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OFFICIAL INTRODUCTION

DEVELOPMENT The Indo-Japanese relationship is based on strong


ASSISTANCE historical connections which date back to the 8th
century AD. Indias earliest documented direct contact
AND PRIVATE with Japan was the consecration of the statue of
INVESTMENT FROM Lord Buddha at the Todaiji Temple in Nara, by an
Indian monk, Bodhisena, in 752 AD. More recently,
JAPAN INTO INDIA in the 1870s, Indian traders established themselves
in Yokohama and Kobe. They focused on trading in
textiles, commodities and later in electronics and
A BACKGROUND BRIEF jewellery. Fittingly, the oldest international friendship
body in Japan today is the Japan-India Association
established in 1903, followed in 1929 by the Indian
Merchants Association in Yokohama (IMAY).

This relationship has been reinforced by a number of


high level visits, the most prominent being those of
Emperor Akihito, who visited India as a Crown Prince
in 1960 and again over fifty years later in Nov. Dec.
2013. The current Prime Minister Narendra Modi visited
Japan in Aug. Sept. 2014, and the two countries
announced a Special Strategic and Global Partnership
and launched the IndiaJapan Investment Promotion
Partnership with a targeted investment into India of
USD 35 billion in the next 5 years. Prime Minster Shinzo
Abe reciprocated by visiting India in December 2015.
Prime Minister Modi visited Japan for a second time in
November 2016. The growing high-level engagement
between the two countries is clearly seen in Figure
1, which shows the number of high-level visits per
year (five-period moving average) between the two
countries, with a clearly rising trend since 2000.

Figure 1: Growing number of High-level visits per year


between Japan and India
7

0
1982

1987
1983
1984
1985
1986

1988
1989

2010
1990

2011
2012
2013
2014
2015
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009

India Japan

Source: Ministry of Foreign Affairs, Japan http://www.mofa.go.jp/


region/asia-paci/india/data.html

WWW.CPRINDIA.ORG
Official Development Assistance and Private Investment from Japan into India

India and Japan have also signed a Comprehensive Delhi Mumbai Industrial Corridor (DMIC). The structure
Economic Partnership Agreement (CEPA), which of Japanese ODA has changed with the requirements
became effective in August 2011. Indeed, India has long of Indian development priorities. Prior to 1990, the
been regarded as a promising prospect for business focus was on power and energy, manufacturing and
operations over the medium-term (the next 3 years or telecommunications, which accounted for over three
so) and was the most promising country in the 2014 fourths of the ODA assistance, with transport only
JBIC survey on trends in overseas business operations accounting for 4% (Figure A3). However, more recently,
by Japanese manufacturing companies. Actual since 2009, the focus has been on transport,
investments from Japan between April 2000 and accounting for over 60% of the loan amount, with
March 2016 are estimated to be $21 billion, accounting water supply, sewerage and sanitation (13%) and
for 7% of total FDI inflow into India, making power (12%) making up another quarter. Much
Japan the fourth largest investor into India, after of this transport investment (43%) has been
Mauritius, Singapore and UK. Japanese FDI has focused in metro-rail projects (Figure A4), which, inter alia,
on the automobile industry, electrical equipment, contributes to mitigate air pollution by facilitating a
chemicals, pharmaceuticals and telecommunications modal shift to mass transit from private transportation.
and the number of Japanese affiliated companies in
India has been growing. By 2016 there were 1,305 In Figure A5a, we see that states like Uttar Pradesh,
Japanese companies operating in India (Figure A1), Karnataka and Andhra Pradesh (undivided) had the
in a number of locations across the country. In 2007, larger projects during 1976-90, while, more recently,
a Business Leaders Forum (BLF) was established, during between 2009-15, the states with larger projects are
Prime Minister Abes visit to India. The most Gujarat, Maharashtra and Delhi (Figure A5b). While the
recent meeting of the Forum was in November 2016 average size of the loans has increased over time (Figure
in Tokyo, during Prime Minister Modis visit to Japan. A6), the change in the states can be explained by the
change in sectoral mix. During the first period, the states
OFFICIAL DEVELOPMENT ASSISTANCE (ODA) with more ODA assistance were focused on power and
manufacturing (Figure A7a), in the latter period, the
The first Japanese ODA started in 1958. Over the last thrust has been strongly on transport (Figure A7b).
forty years, barring a few periods, Japanese ODA has
shown a steady upward trend (Figure A2). Japanese The key point to note here is the wide experience that
ODA particularly supports Indias efforts in priority Japanese ODA has in supporting projects across a
areas like power, transportation, environmental number of states and sectors over time. Currently, Japan
projects and projects related to basic human needs. is the largest bilateral donor to India and India is JICAs
For example, recent JICA projects include a sum of largest partner in the world.
Yen 21.79 billion as assistance towards the Odisha
Electricity Transmission System Improvement Project, PRIVATE INVESTMENT
the Mumbai Delhi Dedicated Freight Corridor Phase
3(II) and pollution abatement of the Mula Mutha The projects supported by ODA are complemented by
River in Pune. The Delhi Metro Rail project, which investment from the Japanese private sector (Figure
currently covers 190 kilometres, with an additional 160 A8). Building on the support from ODA investment
km under implementation, is a successful example of in transport, telecommunication and power, with a
support from Japanese ODA. Since then, other metro recent focus on urban infrastructure such as metro
rail projects have been supported by JICA. Another rail, water supply, sanitation and sewerage, there has
high-profile project supported by Japanese ODA is the also been extensive Japanese investment in India in
Dedicated (rail) Freight Corridor and the associated manufacturing like automobile manufacturing and

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Official Development Assistance and Private Investment from Japan into India

automotive components, engineering, and services like In addition to the major cities, there are other clusters
insurance. There are several Japanese firms in major too. Around Chennai, there is not only Kanchipuram,
cities as well as presence of Japanese establishments Oragadam and Sriperumbudur, which are on the
across India. periphery, there is also an emerging cluster in Sricity,
a SEZ in Andhra Pradesh near Chennai. In addition,
Moreover, the private presence is geographically Mysuru and Mengaluru in Karnataka and Coimbatore
dispersed as Figure A9 indicates, with a number of in Tamil Nadu are some of the other key southern
establishments in all the major states of India. However, clusters. Aurangabad in Maharashtra, Panjim in Goa,
the growth between 2008-16, in Figure A10, shows that and Surat in Gujarat are the major clusters in the west.
the concentration of Japanese establishments is more In the east, Bhubaneswar is another small cluster, as is
in the western and southern parts of the country, Vishakapatnam and Vijayawada, which is especially
with the National Capital Region (NCR) being an interesting since the new capital of Andhra Pradesh,
epicentre in the north. Amaravati, which is located very close to this city, is a
possible exemplar of quality infrastructure (see box on
MAJOR CLUSTERS OF FIRMS last page).

A more nuanced picture is available when one moves


from considering establishments and focuses on SECTOR SPECIFIC DIFFERENCES
individual firms. Figure 2 maps individual firms (see the
notes at the end of the document for the methodology) A focus on specific sectors demonstrates that there is
to the various cities in India. The colour of the circles considerable variation in the location behaviour
indicates the size of the city, while the size of the circle of firms (Figure 3). In the automobile sector, there
indicates the number of establishments. are clear clusters in NCR, Chennai, Bengaluru and Pune.
The NCR cluster comprises Delhi, Gurugram, Bawal
Figure 2: City-wise Distribution of Establishments and Manesar in Haryana; NOIDA, Greater NOIDA and
Ghaziabad in Uttar Pradesh, and Neemrana and Alwar
in Rajasthan. One can trace the seed of this growth
back to the establishment of Maruti Udyog in 1981 in
Gurugram. The Chennai cluster and the Pune cluster
predate the involvement of investment from Japan
but they have definitely grown further and faster with
the assistance of such investment.

Finance and insurance firms, as seen in the


second panel of Figure 3 have a much more diversified
presence, including in cities like Surat, Aurangabad,
Nagpur, Coimbatore, Kochi etc. Not only are there
many sub-million cities, there are also a number
of blue circles, i.e., cities of less than 100,000,
where there is a Japanese establishment, such as
an insurance branch office. The key point to note
here is the truly nationwide presence of Japanese
private sector even among the smaller towns of
India, which speaks to the depth of engagement.

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Official Development Assistance and Private Investment from Japan into India

Figure 3: Difference in City-wide Distribution of firms by Sector

AUTOMOBILE

FINANCE & INSURANCE

4
Official Development Assistance and Private Investment from Japan into India

Figure A1: Increase in number of Japanese firms in India Figure A2: Loan approvals for JICA (5 year moving average)

1400
1305
350
1229
1200 1156
300

1038
1000 250
926

812 200
800
725
150
627
600 550
100

400 362 50

267
0

1980
1981

2014
1976
1977
1978

1982
1983
1984
1985
1986
1987
1988
1989

2015
1990
1991

2009
2010
2011
2012
2013
1992
1994
1995
1996
1997
1999
2001
2002
2003
2004
2005
2006
2007
2008
200

0 Loan Approvals (bn. JPY) 5 year Moving Average (Loan Approvals (bn. JPY)
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Figure A3: Structure of ODA (1976-1990) Figure A4: Structure of ODA (2009 16)

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Official Development Assistance and Private Investment from Japan into India

Figure A5a: Average size of ODA loans in different states Figure A5b: Average size of ODA loans in different states
(1976-1990) (2009-2015)

Average Size of Projects


Average Size of Projects
(Millions JPY/project)
(Millions JPY/project)

Figure A6: Average size of ODA loans over time Figure A7a: Distribution of ODA assistance across states
(1976-1990)

16%

40 14%
Amount of Loans Approved (Billions; jpy)

34.3 12%
35
10%
30
8%

25 6%

4%
20
17.7 2%

15 13.5 0%

10 9.0

5
Manufacturing Power, Transmission and gas

0 Water Supply, Sewerage and Sanitation Transport


Pre-1990 1990-'99 1999-'09 2009-present
Strengthening of Admin Management and Commodity Loans

6
Official Development Assistance and Private Investment from Japan into India

Figure A7b: Distribution of ODA assistance across states Figure A8: Distribution of Loan amount and number of
(2009-2015) companies by sector

45%

40% 50% 48%

45%
Amount of Loans Approved (Billions; jpy)

35%
40%
30%
36%
35%
25%
30% 29%
20%
25%
15%
20%
20%
10% 16% 17%

15% 13%
5%
10% 9%
0%
6%
5% 4%
3%
1%
0%
Primary Manufacturing Electricity, Gas and Transportaion & Social and other Other Infrastructure
Manufacturing Power, Transmission and gas
Water Supply Telecommunication services

Water Supply, Sewerage and Sanitation Transport


Companies Operating Loans Approved
Strengthening of Admin Management and Commodity Loans

Figure A9: Distribution of number of establishments by state, Figure A10: Growth in number of establishments over time
2016 by state

7
SUPPORT FOR SOFT INFRASTRUCTURE QUALITY INFRASTRUCTURE
At the 2016 G7 Ise-shima summit Japan announced
In addition to projects such as roads, railways, and an Expanded Partnership for Quality Infrastructure,
water supply and treatment, there is considerable building on its earlier initiative at the 21st
emphasis in building capacity in both infrastructure International Conference on the Future of Asia
and manufacturing. About INR 200 crore in technical in Tokyo in 2015 There are five aspects to quality
support was disbursed in the fiscal year, 2014-15. This infrastructure. These are (a) effective mobilisation of
official development assistance has fostered the travel financial resources: such as through public private
of 800 experts from Japan to contribute their knowledge partnerships (PPP); (b) ensuring alignment with
to India. In addition, over 300 Indians have travelled to socio-economic development and development
Japan for training. Since 2007, JICA has also supported strategies of developing countries and regions; (c)
the Visionary Leaders for Manufacturing initiative, now application of high-quality standards, regarding
called the Champions for Societal Manufacturing (CSM) compliance with international standards established
This is a unique kind of partnership between members to mitigate environmental and social impact; (d)
from the industrial, academic, and policy-making ensuring the quality of infrastructure, in particular,
world. Its aims to enable breakthroughs in business aspects of economic efficiency and durability,
models and processes, as well as in products, in order to inclusiveness, safety and resilience, sustainability
foster inclusive growth within the framework of a more and convenience and amenities and (e) contribution
globally competitive India. Programs such as these are to the local society and economy. Japan will provide
important and necessary compelments to investments approximately USD 200 billion for the next five years
in physical infrastructure. to infrastructure projects across the world.

NOTE ON SOURCES
For analysis of ODA loans, the data source is: https://www2.jica.go.jp/en/yen_loan/index.php/module/search? anken_
name=&area1=0&area2=0&area3=0&country1=11&country2=0&country3=0&section1=0&section2=0&section3=0&industry1
=0& industry2=0&industry3=0&anken_kubun=0&chotatsu_kubun=0&from_year=&to_year=&submit=Search
For the analysis of Japanese establishments, the source is http://www.in.emb-japan.go.jp/PDF/2016_co_list_en.pdf (figures A9
and A10). There can be many Japanese establishments in a city and the the same firm/company has branches in several cities.
This creates complexities in calculating the exact number of unique establishments across the country, as well as the number of
unique establishments per city. To address this issue, two additional databases were created. In the first database, each firm was
allocated to a single city -- the largest city in the case of multiple establishments. In the second database all the cities for a firm were
considered; where the firm had multiple establishments in a city, they were considered a single firm. The first is used to show
the distribution of Japanese firms across cities (figure 2), while the second is utilised to show the extent of the presence of Japanese
establishments in India (figures 3 and A8).

This document was created as supporting research for the workshop entitled, Quality Infrastructure: Japanese
Investment in India, conducted by the Centre for Policy Research, New Delhi (CPR) on February 27, 2017. It draws upon
publicly available information, as noted above, on the presence of Japanese establishments and projects supported by
Japanese overseas development assistance. The information was analysed by CPR. The proceedings of the workshop
are archived at: http://www.cprindia.org/events/5877 For any queries, please write to: shamindra@cprindia.org.