FOR a country that ranks as the third-largest investor in India, with investments exceeding $25bn since 2000, Japan has ambitious plans to inject funds into the country.

The Asian giant has been facing a domestic economic crisis over the past few years, but aims to invest nearly $35bn in India in the near future. Last week saw finance ministers of the two nations reiterating their growing economic ties, which will hopefully pull two of Asia’s three largest economies (the other being China) even closer.

Arun Jaitley, the Indian finance minister, was in Japan for three days, attending the 50th anniversary of the Asian Development Bank (ADB), and also interacting with top Japanese political and business leaders in Tokyo.

India is keen that Japanese investors will pour in billions over the coming years in ambitious projects including the Delhi-Mumbai Industrial Corridor and the Mumbai-Ahmedabad bullet train project.

Suzuki’s Gujarat units would not only cater to the domestic market, but would also boost its exports to both Europe and Africa

The minister met several Japanese business leaders, urging them to boost investments into the country and ensure the success of Prime Minister Narendra Modi’s ambitious ‘Make in India’ initiative.

Surprisingly, while Jaitley urged industrialists to focus on the infrastructure sector in India, he told Japanese bankers to focus on Indian social infrastructure including health, education and agriculture.

“Eliminating poverty from Asia-Pacific region is the vowed objective of ADB,” he told the board members. “In addition to sectors like energy, urban development and transportation, we need to focus more on affordable renewable energy.”

He urged the bank to promote models that would take up challenges in the areas of drinking water and sanitation, especially user charges and financial sustainability of urban bodies.

“There is a need for greater focus on climate resilient agriculture, better farm production technologies, improved value chain management and creation of better marketing infrastructure for the farm produce,” said the Indian minister.

“ADB also needs to focus more on social infrastructure like health and education.”

While Jaitley urged industrialists to focus on the infrastructure sector, he told Japanese bankers to focus on Indian social infrastructure

He urged the bank to slash the time lag between approval and disbursement of loans, and also asked it to set up a regional hub in New Delhi to cater to the South Asia region.

Set up in 1966, ADB has 67 members, with nearly 50 being from the Asia-Pacific region. India is one of the largest beneficiaries of the bank, which has disbursed more than $270bn since inception. In 2015, it extended assistance nearing $14bn.

However, ADB is facing intense competition from other lenders including China’s Asian Infra­structure Investment Bank and the New Development Bank (earlier known as the BRICS Development Bank, and established by BRIC nations and headquartered in Shanghai), both of which are extending huge funds to the infrastructure sector in Asia.

ADB, however, wants India to pursue its deregulation and also integrate the central government’s policies with the states. “India has a strong potential, but its markets should be more integrated,” said Takehiko Nakao, the ADB president.

“The powers of the state governments must be balanced with the central government’s. An integrated Indian market, which is more deregulated and more welcoming to foreign direct investment, should be linked to other parts of Asia and the world.”

Nakao believes that India has not reached its full potential as compared to China. The ADB says India’s economy will expand at 7.4pc in the current fiscal, up from 7.1pc last year. And in 2018-19, it is expected to grow at 7.6pc.

JAPAN continues to be a major investor in the Indian manufacturing sector, especially automobiles. Last week, Jaitley met several top Japanese businessmen, including Osamu Suzuki, who heads Suzuki Motor Corp.

Suzuki is the largest carmaker in India, with its Maruti-Suzuki brand dominating the segment, with a more than 50pc market share. With the Indian government focusing on its Make in India programme, Japan has already set up its ‘Make in India’ fund, adding up to 1.5tr yen.

Leading Japanese auto players including Suzuki, Toyota Motors and Honda have ambitious plans to expand their operations in India. The chiefs of Suzuki and Toyota recently met Prime Minister Modi and discussed investment plans for India.

Suzuki, which has production facilities in the National Capital Region (NCR) near Delhi, is boosting its investments into new manufacturing units in Gujarat. It plans to invest about 100bn yen (more than $800m) to expand its operations in the western Indian state, which is fast emerging as an auto manufacturing hub.

The Japanese auto major has already set up one unit in Gujarat and is developing a second one. The third unit is expected to get into production in about three years.

Suzuki’s Gujarat units would not only cater to the domestic market, but would also boost its exports to both Europe and Africa. With the completion of the third Gujarat unit, Suzuki expects its production to top 2.25m units annually in India.

The Japanese auto major is also investing about Rs12bn in a lithium ion batteries plant for electric vehicles, along with Toshiba and Denso. Suzuki will have a 50pc share in the new venture.

With growing business and investment ties between India and Japan, lenders are also expanding their operations. State Bank of India (SBI), the country’s largest bank – and controlled by the government – recently signed a memorandum of understanding with a score of Japanese banks to enable them to expand their operations.

According to Arundhati Bhattacharya, chairman, SBI, who was also present in Japan last week, there is great opportunity to attract small and medium-size Japanese companies to invest in India.

“Our Japanese operations will expand as we believe India has lots of opportunity for Japanese SMEs,” she said. SBI, which has two branches in Japan, has outstanding loans of $4.4bn and earned a profit of $1.3bn last year in Japan.

Bilateral trade between the two countries has slowed down of late, raising concerns in India. While bilateral trade doubled between 2006-07 and 2012-13, total trade plunged to $14.51bn in 2015-16 from a peak of $18.5bn in 2012-13.

India’s exports to Japan added up to a mere $4.66bn in 2015-16, while imports were nearly $10bn.

Published in Dawn, The Business and Finance Weekly, May 15th, 2017