India becomes most promising investment destination for Japanese companies

Japanese companies have made an investment of $15.36 billion in India between April 2000 and December 2013, accounting for 7% of total FDI inflow into India during the period

By Sai Nikesh D

India is the top destination for future investments, followed by Indonesia and China, for the Japanese manufacturing sector, according to a recently concluded survey by the Japan Bank for International Cooperation (JBIC) conducted on 1,021 Japanese manufacturing companies last year.

“For the first time since this survey began (in 1989), India with high expectation for its market expansion ranked 1st place. It received responses from a wide range of industries, including automobiles, chemicals and electrical equipment & electronics,” said the JBIC report. Compared to 213 companies in 2013, 229 Japanese companies voted in favour of India last year and said that India was the best destination for investments in the medium term or in the next three years.

The survey is considered as a measure of prevailing trends as well as future outlook of overseas business operations by Japanese manufacturing companies with an extended record of overseas business. This year’s survey included additional individual themes such as “competitiveness of Japanese manufacturing companies and trends in global production system” and “involvement of Japanese manufacturing companies in overseas infrastructure-related business”, said JBIC.

The importance of overseas business is increasing for Japan and with overseas production and sales ratios estimated at 40% level respectively, overseas investments play a key role in the Japanese economy. About 80% of companies that took part in the survey plan to expand their overseas business.

According to India’s Ministry of Commerce, the presence of Japanese companies in India is on a rise. It said that by October 2014, the number of Japanese companies in India reached 1,209, which is 13% higher over the same period last year, with a Compound Annual Growth Rate (CAGR) of 13.67% for the last five years (2010 – 14)).

The Ministry said that during the period from June 2014 to September 2014, FDI inflow from Japan amounted to $618 million against $273 million for the corresponding period in 2013, and FDI inflow of $103.14 million took place in October 2014 alone. “Some Japanese companies are seriously contemplating their future investment plans in India amounting to about Rs.75,000 crore (around $12 billion) in next 2-3 years,” said the Ministry in a statement.

According to official sources, Japanese companies have invested around $15.36 billion in India between April 2000 and December 2013. This is around 7% of total FDI inflow into India in the period and made Japan the 4th largest investor in India.

Japanese FDI into India surged during the high growth period in India, increasing from $139 million in 2004 to a record high of $5.5 billion in 2008, partly due to deals such as the acquisition of Ranbaxy by Daichi Sankyo. Other areas where Japanese companies have invested in India include automobiles, electrical equipment, telecommunications, and chemicals.

Last year, India and Japan announced the India–Japan Investment Promotion Partnership (IJIPP), as part of the Tokyo Declaration for India – Japan Special Strategic and Global Partnership following Prime Minister Narendra Modi’s visit to Japan. Under this Investment Promotion Partnership, Japan has offered to invest in India approximately 3.5 trillion Yen (about $33.5 billion) over the next five years. The Indian government has established Japan Plus, a special management team to facilitate Japanese investors in their business dealings in India.

This article was published n The Dollar Business on January 16, 2015.

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