Japanese firms may play role in India's financial sector: Kenji Hiramatsu

According to Japanese ambassador Kenji Hiramatsu, trade between India and Japan is in a positive trend

As Prime Minister Narendra Modi begins his two-day visit to Japan from Sunday, Japanese ambassador Kenji Hiramatsu tells Subhayan Chakraborty and Indivjal Dhasmana that there were some initial problems faced by Japanese companies in India, but those were raised with the authorities in a positive way. He says Japanese companies are increasing their contribution to Make in India programme. Edited excerpts

PM’s visit is expected to see defence ties strengthen. What can we expect? Would we have joint naval drills?

The most outstanding progress in our defence cooperation in recent years is the rapid increase of joint exercises. In the past year alone, our navies conducted seven joint exercises. The Japan-India-US trilateral MALABAR exercise in June and the most recent bilateral maritime exercise JIMEX-18 in the vicinity of the Bay of Bengal in October both hold strategic and symbolic significance in enhancing the rule of law in the maritime domain under the Free and Open Indo- Pacific strategy. With the participation of Japan’s largest state-of-the-art helicopter destroyer Kaga, JIMEX-18 enhanced interoperability, improved understanding, and imbibed the best practices of each other, by Anti-Submarine Warfare Exercises and other coordinated operations.  Furthermore, the first ever bilateral exercise in the domain of counter-terrorism between JGSDF (Japan Ground Self-Defense Force) and the Indian Army is to be held in the coming months. JASDF’s (Japan Air Self-Defense Force) participation to the next Exercise Corp India will add further momentum to air-to-air exchanges.

Against this backdrop, the necessity of a mutual logistic agreement between the two countries was recognised in the Defence Ministers’ dialogue in August to facilitate further cooperation. I look forward to seeing progress in this area, which would definitely take our bilateral cooperation to the next level. In addition, we expect that the two countries can demonstrate tangible progress including on Maritime Domain Awareness during the upcoming visit of Prime Minister Modi.

Bilateral trade had grown in 2017-18 after 3 straight years of decline. But, trade deficit is high against India. Would you say the current trade deal is inherently disadvantageous to India? Do you think Japan has reached its export potential peak, as Japanese car and consumer durables have continued to rise in Indian market for the last decade?

The trade between India and Japan is in a positive trend if you take a longer perspective. Our trade in FY2017 increased to $15,707.6 million, and this figure is 1.5 times that of FY2007. But, in view of the sizes of both countries’ economies and the ever-growing friendship between Japan and India, the trade between the two countries is expected to expand further.  In this regard, I hope that more traders take advantage of the full potential that CEPA (Comprehensive Economic Partnership Agreement) has unlocked.

At the same time, I would like to point out that bilateral trade figures do not capture the whole web of our economic relations, when supply chains are getting more complex and Japanese corporate operations are becoming increasingly globalised.

In a broader perspective, we also need to look at the robust investment records of Japanese enterprises, including establishment of production facilities, representing their contribution to the “Make in India” initiative. For example, Maruti Suzuki’s premium hatchback Baleno, made in India, has been exported to the Japanese market since 2016. Maruti Suzuki exports 120,000 vehicles to more than 100 countries annually, accounting for 28.4 per cent of India’s automobile exports to the world.

We are seeing investment for “export from India” in the pharma industry as well. Eisai and Meiji Seika Pharma, a.k.a. Medreich, have begun to supply the Japanese market with their high-quality generic drugs formulated in India. Also, many pharma companies such as Otsuka Pharmaceutical procure active pharmaceutical ingredients (APIs) in India and export them to factories in Japan.

I wish to see more companies including SMEs as well as diversified goods help intensify our bilateral economic relations.

Both nations are also part of the RCEP. India said there'll be no deal without concessions on services trade, with free movement for trained professionals. Will Japan allow this?

RCEP presents an enormous potential. Parties to RCEP negotiations are home to about a half of the world’s population and generate around 30 per cent of global GDP.

It is very important to establish free, fair trade rules among the countries to augment the flow of people, goods and money in the proposed RCEP region. We are working hard to achieve a "substantial conclusion" of negotiations this year.

To this end, Japan would like to cooperate with India in order to realise a swift conclusion of a high-quality agreement, including Trade in Services.

Japanese investors and entrepreneurs have told us they aren't happy with the slow pace of growth in the bullet train project. Your take? What is the state of other investments announced during Shinzo Abe's last visit to Gujarat?

The Mumbai-Ahmedabad High Speed Rail (MAHSR) is an important symbol of a new era. Its operational commencement, scheduled for 2023, will change the landscape in the transportation scene of India, as well as induce economic transformation.

The MAHSR project is steadily being implemented. On 28 September, JICA and the Indian side signed an agreement on the first tranche of the loan, valued at 89,547 million yen (approx. INR 5,500 crores). I appreciate the strong commitment of the National High Speed Rail Corporation Ltd. (NHSRCL) in building trust with stakeholders.

At the 2017 Summit Meeting in Gujarat, besides the MAHSR project and its related training institute, our countries agreed upon four other projects ranging from ship recycling, connectivity, metro rail, to investment promotion. All the projects are witnessing progress, with loan agreements being fully made. Going forward, we will continue to see to it that our joint efforts are smoothly implemented and produce expected results.

The civil nuclear deal came into effect in 2017. Has the process of transfer of nuclear plant technology started? Japan had also said it will support setting up new plants and help treat nuclear waste.

The civil nuclear agreement is a historic move which has further strengthened our strategic relations. Japanese firms are interested in providing high quality equipment, essential for the construction of nuclear power plants. From this point of view, Japan and India have already embarked on intensive discussions, and we would like to continue working towards the realization of our cooperation.

How are existing investors coping with the lack of investment protection? Nissan had lodged a case on breaching investor trust against Tamil Nadu govt in Feb, 2018.

It is true that Japanese companies have faced some difficulties in India when their initial agreements were not followed through by the Indian side in a satisfactory manner. However, Japanese companies, known for their diligence and sincerity, have been tenaciously dialoguing with the Indian side in a faithful spirit, to resolve outstanding issues in accordance with the laws and their contracts. Meanwhile, the Embassy staff including myself also signal the concerns to the Indian government in order to support those companies.

Also, to prevent any investment issues from happening in the first place and to improve business environment of India, Japanese companies are holding regular meetings with Indian authorities at various levels. I hope the Indian government continues to respond positively to various requests and suggestions from Japanese firms.

At the same time, what is Japan’s position on China's One Belt One Road plan? Is Japan partnering with India in developing the deep sea ports (part of Sagarmala)?

With regard to China’s One Belt One Road initiative, by fully incorporating international standards including openness, transparency, economic viability and fiscal soundness of the receiving country, we hope it would contribute to the peace and prosperity of the region and beyond. Furthermore, Japan believes in the importance of “quality infrastructure”, which, among others, ensures alignment with local economic and development strategies, lifetime cost, safety, resilience, and social and environmental impacts. Japan supports such quality infrastructure projects in the Indo-Pacific region.

Currently, Japan is not working on deep port development under the banner of Sagarmala, but Japan has assisted port function’s facilitation. For instance, Japan implements a technical cooperation project at Chennai Port to alleviate the traffic congestion in and around the port premises, and to reduce the waiting time before loading containers onto freight carriers. Japan also assists upgrading the environmental management at Alang-Sosiya ship recycling yards in Gujarat, with an ODA loan.

Japanese firm Orix Corporation is looking at enhancing its stake in beleaguered IL&FS. Do you think the current financial mess in India gives opportunity to Japanese firms to look at investments in other financial sector companies as well?

Financial intermediation is an integral part of sustainable economic growth. I believe that the funding demand in India is robust and will increase further. However, Indian financial sector may face some challenges exemplified by non-performing assets (NPAs) issues. Against this backdrop, Japanese companies may be able to play a role in the development of Indian financial sector, tapping into their advanced expertise and technologies.

Japanese megabanks and insurance companies have already entered the Indian market and contributed to its economic growth. Japanese companies are also exploring possibilities in emerging fields. Some Japanese companies have started asset management business in India. Other Japanese companies have invested in Indian FinTech companies as well. I hope that Japan-India collaboration in the financial sector will expand in the future.