The promise of India

01.04.07 Publication:

In India, this year has been officially designated as “the year of Japan”. Thanks in part to an extremely energetic Japanese embassy in the Indian capital, Delhi, a great range of events have been planned, from cultural events to serious business conferences. During a recent two-week visit to Delhi, for example, I attended an interesting lecture by an Indian professor about how many centuries ago Hindu gods and goddesses found their way into the statues and other iconography in many ancient Buddhist temples in all parts of Japan.

            Yet in Japan, which I came to immediately after my time in India, this year is certainly not designated as “the year of India”. Everyone I speak to about India, unless they are in a senior position in the Ministry of Foreign Affairs, expresses great scepticism about that country. It is a strange, dirty and hot place. You have to be careful about drinking the water there. It is far away on the other side of Asia. It has a caste system that makes its society divided and very rigid. There aren’t many golf courses. All these things are cited by my Japanese contacts as reasons why Japan is not comfortable with a closer relationship with India.

            Such prejudices are confirmed by a lot of practical evidence. When I flew from Tokyo to Delhi in early February, it was not possible on my day of travel to take a direct flight. I had to change planes in Hong Kong. When I returned to Tokyo from Delhi later that month there was a direct flight on my day of travel, but only on Air India, the rather old-fashioned state-owned Indian air carrier. The trade between Japan and India is roughly one tenth as large as the trade between Japan and China. The Yomiuri, Japan’s biggest selling daily newspaper, has 10 correspondents based in China (including Hong Kong). It has just one correspondent in India.

            This is not surprising, really. India is a poor country, and until the past four or five years its economy has not been very exciting, growing at only around 6% per year compared with China’s 8-12%. During the Cold War which lasted until 1991, India allied itself to the Soviet Union, which made it impossible for Japan to be very friendly with it, given Japan’s own close alliance with the United States.

            But things are changing, and rapidly. Steadily and determinedly, during the past ten years, India has transformed its foreign policy. The old idea, of leading the so-called “non-aligned movement”, supposedly the poor world, while actually allying with the Soviet Union, has been dumped entirely. India’s foreign policy naturally emphasises friendship with neighbouring powerful countries such as China. But the real story is one of a steady move towards the West, and in particular the United States. The culmination of that development was last year’s pact with the United States over civilian nuclear energy. That pact represented an end to tensions over India’s nuclear bomb tests in 1998, and will now enable India to build new nuclear electricity plants. Most of all, it represented an American acknowledgement of India’s strategic importance as a political and economic counter-balance against China.

            The Japanese government takes that view too. It knows that stronger ties with India, one of Asia’s few other democracies, will be a vital tool to help prevent China from dominating Asia in both political and economic terms. The Japanese Maritime Self-Defence Force is trying to build up a closer relationship with the Indian navy; the Japanese government has made India its biggest recipient of overseas development aid, mainly in the form of cheap loans; efforts are being made to increase the number of direct airline flights between Japanese and Indian cities; and talks have begun on a Free Trade Agreement between the two countries, although that may take several years to achieve.

            Japanese people, however, will take a lot more convincing. So, even more importantly, will Japanese companies. Some have begun to make investments: Nissan, for example, has just announced a plan to build a new car factory in India, in a joint venture with an Indian industrial company, Mahindra & Mahindra, as well as Nissan’s French parent company, Renault. The recently opened Delhi Metro system was financed and partly built by Japanese companies. But compared with the amount of investment being made by Japanese firms in China, the flow of money to India is just a trickle.

            This caution is understandable, but to remain so cautious would be  a big mistake. For India’s economy is now growing rapidly. The country has overcome a number of serious obstacles, and is entering what could well prove to be a long high-growth period similar to that experienced by China during the 1990s and by Japan during the 1960s.

            India remains a difficult place in which to do business. The infrastructure, in the form of roads, railways, ports, airports and power supplies, is far inferior to that in China. Corruption is endemic. Indian politics may be democratic, but it is messy and chaotic. The social and political divisions caused by the caste division remain strong. Poverty and disease are a huge problem. Technical education of the best Indian students, in India’s superb Institutes of Technology, is world class, but basic education is inadequate. More than 30% of the population is illiterate.

            Yet the point is that, from this low base, India is now succeeding in growing rapidly. Indian savings have increased, enabling it to finance investment more easily; Indian companies are expanding rapidly, whether in software, IT services, manufacturing or real estate development. Reforms during the past decade have given new freedoms to businessmen. Infrastructure is beginning to be built: two outdated airports are being privatised, in Delhi and Bombay, and two new ones are being built, in Bangalore and Hyderabad (the two centres of technology). New industrial parks are being developed, and with them new roads, ports and railway lines.

            As a result, the opportunities for business are growing rapidly. In truth, the caste system, which Japanese often cite as a worry, is not a problem for foreign businesses in a land of more than a billion people. What I would say to Japanese companies is this: don’t miss this chance. India promises to be a rich new market, and a fine way of diversifying your risks away from China. Go and take a look. But choose a day on which JAL has a direct flight.