Synergies Between India and Japan to Transform India into a Leading Manufacturing Hub: FICCI SAM & Co. Report

 COVID-19 pandemic has provided a unique opportunity to India and Japan to further consolidate their bilateral relationship by forging alliances in sectors like software development, state of the art technology, infrastructure growth and making India a manufacturing hub which in turn could help in turning the two nations into global supply chain centers, says “India – Japan: Time to seize new opportunities”, a report released today by Shardul Amarchand Mangaldas and FICCI.

Japan has always treated India as a preferred partner in terms of economics, trade and commerce and has also been a friend in giving a push to India’s growth and development. Further, the COVID-19 pandemic has provided great opportunities for the two nations and its businesses to join hands and forge a new alliance in terms of harvesting the fruits of demographic dividend that India provides, and push India towards becoming a major global manufacturing hub amidst the changing economic atmosphere. India has already invited companies from Japan to collaborate and explore the huge market it offers. This, coupled with the plethora of initiatives taken by the Indian Government, to ensure ease of doing business in India and creating a congenial atmosphere for Japanese investors in the Indian economy, will help in nullifying the aftermath of the COVID-19 pandemic on the economy. India has already indicated that it is willing to join hands with one and all to make India the most favoured manufacturing hub in Asia, and in the long run a global supply chain destination.

 

Mr. Shardul S. Shroff, Executive Chairman and National Practice Head – Insolvency and Bankruptcy, Shardul Amarchand Mangaldas & Co, said, “We need to look at the pandemic as an opportunity to bring India and Japan’s economic relationship closer. The Indian economy holds the potential to bounce back quickly on the back of a slew of fiscal and economic measures undertaken by the government such as reduction in corporate tax rates, further reforms in the GST regime, revamping labour laws, taking measures to ensure Ease of Doing Business, ranking of the states on the basis of their business friendly policies, introduction of a new National Manufacturing Policy, amongst others, to attract foreign investment.”

He further added, “We see Japan and its business community as trusted allies of India who have exhibited bullish sentiment to invest in India without hesitation, and continue to do so. While the Indian government has taken plethora of measures and policy decisions to make India an investor friendly destination for the Japanese business community, a lot more needs to be done to meet the new challenges posed by the pandemic and to harvest the investor sentiments looking for safe investment destinations. In order to remain competitive with other Asian countries vying for investments from Japan, India needs to continue being proactive and undertake further economic reforms to open up the economy in order to achieve the dream of transforming India into the most favoured manufacturing hub.”

The report seeks to impress upon the Indian Government to surpass the hurdle and turn the challenge faced by the COVID-19 pandemic into an opportunity, and help in further fostering the relationship with Japan. The report talks about how both nations and it’s businesses and talented workforce could collaborate to create leadership in the manufacturing sector, software development, state of the art technology and related essential skill sets to work towards creating a paradigm shift in  global supply chains.

The Japanese business community is upbeat about its investments and ventures in India and the large shadow of the COVID-19 pandemic has not deterred their plans to continue with their commitment towards investing in India. Japan continues to be the 4th largest investor in India as per FDI flows. Policy reforms are required in India to bring in greater synergies and reap the benefits of the de-risking activities being undertaken by Japanese companies to move their supply chains out of China to countries like India, Vietnam, Thailand, Indonesia, Malaysia and Myanmar.

Mr. Rudra Kumar Pandey, Partner, Shardul Amarchand Mangaldas & Co., said, “The technological and economic prowess of Japan coupled with India’s established strengths in manufacturing, liberalized foreign exchange laws,  experienced and active bureaucracy, skilled and highly educated workforce and its large domestic markets will further strengthen the enduring synergetic relationship between India and Japan.”

Government of India as per the report is more transparent in its policymaking as compared to most other South Asian countries. However, there is a need for further reforms to accelerate India’s economic growth and make it first amongst many and not one amongst many investment destinations. The Report highlights, amongst others, the following key recommendations that could seal India’s destiny as world’s leading manufacturing hub and investment destination

While India’s rank on World Bank’s Ease of Doing Business report has consistently improved to reach 63rd position, we need to work on the enforcing contracts parameter. India needs to consider use of case management tools, popularization of court automation processes, simplifying the form to incorporate a new company and appoint directors, ensuring easy customs clearance procedures, harmonization of compliance rules and border control efficiency.
Deregulation for the insurance sector should be implemented on immediate basis along with review of tax system in terms of reduction in taxes and immediate refunds of GST credit related to export. While corporate tax rate for setting up of new manufacturing industries has been reduced to 17.16%, the Indian Government may consider reducing the corporate income tax rate for existing companies to promote investment into India
Infrastructure such as power, road, water, and ports need improvement. High logistics cost and long transportation time should be tackled. Customs duties on raw materials and parts are required to enhance India’s connectivity with global and regional supply chains.
There is a need to develop operational transparency in India. The Indian Government can tackle the issue by popularising the Lokpal and Lokayuktas; controlling private sector corruption by enabling quick and anonymous reporting of private sector bribery; introducing police sensitization and reforms; restricting the facilitation payments; and adopting zero tolerance approach towards corruption. Expedition and transparency of proceedings in labor courts is the need of the hour.
Trading Across Borders is a parameter in the World Bank’s Ease of Doing Business Report, which measures the costs, timelines, and documentary ease of compliance in relation to moving goods across international borders. We need to carry out necessary reforms, such as electronic data interchanges, in major ports of India. India should aim for all of the approximately 300 ports in India to be fitted with functional customs electronic data interchange systems.

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