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Overseas investment opportunities -- India ranking moves up in Japan survey

Ashok Dasgupta

NEW DELHI, Nov. 29

THE on-going efforts of the Centre to further liberalise foreign direct investment (FDI) policies and simplify the procedures have started paying off. Or, at least, so it appears, if the perceptions of the Japanese corporates - known the world over for t heir cool, calculative and collective, though time-consuming process of decision-making - are any indications to go by.

India, in the eyes of Japanese investors, has moved up two notches as an attractive investment destination.

According to a survey conducted by the Japan Bank for International Cooperation (JBIC) to assess the trends of FDI by Japanese manufacturers during the fiscal year 2001, India has been ranked fifth, with 52 corporates citing the country as one of the wor lds top five promising countries for overseas business operations over the medium term of three years.

Not only that. Out of the 52 Japanese manufacturers that pitched for India, three suggested India as the most promising country for overseas business operations.

That is a marked improvement over the fiscal year 2000 survey results when India lagged behind Malaysia and Taiwan to be placed in the seventh position.

Curiously, the survey reveals that while this year too, as since 1997, the top four positions have been retained by China, the US, Thailand and Indonesia, respectively, India has only managed to regain its fifth place, the position it held in 1997 and 19 98.

The only exception has been fiscal year 1999 when India upstaged Indonesia for the fourth position in the eyes of the Japanese investor.

Interestingly again, the reasons cited by the respondents for considering India as a promising destination have not changed significantly over the years. The most often cited reason by 76 per cent of the respondents for viewing India was the potentiality of future market growth. The other major reasons cited included inexpensive labour force (46 per cent), excellent human resources (22 per cent) and present market size (20 per cent).

On the contrary, the significant problems standing in the way of larger FDI inflow, as pointed out by the Japanese corporates, were lack of local infrastructure, namely, electricity, telecommunications, transportation etc.(42.6 per cent), local governmen t and social conditions (34 per cent) and complicated administrative procedures (23.4 per cent) which, in effect, implied formalities for investment permits and approvals.

In comparison, even as FDI experts, both within the Government and outside, never seem to tire in drawing parallels with China, the JBIC survey reveals that India still has a long way to go to catch up with China.

While China had consistently maintained its position as the top FDI destination since 1997, this years survey revealed ever-increasing expectations on the part of Japanese corporates with 327 out of the 401 (82 per cent) pro-China respondents voting the country as the most promising.

The most often cited reason for considering China as promising, according to the survey, was the potentiality of future market growth (81.2 per cent). This, the survey said, may be attributable to such factors as business climate is expected to improve w ith Chinas membership in WTO, and that deregulation will allow setting up of foreign-owned sales affiliates. Among the other reasons cited were inexpensive labour force (71.3 per cent), low-cost parts and raw materials (29.3 per cent).

In effect, as companies are pressed to produce good quality and affordable products in the environment of increasingly intensive price competition, they may well regard China as a promising country whose cost is less relative to other areas. However, the re were negative sentiments expressed too.

Some companies felt that problems still remained in the way of business development in China such as lack of transparency in the application of laws.