenation of Ganga and other

rivers, manufacturing, clean energy, skill development,

water security, food processing and agro industry,

agricultural cold chain, and rural development, among

others. The wide range of proposed cooperation areas is

impressive and can redefine the Indian industrial landscape.

Electronics Industrial Parks were agreed upon to help

build up electronic manufacturing capacity in India and

promote India’s participation in global supply chains.

Special Japan Industrial Townships are proposed as

well. Officials of the two countries are now working on

financing mechanisms which would include the private

sector as well.

Infrastructure remains central to bilateral economic

cooperation. Japan has pledged approximately $500

million for Public-Private Partnership Infrastructure

Financing Project to the India Infrastructure Finance

Company Limited and about $156 million for the

Guwahati Sewerage Project.

New generation Smart Community projects are planned

alongside the Delhi-Mumbai Industrial Corridor including

the Logistics Data Bank Project, a Mega Solar Power

project at Neemrana and a Seawater Desalination

project at Dahej. The two sides also decided to fast-track

the Chennai-Bengaluru Industrial Corridor.

Energy efficiency, renewable energy and coal-fired

generation technology were stressed along with specific

projects such as the Barauni super critical thermal power

p lant and energy management system in

telecommunication towers. In the railway sector, a

feasibility study on the Mumbai-Ahmedabad High Speed

Railway has already been submitted in July 2015. There

is also strong emphasis on joint research and innovation

which would help bring Japan’s high technology to India.

The CII project ‘Champions of Societal Manufacturing’,

undertaken with the assistance of Japan to strengthen

manufacturing in India, is delivering notable results for

the Indian SME sector. In addition, CII’s Village Buddha

project was mentioned in the Factsheet as a program for

leadership development for self-help groups in rural

areas, particularly women.

This strong direction from the leadership of both nations

is bound to result in positive outcomes for India’s

development aspirations and Indian industry would

continue to enhance its engagement with Japanese

government and business to meet our common objectives.

President Designate, CII and

Chairman, CII International Council

Naushad Forbes

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CEO SPEAK

Industry can play a major role in strengthening India – Japan Relations

The launch of the India-Japan Business Leaders’ Forum led by CII and Keidanren during Prime Minister Abe’s visit to India in 2007 was a crucial step in taking trade ties to a higher growth trajectory and its deliberations have led to several key issues being addressed by both sides.

Q. India and Japan have evolved a Special

Strategic and Global Partnership in 2014. What

role does economic cooperation play in the

overall relationship?

ion

in India and the participation of Japanese companies in

important projects such as the Delhi Metro. These have

set the stage for development across multiple sectors.

For example, the Delhi Metro has emerged as a

paradigm for mass transit systems across urban India.

In addition, India is privileged to be the largest recipient

of Japanese Overseas Development Assistance since

2003-04. This has contributed to various sectors

including power, tourism, agriculture and so on. The

elevation of relationship between the two countries

to‘Special Strategic and Global Partnership’ and

Japan’s commitment to invest FDI to the tune of 3.5

trillion yen further strengthens the economic

cooperation and bilateral trade.

Q. Industry plays a critical role in developing

economic relations between global trade

partners. What has been Indian industry’s

contribution to economic ties with Japan?

A. Industry has a pivotal role in taking trade ties to a

higher growth trajectory. The launch of the India-Japan

Bilateral economic engagement has been a

cornerstone of India-Japan relations. We recall with

pride how Maruti Suzuki led the automotive revolut

Business Leaders’ Forum led by CII and Keidanren

during Prime Minister Abe’s visit to India in 2007 was a

crucial step in that direction and its deliberations have

led to several key issues being addressed by both

sides.

The business communities of both countries have

through the years worked to resolve a number of

challenges, including those related to the

implementation of the India-Japan Comprehensive

Economic Partnership Agreement (CEPA). We have

consistently engaged with each other through diverse

platforms including overseas business missions,

participation in trade fairs in each other’s countries, and

specific sectoral cooperation. Japan participated as

partner country for the International Engineering and

Technology Fair (IETF) 2015 for the fourth time.

Q. How has CEPA contributed to the business

engagement between India and Japan?

A. Bilateral ties have deepened even more since CEPA

was signed in 2011. It has given a fillip to trade in both

goods and services. More and more Japanese

enterprises recognize and are willing to tap the market

potential in India. Here let me mention the latest JBIC

(Japan Bank for International Cooperation) survey,

which found that India was the most preferred overseas

destination among Japanese manufacturing

companies. Japan now accounts for more than 7.5 per

cent of total FDI flows into India, and is the fourth largest

investor in our country.

The statistics speak for themselves. Between June and

September last year, FDI flows from Japan climbed to

$618 million from $273 million during the same period

of 2013. In October 2014 alone, Japanese companies

pumped in $103.14 million investments. Japan’s

industry reportedly plans to pour some $12 billion into

India over the next two or three years.

An Interview with Mr Baba Kalyani, Co-Chair, India Japan Business Leaders Forum and Chairman and Managing Director, Bharat Forge Ltd.

FOCUS: JAPAN 07

CEO SPEAK

Q. What has been the action on the ground

following Prime Minister Modi’s visit to Japan in

August-September 2014?

A. Prime Minister Modi’s visit set a new benchmark for

the bilateral friendship and in particular accorded high

importance to facilitating investments from Japan. One

significant outcome of the visit has been Japan Plus, set

up by the Department of Industrial Policy and

Promotion (DIPP) to facilitate and fast-track investment

proposals from that country. Both governments are

represented on the team, which will handhold

Japanese investments across sectors. Its mandate

cove rs the fu l l spec t rum o f i nves tment

promotion–research and outreach, promotion,

facilitation and aftercare.

In addition, the action agenda for India-Japan

investment and trade promotion signed in April 2015 by

the two Commerce Ministers was an outcome of the

last summit, and in sync with Prime Minister Modi’s

‘Make in India’ vision. Importantly, the agenda

contained specific points such as development of

select Indian locations as Japanese industrial

townships, and increased cooperation in IT and

strategic sectors. In the last few months, we have seen

some leading Japanese companies commit significant

investments in Automotive, Renewable Energy,

Infrastructure sectors and assistance in a few

development projects. At a government to government

level, efforts to increase cooperation in Defence sector

with special emphasis on Technology have also

commenced.

Q. Isn’t it paradoxical that bilateral trade is

shrinking while the number of Japanese

companies present in India is growing?

A. India offers Japanese industry vast investment

opportunities. In infrastructure, the Japanese

assistance in the Delhi-Mumbai Industrial Corridor

(DMIC) would lead the development of roads, industrial

parks, and urban facilities along side. Japanese

enclaves can come up with clusters of Japanese

manufacturers in cities in parallel with the DMIC.

Sadayuki Sakakibara, Japanese Co-Chair of the India Japan Business Leaders Forum and Baba Kalyani, Indian Co-Chair of the Forum presenting the Joint Report of the Forum to Indian Prime Minister Narendra Modi and the Japanese Prime Minister Shinzo Abe in Tokyo on 1 Sept. 2014

FOCUS: JAPAN 08

CEO SPEAK

Japan is also assisting India in railway development

where we can benefit from its expertise in high-

speedrail and station development. Under the Smart

Cities mission, Japanese companies can invest in

water and sanitation management, mass urban transit

systems, and IT-enabled infrastructure management.

Yes, we have observed that the bilateral trade between

the two countries has declined over the last two years

which can be partly attributed to the slowdown in global

economic activity. However, this also highlights the

need for us to enhance the bilateral trade between

Japan and India to a level which is commensurate with

the size of the two economies and the balance of trade

is reflective of the strengths of our economies. Two

specific areas which I believe could enhance the overall

trade turnover and could also lead to a better balance of

trade are:-

(1) facilitating Japanese investment into India in

advanced manufacturing and high – technology fields

and,

(2) encouraging Indian companies to export value

added products to Japan.

CII is hopeful that both governments will fulfill their

commitments on improving the business environment.

With the positivity demonstrated in the Annual Summit

and a slew of measures to boost investor confidence, we

believe the results will begin to show sooner than later.

Q. Which sectors of Indian industry, according to

you, hold interest for Japanese manufacturers?

A. India offers Japanese industry vast investment

opportunities. In infrastructure, the Japanese

assistance in the Delhi-Mumbai Industrial Corridor

would lead the development of roads, industrial parks,

and urban facilities alongside. Japanese enclaves can

come up with clusters of Japanese manufacturers in

cities in parallel with the DMIC. Japan is also assisting

India in railway development where we can benefit from

its expertise in high-speed rail and station

development. Under the Smart Cities mission,

Japanese companies can invest in water and sanitation

management, mass urban transit systems, and IT-

enabled infrastructure management.

Further, the Make in India campaign offers

opportunities across advanced manufacturing,

electronics and electricals, heavy machinery and so on.

Japanese brands are already popular in India and

consumer electronics and telecom equipment can be a

popular destination. Technology-intensive areas such

as agriculture, environment technology and R&D too

offer high potential.

Q. How can Japanese knowhow help Indian

manufacturers move onto a faster growth track?

A. Japan is a hub of R&D, innovation and advanced

technology while India benefits from a larger talent pool

in these areas. Greater synergies between the two can

help our manufacturing sector. Additionally, Small and

Medium Enterprises (SMEs) in particular are the

backbone of growth in manufacturing. SMEs have

been critical to Japan’s development over the decades.

We could learn a lot from the best manufacturing

practices of Japanese SMEs. CII regularly works on this

aspect with Japanese partner institutions. We believe

the B2B portal will also help develop strong synergies of

our SME sectors.

FOCUS: JAPAN 09

CEO SPEAK

Eleven locations have been identified for Japanese

industrial townships and there is need to expeditiously

address key issues such as smooth approval

procedures for land acquisition, environmental permits,

appropriately priced quality and uninterrupted power

supply, deregulation of power degeneration,

distribution and sale. Indian industry would benefit from

enhanced Japanese participation in industrial

townships.

Q: What about CII’s association with counterpart

business organizations in Japan?

A. CII has institutional partnership with 11 MoU partners

in Japan, including leading industrial chambers such as

Keidanren and Kankeiren. We work closely with Japan’s

Ministry for Economy, Trade and Industry (METI) and have

a strong association with its business promotion wing,

the Japan External Trade Organization (JETRO).

During IETF in February 2015, we held a business

summit together with Keidanren and Japan participated

in concurrent sectoral dialogues. About 100 industry

representatives from both countries participated,

including 30 Keidanren member delegates.

CII is particularly proud of its wide-ranging cooperation

with Japanese institutions which has helped lead the

Quality Movement in India. We also have programmes

such as the Visionary Leaders for Manufacturing

Program,aimed at creating a new cadre of innovative

Indian entrepreneurs with Japanese collaboration. It is

an honour that Prof Shoji Shiba was awarded the

Padma Shri for his work in competitiveness of Indian

manufacturing firms.

Q. How does CII intend to take forward the

bilateral agenda of exponential growth in trade

and investments?

A. We are working closely with our partners in Japan to

facilitate investments into India. Our joint moves

together with Keidanren include the report submitted

by the India-Japan Business Leaders’ Forum during the

Prime Ministers’ Annual Summit held in Tokyo in

September 2014. We took a joint decision about

following up regularly with our government agencies on

specific actions related to implementation of the

recommendations made in the report.

One of the MoUs we signed for pilot projects under the

government’s Smart Cities initiative is with Hitachi India

for innovative and sustainable solutions in such projects.

CII has institutional partnership with 11 MoU partners in Japan, including leading industrial chambers such as Keidanren and Kankeiren.

FOCUS: JAPAN 10

POLICY BAROMETER

Key CII Recommendations to Enhance India-Japan Economic Relations

Dismantling NTBs

Optimizing the

Comprehensive Economic

Partnership Agreement

(CEPA)

The Sub-committee on Improvement of the Business Environment set up under CEPA could

meet regularly and evolve ways to improve the business climate and increase investments,

manufacturing and job opportunities in India. It is also important that both the authorities and

businesses in India and Japan be sensitized on the provisions of CEPA and the benefits that could

accrue from utilizing them. The two countries should also keep pushing for an early conclusion of

the Regional Comprehensive Economic Partnership negotiations in view of their convergent

interests in the economic development of the Asia-Pacific region.

Developing

infrastructureJoint projects such the Delhi-Mumbai and Chennai-Bengaluru Industrial Corridors and the

Western Dedicated Freight Corridor must be fast-tracked, along with concomitant physical and

social infrastructure facilities. Smart cities, power supply and smart grids, water supply, treatment

and recycling; roads; railways and mass rapid transit systems and; logistics and industrial parks

need detailed planning and implementation with cutting-edge technology, where Japan can assist.

To give an extra push to infrastructure development, legal restrictions must be relaxed by both

sides, with swift and transparent decision making. Minimizing project risks and offering

government guarantees where needed would also help address demand-side concerns and

encourage higher Japanese participation. Issues related to projects being undertaken by

Japanese companies can be swiftly resolved through forums such as the Ministerial-level

Public Private Policy Dialogue and the DMIC Vice-ministerial Taskforce.

Boosting SME

cooperation

India must create favourable business conditions for Japanese SME investments in India such as

plug-and-play or rental factories with seamless infrastructural facilities. This will not only lead to job

creation but also give rise to supporting industries around them. It will also enhance our

competitiveness and add to the ‘Make in India’ momentum. Current start-up procedures and labour

laws discourage such SME investments and ease of doing business must be promoted in India.

Food exports such as poultry, meat, tuna fish and shrimp products, mangoes and grapes face

a number of non-tariff barriers (NTBs) in Japan. Measures notified to WTO by Japan include

foods and food additives produced by recombinant DNA techniques (SPS); feed produced by

recombinant DNA techniques (SPS), and all foods and beverages on sale for consumers

(TBT). While tests are successful in India, in Japan they fail to meet the grade. The Japanese

ban on 17 food additives needs to be lifted too. The default levels of Ethoxyquin usage in milk

and milk products needs revisiting. Moreover, the cost of products exported to Japan is

significantly higher than of those sold to other countries because of the high testing, labelling

and certification costs involved. The problem is more acute in the case of organic products

such as basmati rice, honey, spices, tea and select dry fruits.

After a healthy pace of growth since 2009-10, when trade between India

and Japan grew from $10.3 billion to $18.5 billion by 2012-13, it has

slowed to $16.3 billion in 2013-14 and $15.5 billion in 2014-15. It is

imperative that the downtrend be checked and trade volumes reach a

level commensurate with the size and potential of our two economies.

India’s exports to Japan comprise mainly raw materials such as iron,

steel and chemicals, mineral fuels and mineral oils, and meat, poultry and

marine products. Its principal imports from Japan include capital and

knowledge-intensive manufactured items such as electronic goods,

non-electrical machinery and transport equipment.

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POLICY BAROMETER

IT/ITeS

Pharmaceuticals

Movement of natural

persons

Offshored manufacturing

Taxation matters

Technological

upgradation

India’s vibrant software services industry faces challenges while operating in Japan due to lack

of outsourcing culture, complex procedures for contract qualifications for overseas companies,

and the long time taken to close a deal. Japanese companies often do not follow standard

Software Development Life-Cycle (SDLC) and require high level of customization which involves

high costs. Withholding tax should be reduced to nil and the Totalization Agreement should be

implemented at the earliest. Relaxation of Visa regulations with minimum procedures would

also help facilitate easy movement of professionals. A platform to connect software SMEs of

Japan and India can help increase presence of Indian companies in Japan.

Generic pharmaceuticals constitute 12 per cent of the total Japanese market. Japan offers

national treatment to Indian generic pharmaceuticals under CEPA, so the substitution potential

is high. A Mutual Recognition Agreement (MRA) is needed, enabling both countries to identify

the testing procedures and standards used in the other country for their goods. The complex

registration process and language barrier in the Japanese market also hamper Indian exports.

Indian industry enjoys a vast pool of skilled service providers across a range of sectors including

IT, accounting, financial services, infrastructure-related services, legal, retail,

telecommunications, tourism and health services. Japan may consider dismantling barriers

such as economic needs tests and discipline domestic regulations, especially where

qualification requirements and procedures are concerned. Japan too has requested easier

access for its professionals in India.

India’s share in Japanese imports is far below potential, notably in auto and auto components,

precision instruments, electrical and electronic goods, and organic chemicals. This is because

supply chain linkages and offshore production arrangements between the two countries are yet

to be established. Major Japanese companies conduct most of their trade with other major

Asian economies such as Malaysia, Thailand and Taiwan on the basis of intra-industry trade

stemming from offshore production. There is a need to look at the high costs of doing business

with India and the difficult logistics because of which Japanese enterprises do not find it an

attractive destination for offshored manufacturing.

There is a strong case for abolishing Japanese withholding tax on companies registered in India.

Under Japanese tax laws, Indian companies operating there must pay a 10 percent withholding

tax on dividend, royalty and technical service fees payments. Claiming tax treaty benefits is a

complicated procedure. The tax should be cut to 5 per cent-nil, as is the case under the treaties

with the US and UK. Japanese companies have called on India for exempting Minimum

Alternative Tax from Special Economic Zones and abolishing Special Additional Duty.

Key areas of strategic cooperation where Japanese technology can prove to be of critical help

include energy, digital governance and ICT in agriculture. Bilateral cooperation in energy

technology, including nuclear power, could be expanded on commercial lines. The progress in

the India-Japan Energy Dialogue is welcome. Also, Japan’s state-of-the-art environment

technology could be of great interest to India.

Other sectors where Japan’s cutting-edge technology could make a big difference include

automobiles, machinery, material sciences, telecommunications equipment, heavy industry

and rail transport management systems. Upgrading electronic hardware manufacturing with

Japanese technology can help the Digital India campaign gain traction faster.

FOCUS: JAPAN 12

INDUSTRY VOICES

N Chandrasekaran,CEO & Managing Director,Tata Consultancy Services Limited

Hari S Bhartia,Past President, CII and Co-Chairman & Managing Director, Jubilant Life Sciences Limited

The Comprehensive Economic Partnership Agreement (CEPA) between India and Japan, which came into force from August 2011, extends to trade in goods and services as well as investments. It is one of the most comprehensive agreements concluded by India, and sets the stage for exponential growth in bilateral trade and investments. Trade volumes did pick up after 2011, but have declined in the last two years. A better understanding of CEPA provisions among both authorities and businessmen could lead to a higher realization of the potential it holds for mutual prosperity, and better utilization of the opportunities it holds out.

Rakesh Bharti Mittal,Chairman, CII Public Policy Council andVice Chairman, Bharti Enterprises

We have to encourage a sustained and increased flow of

professionals from India to Japan and vice versa to enhance

cultural and operational awareness. Specifically in the IT/ITES

sector, Indian companies can partner in a number of opportunities

in Japan which synch well with our capabilities. These include

embedded systems, engineering services and R&D, software

implementation, infrastructure services, and the digital adoption.

India's proven strengths in this sector can help Japanese

companies embrace the digital opportunity optimally. We also

hope the two sides will implement the Totalisation Agreement

shortly, and address the Withholding Tax issue that Indian

companies face in Japan. Easier visa and permanent residency

status as also facilitative contract procedures could enable

greater participation of Indian companies in the Japanese

software market.

Food products have a sizeable weightage in India’s

basket of exports to Japan. However, SPS measures

come in the way of fully tapping the market potential.

The matter of 17 food additives registered in India

still banned by Japan is an area of concern, as is the

issue of permissible Ethoxyquin residue levels in

several products. Marine and agricultural goods

face non-tariff barriers such as costly procedures

for test ing, inspect ion and record-keeping,

especially of marine products, on landing. The move

to invite supervisors from Japan to oversee

inspection of mango shipments promises to ease

export procedures and help increase shipments.

FOCUS: JAPAN 13

India has a $10 billion pharmaceuticals export market, with Japan accounting for just 1% of it. This presents a huge potential and a tremendous opportunity for Indo-Japan collaboration, especially in the areas of Basic Research, Bio-informatics, drug discovery and manufacturing. While Indian generic drugs enjoy national importance in Japan under CEPA, we need to formulate strategic policies to tap deeper into the Japanese pharmaceuticals market, the world’s second largest by revenue. Pending issues, such as the mutual recognition agreements in the sector, need faster resolution, enabling one country to identify the testing procedures and standards which the other uses for its goods. This would boost prospects for contract manufacturing for Japanese companies.

Rajiv I Modi,Chairman, CII National Committee on Pharma and Chairman & Managing Director, Cadila Pharmaceuticals Limited

INDUSTRY VOICES

Vikram Kirloskar,Vice Chairman,Toyota Kirloskar Motor Private Limited

The Western Dedicated Rail Freight Corridor and the Delhi-Mumbai Industrial Corridor are the most ambitious, multi-dimensional Indo-Japanese projects so far, with an estimated investment of $90 billion. The smart, futuristic and sustainable industrial cities expected to come up along the corridors would help us address the triple challenges of industrialisation, urbanisation and job creation. Preparatory work is also on for the Chennai-Bengaluru Industrial Corridor, along with a joint feasibility study on the Ahmedabad-Mumbai railway route. It is hoped that Japan's famous safe and reliable high-speed railway technologies will contribute in a big way to Prime Minister Modi’s exhortation to ‘Make in India’.

Ravi Parthasarathy,Chairman, CII Mission on Smart Cities and

Chairman, Infrastructure Leasing & Financial Services Limited

A number of iconic Infrastructure projects have been successful in India with Japanese participation, and more transformational projects are in the pipeline, such as the flagship DMIC and the Dedicated Freight Corridor. Japanese technology and expertise can translate into major gains for Indian industry.

However, many of the collaborations in the past have been on mega projects undertaken on a G2G basis. A greater level of enhancement in industrial and infrastructure co-operation can easily be achieved if there are more partnerships on a plethora of smaller and quick-to-ground projects between private counter-parties in India and Japan. In recent years, steps have been taken in the right direction by Japan, with the extension of STEP loans outside the G2G framework, and the recent easing of JICA norms to permit Indian firms to participate in the Dedicated Freight Corridor.

Japan has long been the most significant donor agency to India, and the stage is today set for a manifold increase in collaborations between India and Japan. CII is undertaking three pilot projects initially with Japanese assistance that can be used as a common template for scalability.

FOCUS: JAPAN 14

Fact Sheet

JAPAN: KEY ECONOMIC INDICATORS

Population 127.083 million

GDP 2014 $5.30 trillion

GDP per capita 2014 $38,633

GDP growth rate in 2014 0.7% (provisional)

Trade Trends, 2014

Total exports $710.5 billion, down from $714.9 billion in 2013

Total imports $811.9 billion, down from $832.6 billion in 2013

Top export destinations US, China, South Korea, Taiwan, Hong Kong, Thailand, Singapore, Germany, Australia, Indonesia

Top import sources China, US, Australia, Saudi Arabia, UAE, Qatar, South Korea, Malaysia, Indonesia, Russia

Major items of export Motor vehicles; semiconductors; iron and steel products; motor vehicle parts; plastic materials; power generation machinery; organic chemicals; scientific and optical instruments; ship and electrical apparatus

Major items of import LNG; clothing and accessories; petroleum products; semiconductors; computer units and parts; coal; non-ferrous metals; audio and visual apparatus; medical products

Source: Embassy of India, Tokyo and CII World Factbook

India’s exports to Japan: Top 20 items, in $ million

Export commodities 2013-14 2014-15 % change

Mineral fuels, mineral oils and products of their distillation; 3,006.13 1,852.69 -38.37bituminous substances; mineral waxes

Fish and crustaceans, molluscs and other aquatic invertebrates 396.68 432.79 9.1

Organic chemicals 311.74 344.01 10.35

Natural or cultured pearls, precious or semiprecious stones, precious metals, 348.58 283.54 -18.66clad with precious metal and articles thereof; imitation jewellery; coins

Iron and steel 274.86 245.2 -10.79

Nuclear reactors, boilers, machinery and mechanical appliances; parts thereof 226.08 228.55 1.09

Ores, slag and ash 306.36 217.52 -29

Articles of apparel and clothing accessories, not knitted or crocheted 192.05 169.16 -11.92

Vehicles other than railway or tramway rolling stock, 133.28 147.88 10.95and parts and accessories thereof

Electrical machinery and equipment and parts thereof; sound recorders and 129.27 125.64 -2.81reproducers, television image and sound recorders and reproducers, and parts

Miscellaneous goods 109.7 94.66 -13.71

Miscellaneous chemical products 112.01 84.65 -24.42

Cotton 70.08 65.16 -7.01

Tanning or dyeing extracts; tannins and their derivatives; dyes, pigments and 62.6 62.85 0.4other colouring matter; paints and ver; putty and other mastics; inks

Edible fruit and nuts; peel or citrus fruit or melons 54.19 59.72 10.2

Other made-up textile articles; sets; worn clothing and worn textile articles; rags 57.24 56.74 -0.88

Articles of iron or steel 67.95 48.08 -29.24

Oil seeds and olea; fruits; miscellaneous grains, seeds and fruit; industrial or 40.91 45.57 11.39medicinal plants; straw and fodder

Lac; gums, resins and other vegetable saps and extracts 52.42 45.1 -13.95

Inorganic chemicals; organic or inorganic compounds of precious metals, 58.63 44.38 -24.31of rare-earth metals, or radi. elem. or of isotopes

Source: Department of Commerce, India

For suggestions please write to us at: basudev.mukherjee@cii.in

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India’s imports from Japan: Top 20 items, in $ million

Import commodities 2013-14 2014-15 % change

Nuclear reactors, boilers, machinery and mechanical appliances; parts thereof 2,597.34 2,466.52 -5.04

Iron and steel 1,289.65 1,453.75 12.72

Electrical machinery and equipment and parts thereof; sound recorders and 1,057.92 959.92 -9.26reproducers, television image and sound recorders and reproducers, and parts

Ships, boats and floating structures 438.42 944.09 115.34

Vehicles other than railway or tramway rolling stock, and parts and 528.01 551.94 4.53accessories thereof

Optical, photographic cinematographic measuring, checking precision, 547.21 544.37 -0.52medical or surgical instruments and apparatus parts and accessories thereof

Plastic and articles thereof 367.4 442.7 20.5

Organic chemicals 388.63 413.33 6.36

Articles of iron or steel 416.82 397.22 -4.7

Project goods; some special uses 143.76 287.13 99.73

Rubber and articles thereof 272.84 262.64 -3.74

Miscellaneous chemical products 178 187.76 5.48

Mineral fuels, mineral oils and products of their distillation; 250.34 159.37 -36.34bituminous substances; mineral waxes

Copper and articles thereof 58.67 130.4 122.27

Tools implements, cutlery, spoons and forks, of base metal; 143.06 127.17 -11.11parts thereof of base metal

Man-made filaments 77.88 82.67 6.15

Inorganic chemicals; organic or inorganic compounds of precious metals, 99.65 79.45 -20.28of rare-earth metals, or radi. elem. or of isotopes

Soap, organic surface-active agents, washing preparations, lubricating 67.54 73.72 9.15preparations, artificial waxes, prepared waxes, polishing or scouring prep

Tanning or dyeing extracts; tannins and their derivatives; dyes, pigments and 54.24 60.85 12.2other colouring matter; paints and ver; putty and other mastics; inks

Nickel and articles thereof 21.71 48.18 121.9

Source: Department of Commerce, India

Trade between India and Japan, 2005-06 to 2014-15, in $ billion

Year 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15

Exports 2.48 2.87 3.86 3.03 3.63 5.09 6.33 6.10 6.81 5.39

% change 16.61 15.59 34.53 -21.58 19.96 40.26 24.30 -3.61 11.71 -20.96

Imports 4.06 4.60 6.33 7.89 6.73 8.63 11.99 12.41 9.48 10.13

% change 25.53 13.26 37.53 24.67 -14.61 28.18 39.01 3.44 -23.62 6.86

Total trade 6.54 7.47 10.18 10.91 10.36 13.72 18.33 18.51 16.29 15.52

% change 22.01 14.22 36.28 7.17 -5.04 32.43 33.55 1.01 -11.98 -4.77

Source: Department of Commerce, India

Japanese FDI into India, $ million

Fiscal Year 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 Cum.

Amount 85 815 405 1,183 1,562 2,972 2,237 1,718 2,084 18,352

Source: Department of Industrial Policy and Promotion, India

No. of Japanese companies registered in India, 2006-14

Year 2006 2007 2008 2009 2010 2011 2012 2013 2014

No. 267 362 550 627 725 812 926 1,072 1,209

Source: Surveys by Embassy of Japan, New Delhi

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