Due to the ongoing Covid-19 pandemic, not just business houses, but entire countries have been forced to rethink their ‘business strategy’ to take measures to recuperate from the losses suffered. Businesses across the world, which were dependent on China, are deeply affected, especially Japanese companies.
The supply chain operations of Japanese companies in China were disrupted after factories in China shut down. It, therefore, became imperative for Japanese businesses to re-strategise their operations and diversify their interactions globally. In this regard, Japan announced a domestic stimulus package of $2.2 billion for Japanese companies manufacturing critical products in China to relocate their manufacturing operations to Japan, effectively paring its dependence on China.
India and Japan have a long-standing history of economic, cultural, and political ties. In addition to being signatories to various treaties, bilateral agreements, and strategic alliances, India and Japan enjoy a symbiotic relationship of mutual co-operation and partnership. Various infrastructure and mobility projects such as the establishment of Japanese Industrial Townships, the Dedicated Freight Corridor Project, and the Delhi Metro, amongst others, have been facilitated through loans and grants received from Japan.
Tokyo’s recent commitment to Delhi for a grant of 50 billion Japanese yen to help India tackle the Covid-19 pandemic and the signing of the Acquisition and Cross-Servicing Agreement, a military pact between India and Japan for the reciprocal provision of supplies and services between the Self-Defense Forces of Japan and the Indian armed forces is a display of Japan’s earnestness to offer steady support to India. Further, Japan has added India to its list of relocation destinations to encourage Japanese businesses to move out of China by making India a part of Japan’s larger subsidy programme, the India portion of which is estimated at $230 million. Additionally, India, Japan, and Australia are working together to launch a trilateral Supply Chain Resilience Initiative to reduce dependency on China by strengthening their respective supply chain operations. Currently, several prominent Japanese companies have successful investments across multiple sectors in India. Japanese companies like SoftBank are active investors in multiple Indian startups such as OYO, Paytm, and PolicyBazaar.
There are many factors that work in India’s favour when investors assess the country as an investment destination: a stable political climate, a diversified economy, and cheap yet skilled industrial labour. To provide an impetus to the supply chain and manufacturing environment in India and to attract foreign investments, the Government of India has taken initiatives such as introducing production-linked incentive schemes to promote manufacturing in the electronics and pharmaceutical sectors. Japanese companies in the pharmaceutical and medical devices industry looking to relocate away from China could greatly benefit from these initiatives. Additionally, the renewable energy and services sectors offer promising investment opportunities for Japanese companies due to retrofitting schemes and other similar policies.
The strong presence of Japanese companies in India has led to the establishment of Japan-India Institutes for Manufacturing wherein training is provided to the Indian workforce for the development of manufacturing skills and practices to ensure a high standard of quality. The implementation of legal reforms such as the Insolvency and Bankruptcy Code, 2016, has unlocked avenues for foreign investment in distressed assets of Indian companies. Further, with the advent of the GST regime, ease of doing business in India has significantly improved for foreign investors from a tax compliance and corporate governance perspective. The Indian government has consistently worked to reform its foreign direct investment policy to make it favourable for investors. In August 2019, this policy was reformed to permit relaxations for foreign investment in single brand retail, coal mining, and contract manufacturing sectors, and a few days ago, it was further relaxed to allow additional foreign investment in the defence sector. Additionally, a plethora of measures across various sectors has been introduced by the Indian government to advance the country’s mission of improving its ease of doing business such as an online single window system to simplify investment procedure and setting up of digital courts and e-filing for effective enforcement of contracts during the ongoing Covid-19 pandemic. The Indian government’s push for ‘Make in India’, ‘Digital India’, and ‘Atmanirbhar Bharat’ promotes localisation and demonstrates India’s commitment to growth. While Japan is the fourth largest investor in India, there is huge scope for a substantial increase in investments, particularly in the services industry in India.
The global pandemic has provided India with a unique opportunity where it can capitalise on the emerging sentiment of various companies across the globe, and particularly in Japan, to relocate their business operations from China due to geo-political, economic, and other considerations. Considering the strained Indo-China relations and Japan’s eagerness to exit China, India and Japan can work together to achieve their respective long-term goals, being sourcing of finished goods for Japan and an increase in manufacturing output for India.
Views are personal. The author is partner and head, Corporate, Chandhiok & Mahajan, a full-service law firm.