IMPEDIMENTS TO INVESTMENT
Other Related Matters than Regulatory

2002/4

@ FICCI  Japan Cell
Expert (JICA)  Y. SEI

Index
1. The Need to Overhaul the Regulatory Framework for Foreign Direct Investment in India, and other Related Matters
2. My Assignment
3. History of Economic Relations between India and Japan
4. Promising Destinations for Japanese Investments in the Mid-term
5. Political Situation
6. Special Feature of locality
7. Differences between India and Japan
8. Examples of Success Story from Japan
9. India has an Impartial FDI Policy
10. Special Procedures Beyond the Law
11. The High Rate of Interest in India
12. Import Duty
13. Tax Harassment
14. Businesslike Settlement of Insurance Claims
15. The Unfortunate Opening Ceremony of the Toyota Company
16. Too Short Notice
17. Changes at the last Moment
18. The Regulatory Raj
19. Payment of Bribes at Every Stage – The Complaint of a Granite Shipper
20. Speedy Clearance by the Foreign Investment Promotion Board (FIPB)
21. Red Tape --- The Slow Procedure of Government Clearance
22. The Insufficient Condition of Infrastructure
23. The Infrastructure For Daily Living
24. The problem of Alcohol Prohibition
25. Indocentrism
26. Comparisons with China
27. How to Treat the Japanese
28. Setting up Cultural Centers in Both Countries
29. The New Indians
30. Dream joint ventures

Attached Paper
Attached 1 : List of differences between India and Japan
Attached 2 : FICCI date

1. The Need to Overhaul the Regulatory Framework for Foreign Direct Investment in India, and other Related Matters

The Indian Government nominated two leading global consultants --- McKinsey & Co. and AT Kearney --- to identify and re-engineer its regulatory framework for foreign investment. Two consultants were given specific tasks to identify the regulatory bottlenecks.

The aim was to make foreign investors aware of the Indian regulatory framework and give the Indian government the option of whether to adopt international or global standard on foreign direct investment (FDI) or not.

In the meantime, I would like to point out certain other issues which could also be considered as bottlenecks for FDI including Japanese direct investment to India. Although overhauling the regulatory framework is one of the most important issues, it may not solve all the existing problems.

My intention in bringing forward these issues so frankly, is not to hurt feelings, but put forth certain suggestions on how to promote Japanese investments in this country.


2. My Assignment
Since the economic liberalization performance of the Government of India, launched in 1991, Foreign Direct Investment (FDI) to India has been on the rise. Though India expected Japanese investment in big way, the amount of the investment has not been to the level of anticipation.

It is said that the number of Japanese investments in China is more than 5,000, whereas in India, it is only about 150~200. Why do the Japanese not come to India? Indian industry is today on a fast track of growth, and Indiafs domestic market is promising with the Indian Governmentfs commitment to industrial liberalization. The pace of growth is expected to be accelerated. Yet why do the Japanese not come to India in big way as India expected?

I came here as a JICA expert to promote Japanese investment in India, as part of the FICCI Japan Cell.

First, I advised and orientated all possible Japanese companies who came to India to study investment possibilities. And I have been providing certain hints which may help increase Japanese investments through various organizations and channels.

Second, I considered that it might be useful if I could locate certain bottlenecks to investments in India, and that if the number of success stories of Japanese companies in India increased, people in Japan might think of going to India.

To fill the gaps between Indian expectations and Japanese reality, I started to undertake research on the actual conditions of Japanese investments in India. I contacted and visited more than 100 Japanese companies which invested in India. My aim was to give certain suggestions to solve their problems and in the course of the work, I noticed certain situations which might be bottlenecks Japanese investment to India.


Concretely my terms of reference, as an expert in the Japan cell office, were as follows :

1. As the staff of the Japan Cell of FICCI, it was my duty as an expert to give advice, make suggestions and provide orientation whoever contacted the cell.
2. To correspond regularly with the Japan External Trade Organization (JETRO), the Japan-India Business Corporation Committee (JIBCC) who were the Japanese counterparts, and as the expert, endeavour to promote Japanese investments to India.
3. Keep in close contact with various departments of the Government of India (Ministry of Industry, Ministry of Commerce, Ministry of Finance, Planning Commission, and other Ministries) for getting the latest information such as change of economic policy, and promptly feed this to Japanese counterparts.
4. To undertake a research on the actual conditions of Japanese companies who had already invested in India.
5. Based on my 16 years of experience of Indo-Japanese business, I was expected to provide specific advice and trouble shoot for Indian as well as Japanese companies in trouble.
6. To advise State Governments and other organizations for their invitation to Japanese companies.


3. History of Economic Relations between India and Japan
The beginning of our relationship was marked by a devastated post-war Japan seeking to revive itself economically by rebuilding its industries. In the initial stages, India contributed to Japanfs economic revival by exporting high quality iron ore to Japan and importing steel etc. from Japan. However, India chose self-reliance making it fairly insulated from world business at large. So, from the very beginning, both countries began on a different note. Trade figures between India and Japan have not changed substantially over the years but the Indian percentage against the total amount of Japanese trade decreased considerably with the expansion of the Japanese economy. Initially, the Indian percentage was over 10 % but now it is less than 2%.

When Japan over the years solidified its presence in world markets, India continued on its self-reliance mode. The mid-seventies saw Japan consolidate its position in the world, and Japanese goods became synonymous with equalityf the world over.

Japanese companies spread their reach across the Americas, Europe and Asia with business links and established offices in various countries looking not only for trade but also for technical and financial collaboration. Initially, Japanese companies opened offices in India only for trade purposes. Indian markets started opening up to the outside world at large only in the early nineties, at a time when Japan had already established itself as a world leader in manufactured products. It was then that the first real beginning in Indo-Japanese relationship in commerce and trade started taking place.

When an in-depth analysis of Japanese investments in India is made, it will be seen that these investments are made on the basis of old historical business ties. Usually, technical collaboration takes place on the basis financial collaboration takes place on the basis of technical collaboration. The poorer trade relations with India as compared with other countries has resulted in fewer number of financial collaborations with India. It is not always easy for Japanese companies to build up new financial relationships from scratch. Japan attaches much more importance to traditional ties than to pure financial relations.

In this context, Indian companies have found it difficult to woo Japanese companies to do business with them as compared with companies from the US and Europe. Even when Indian companies make proposals to Japanese companies in writing, they very often do not receive any response at all. In order to get a response from Japanese companies it is necessary to have the right introductions, particularly when there are no traditional ties.


4. Promising Destinations for Japanese Investments in the Mid-term

According to the report by the JBIC (Japan Bank For International Cooperation) based on research done in Aug 2001 India was ranked 5th on a list of promising investment destinations in the mid-term (say in the next three years). Formerly, India ranked 7th on the list. The purpose of the survey was to identify current and future trends in foreign direct investment and overseas business operations by Japanese manufacturing companies. (This year's survey was the thirteenth of an annual series that began in 1989.)

The order of promising destinations was as follows:

2001 2000 1999
1. China China China
2. USA USA USA
3. Thailand Thailand Thailand
4. Indonesia Indonesia India
5. India Malaysia Indonesia
6. Vietnam Formosa Vietnam
7. Formosa India Malaysia
8. Korea Vietnam Philippine
9. Malaysia Korea UK
10. Singapore Philippine Brazil

The Important point to note here is that investments by a firm would be done on an all or nothing basis. Even though India is ranked 4th or 5th, this does not mean that certain percentages of investments are coming to India. China is ahead leaving little for countries ranked 3rd and 4th.


The reasons why India is promising are as follows :

1. Potentiality for future market growth 76%
2. Inexpensive labour force 23%
3. Excellent human resources 11%
4. Present market size 10%


The reasons why China is promising are as follows :

1. Potentiality for future market growth 82%
2. Inexpensive labour force 71%
3. Low cost of raw material and capital goods 29%
4. Export base to Japan 22%
5. Export base to third countries 22%
6. Present market size 16%
7. Excellent human resources 12%

The future markets for both China and India are considered promising. The cost for labour in both countries is attractive but in China it is one thirtieth of total costs whereas in India it is one tenth. The cost and availability of capital goods and raw materials in China are attractive. Japanese firms are considering China as a supply base for Japan and third countries.


The image of India that Japanese companies have may surprise Indians. The report says :

Infrastructure

Improved Unchanged Worsened Unknown
China 57.1% 22.5% 0.5% 19.8%
India 13.5% 18.0% 0.4% 68.0%
Thailand 37.9% 28.4% 2.1% 31.7%
Vietnam 19.3% 13.8% 0.7% 66.2%


Law and Regulations (transparency and fairness)

Improved Unchanged Worsened Unknown
China 22.7% 44.1% 4.5% 28.6%
India 3.0% 22.1% 0.4% 74.5%
Thailand 13.6% 48.1% 0.3% 38.0%
Vietnam 9.4% 16.1% 0.7% 73.8%


Political Situation

Improved Unchanged Worsened Unknown
China 26.7% 51.0% 2.2% 20.2%
India 4.1% 31.5% 1.1% 63.3%
Thailand 12.3% 51.8% 6.6% 29.2%
Vietnam 10.2% 28.2% 0.0% 61.7%

The majority of Japanese firms consider that infrastructure in China has improved for the better over the previous year, whereas less than 15% of Japanese firms feel that infrastructure in India improved during that one year. Nearly 70% of Japanese firms say that they donft-know whether the actual situation is the same in Vietnam.

As is well known India is a country with a eregulatory-rajf, but more than 70% of Japanese firms say they donft-know if it is similar to the situation in Vietnam.


5. Political Situation

Politically, many Japanese firms do not know what the latest Indian situation is. The report says that the majority of Japanese firms have an image of India which is very unclear and vague. Although much effort to propagate what the Indian situation is for investment has been done, whether such an effort has been properly done, and by the right people, and whether the quantum of effort is enough or not needs to be considered.


6. Special Feature of locality

When we talk of regions in India, Indians point out that every 100 km language and cuisine can be different.

Each state in India is different --- geography, culture, politics, language, level of education, people, climate, food habits, etc. - but Japanese people are unaware of such differences and not informed properly. The business atmosphere can also be quite different --- taxation procedures, factory conditions etc. Japanese people do not know where to get the information on these regional differences in Japan. It is only after coming to India and contacting each state that Japanese firms find out about the enormous differences in conditions.

Hence, just having general information about India does not help, since India is such a big and varied country with so much diversity.


7. Differences between India and Japan

It is true that each geographical region has its own culture and that each culture has its own specialty. Moreover, certain scholars point out that if all the influences from China and India were taken away from Asian countries, nothing of real importance would remain. Such has been the extent of the influence of these two gigantic old civilizations, even though today, different cultures have developed in the area.

Japan also has received a lot of influence from China and India over the years. Language, letters, religion, philosophy, architecture, art, dance music, law and regulations and folklore are all part of these influences. Even while receiving all this influence, Japan has made some of these different features as part of its own so-called Japanese culture, which today seems so different from that of India and China.

It is absolutely necessary to appreciate the cultural differences between the two countries in order to understand one another. Mr. Toshio Yamanouchi lists many such differences between India and Japan. I have added a few points to his list. In order to facilitate the promotion of investments from Japan to India, I think, it is necessary for both India and Japan to identify these differences. Some of these differences are more psychological in nature and could be termed as epsychological barriersf.

(List of differences between India and Japan : Attached 1)

8. Examples of Success Story from Japan

1) Hero Honda
Honda is a clever company. Before entering the passenger car manufacturing sector and before India opened its doors to FDI, the company tried motor cycles, scooters, and generators.

Among its three trials, Hero Honda motor cycles have been its biggest success. Thirteen years of good monsoons might have been a contributory factor.

The Honda company taught Indians how to make industrial products using the natural talents of Indian people. Honda concedes that Indians have natural talents --- hand dexterity, a good eye, a good ear and patience.


2) Sony India Ltd. IT Division
Sony India is a 100% FDI venture. A special sanction was given to Sony to start operations in India.

Today, Sony India is not only manufacturing TV sets, etc., but also has two IT divisions in Bangalore. One division handles all Sony's computer software development and maintenance with 100 SE and the other is engaged in developing software chips for Sony electrical with 100SE. The heads of the two divisions are Indian. This may be model case where the hardware is Japanese and the software is Indian.


3) Maruti Udyog Ltd.
Maruti Udyog succeeded in introducing not only a standard Japanese passenger car but also the work culture of Japan.

Indians know how to select good products themselves when such products are available and are also able to work hard when the work is specified. Hence, Suzuki its Maruti venture was able to bring in new quality standards to India and establish a new work ethic to attain its objective.


4) Nisshin Noodles
Nisshin Noodles started a project before the Indian economy opened up. They made new varieties of food for Indians. It took years to make Indians familiar with the new variety of instant noodles but finally succeeded to a certain extend. This case is rather important since Nisshin was able to effect some changes in the India food culture. More than millions of their noodles are now consumed by the Indian people.


5) Nagata India Ltd.
Nagata Japan came as a result of SUZUKI's request to produce steel mouldings for auto press parts. The company started from scratch in August 1999 and started production as a leasing factory in Gurgaon at the end of 2000. They established record in starting actual work and their reputation spread all over India immediately. Then TOYOTA and HONDA approached them to place orders for steel mouldings. Now they have shifter to a new factory.
Their case shows that there is still a lot of possibility for Japanese technology in this field which is needed in India.


9. India has an Impartial FDI Policy

India modified its FDI policy in 1991, as a result of which many changes to facilitate foreign investment were introduced. Norms and conditions were equally applied to Indian and foreign firms as long as these firms were registered as Indian companies in India. No selective treatment was considered, and foreign and Indian companies were treated on par.

Many developing countries in Asia who started off by giving preferential treatment to foreign firms on tax, duty and so on, but subsequently some countries changed their stance, giving selective treatment to foreign firms, taxing them heavily and putting severe duties on them, and so on.

The Indian way of handling the situation is much fairer and better and provides for a long-term strategy. The Indian government can proudly say that it is different from other Asian countries and I appreciate this as well.

China used to have two currencies : one for Chinese people and the other for foreigners. The Yuan exchange rate was different for both. This system was abolished in 1994. Hotels, sight seeing facilities and eateries used to charge different rates for Chinese and foreigners, earning the Chinese a very bad reputation among foreigners. Recently India also has been following the Chinese system of charging Indian and foreigners different rates at famous tourist spots, inviting much criticism and leading to the downgrading of Indiafs image. Once such an image goes down, it is not so easy to restore it. It will then become a negative psychological factor working against India.

Indiafs impartial policy should be applied in all areas.


10. Special Procedures Beyond the Law

It is said that in India anything is possible if it is done properly, and that nothing is possible if it is done improperly.

There are many cases where special sanction or permission has been given by the Government beyond the law in various fields. Recently a magazine reported the example of DLF. Mr. K.P. Singh the head of DLF got special clearance from former Prime Minister Mr. Rajiv Gandhi for the development of a township in southern Delhi. Rajiv Gandhi changed the law to permit Mr. Singh to carry out his idea. Similarly, Sony obtained clearance for a 100% share whereas the law allows only up to 50%. YKK obtained permission for 100% FDI to make fasteners, a field which comes under the category of small-scale industry, which is a protected sector.

Hence, it is a common feature in India that if someone has the right reasons for a new venture, he or she can try and appeal to the Government to get the necessary sanction. But to foreigners, if a law or regulation specifically says 'no', they do not even try to get through from the very beginning, or give up altogether. So, it is advisable that all laws and regulations on FDI should be made very clear to anyone who wants to come to India to invest, particularly as foreigners first check the regulatory framework to see whether a project is permissible or not.

When Japanese firms want to come to India, they first try and check the regulatory framework; namely the FDI policy, its regulations, rules on foreign currency, company act, labour law, factory law, patent law, restrictions regarding the environment, etc. They make checklists of various countries and if any doubts arise, they see the matter as being black or white. So if there are gray areas, these would be treated as black. The Indian governmentfs practice of giving a positive answer to anyone approaching it for special permission does not work for the Japanese. Japanese firms will give up without even contacting Indian authorities for clarification.

In order to keep its FDI policy attractive, it should be simple and transparent to all. Any special procedure which goes beyond the law can become a hotbed for corruption once it starts being misused.


11. The High Rate of Interest in India

According to the usual practice of Japanese firms intending to undertake new business ventures outside Japan, they bring hard currency to the destination as part of the capital portion, but usually depend on loans from banks for operational costs. This is the most common pattern of their financial plan.

The present Indian interest rate of 13.5% is very high as compared to other countries. So any Japanese firm which wants to diversify its operations from Japan may prefer such a country where the interest rate is lower considering its operation costs.

Under conditions where competition is limited only the high interest rates may not matter much. But these days where economic activities are carried out on a global basis, global competition cannot be ignored. High interest rates matter in this case.



Interest rates prevailing in major Asian countries and the USA are as follows :

2001 Nov.

Japan 1.37
India 13.5
China 3.97
Thailand 2.91
Singapore 0.82
Malaysia 2.88
Korea 4.54
Hong Kong 1.92
Indonesia 17.61
Philippine 9.66
USA 1.87


12. Import Duty

When the Minister for Dis-Investment visited Japan last December along with the Prime Minister of India, he made a speech on 10th December in which he mentioned that the heaviest import duty in India was reduced from 300% to 30%.

Yet India maintains that its import duties are either 25% or 35% at the most.

When a party in India has to pay Rs61.20 or 74.10 to the Government against an invoice valued at Rs100, the details emerge as follows :

Example 1
Cost Goods CIF basis Rs.100.00
Basic Custom Duty @25% Rs. 25.00
Total Assessable Value Rs.125.00
Excise Duty @24% Rs. 30.00
Total Value for Additional Duty Rs.155.00
Special Additional Duty @4% Rs. 6.20
Total value of Goods Rs.161.20
Duties paid amount to 61.20%

Example 2
Cost of Goods CIF basis Rs.100.00
Basic Custom Duty @35% Rs. 35.00
Total Assessable Value Rs.135.00
Excise Duty @24% Rs. 32.40
Total Value for Additional Duty Rs.167.40
Special Additional Duty@4% Rs. 6.70
Total value of Goods Rs.174.10
Duties paid amount to 74.10%

While a foreign firm usually calculates the cost of its venture based on actual figures, Indian import duties do not tell the true figures. India should delete all additional duties other than a basic custom duty or declare a flat rate of 61.2% and 74.1%. Otherwise foreign firms may make mistakes in comparing the Indian rate with import duties of other countries.

The reduction of import duties to 25 - 35% from 300% was a very drastic step historically and India should consider that a great decision has been made. Historical issues however, do not help much when compared to other countries. The figures of 25 - 35% should be compared with the figures of 5 – 10% of other countries not with the 300% figure of self-complacency. Import duties should be further reduced to the level of other countries.


13. Tax Harassment

Income tax and other taxes are very serious subjects for any foreign venture in a foreign country. The rate is one issue, and the way taxation is handled is the another issue.

The rate of taxation is a subject which is decided by the government so it cannot be touched upon. But the way taxation is handled should be more sagacious so that FDI companies voluntarily pay the taxes. When tax authorities harass people they tend to avoid taxes.

Certain foreign companies are complaining that the Income Tax Department is so persistent that they make them feel tax harassed. Once this kind of story goes out of India, foreign investors feel awkward in coming to India. Any honest foreign investor is ready to pay taxes no doubt, so it is in the interest of the Government to make the atmosphere such that firms will willingly and voluntarily pay taxes.
It may be advisable for the Income Tax Department to make a positive approach to foreign companies and guide them properly in this connection. Tax authorities can play a consultant role, in a sense, to FDI companies. Once the tax issue in India becomes very simple and transparent, through the proper guidance of tax authorities, then a serious headache for FDI can get cleared.


14. Businesslike Settlement of Insurance Claims

The Indian government recently allowed FDI participation up to 26% for insurance companies in the private sector. Two Japanese companies have thus participated in private sector insurance companies.

Business people here are expecting businesslike and quick settlement of claims. The story used to be very long to settle claims after accidents, for instance. Accidents will occur with a certain probability. Based on such a probability, insurance companies fix the rate of insurance. The customer also insures his cargo knowing the probability of avoiding total loss. So, similarly, settlement of claims should be businesslike and quick considering the high interest rates in India. According to some Japanese firms, it takes more than one year to settle a simple accident insurance claim.

When the lead-time for settling insurance claims is compared with that of Singapore, for example, nobody will give India any brownie points.


15. The Unfortunate Opening Ceremony of the Toyota Company

The so-called biggest auto-show in Asia was held at Pragati Maidan in Delhi this January. To our regret, Maruti Udyog, Honda, and other big firms of automakers were not represented except for Toyota Kirloskar.

The opening ceremony for Toyota Kilroskar was held on January 15 at Hall No.12 in Pragati Maidan. Toyota Kirloskar issued invitations not only to Japanese who lived in Delhi but to many Japanese in Japan as well and to foreigners in India and to many prominent Indians. The numbers involved were quite impressive --- perhaps a few hundred.

The ceremony started around 12:00 noon. VIP speeches were delivered one by one. The Karnataka State Minister, the Manager of Toyota Kirloskar and the Senior Director of Toyota Japan, were among some of the VIPs. After the ceremonial VIP speeches, the master of ceremony declared the Toyota show open introducing the Cameria and the Prado, brought from outside India. The audience was ready to enjoy the show, and then suddenly the power went off. After about 10 minutes, the power came back for a few minutes but since there was subsequently total black out the show had to be cancelled. The audience went back in cold rain, which was unusual for that time of the year, in Delhi.

Indians who attended that occasion did not find anything unusual at all, but the Japanese considered it a very extraordinary experience that this happened in the mysterious legendary country, India. This kind of happening should be avoided at all cost in future as the image of India will be damaged to a much greater extent than any Indian can imagine. The story will also spread widely.

It should be borne in mind that the audience went there to see the show rather than hear boring VIP speeches.


16. Too Short Notice

In Japan, the schedule for any VIP is fixed about three months in advance. Yet, the Indian side requested the Japanese side to join certain events at very short notice --- one month or so. It is not so easy to squeeze in time like this, and the Japanese considered it as very shortsighted on Indiafs part to do so.


17. Changes at the last Moment

Indians always think that it is best to wait till the last moment for changes. As the result, counter changes might be proposed by them at the last stage of negotiations.

Such as percentage changes of share holding in the last stages do adversely affect the Japanese side, since proposals are presented to a board for clearance before proceeding to the next stage of negotiations. When changes are reported again and again to the board for sanction the board will feel the Indian side is not firm at all.

Changes of factory sites in the final stages of negotiations do cause huge waves against a project. When the Japanese side approves a factory site, they take into consideration the convenience of everyday life for their staff and workers including schooling and shopping for wives.

Changes of schedule in the final stages hamper many things in Japan. It is not easy to change conference venues for instance. Travel booking is also not easy. So the Indian side should try and stick to original schedules as far as possible.


18. The Regulatory Raj

The word eRajf means ereignf in Hindi. It epitomises the well-known British era in India. It is said that there are very few rules in China, and that it is the personnel in charge which decides everything and which has the right of control over any issue --- we may call this the ePersonnel-Rajf. In India, on the other hand, there are so many rules --- that we may call this the eRegulatory –Rajf.

There are more than twenty acts which relate to establish a new company in India or to start a factory. Some of the acts involved are :

The Companies Act, 1956
The Foreign Exchange Act
The Apprentices Act, 1961
The Boilers Act, 1923
The Child Labour Act, 1986
The Contract Labour Act, 1970
The Dangerous Machines (Regulation) Act, 1983
The Employees State Insurance Act, 19948
The Employees Provident Fund And Miscellaneous Provisions Act, 1952
The Employersf Liability Act, 1938
The Equal Remuneration Act, 1976
The Factories Act, 1948
The Indian Fatal Accidents Act, 1948
The Industrial Employment (Standing Orders) Act, 1946
The Industrial Dispute Act, 1947
The Industries (Development And Regulation) Act, 1951
The Maternity Benefit Act, 1961
The Minimum Wages Act, 1948
The Payment of Bonus Act, 1965
The Payment of Gratuity Act, 1972
The Payment of Remuneration Act, 1972hb
The Payment of Wages Act, 1936
The Public Liability Insurance Act, 1991
The Sick Industrial Companies (Special Provision) Act, 1985
The Trade Union Act, 1926
The Weekly Holidays Act, 1942
The Workmen Compensation Act, 1923
The Income Tax Act, 1961
The Central Excise Act, 1944
The Customs Act, 1962
The Customs Tariff Act, 1975
The Stamp Duty Act,
The Central Sales Tax Act, 1966
The Air (Prevention and Control of Pollution) Act, 1981
The Environment (Protection) Act, 1986
The Indian Forest Act, 1927
The National Environment Tribunal Act, 1995
The National Environment Appellate Authority Act, 1997
The Water (Prevention And Control of Pollution) Act, 1974
The Trade Marks Bill, 1999
The Copyright (Amendment) Bill, 1999
The Designs Bill, 1999
The Protection of Plant Varieties and Farmers' Right Bill, 1999
The Geographical Indication of Goods (Registration and Protection) Bill, 1999
The Patent (Second Amendment) Bill, 1999

The above list is part of the total regulatory raj not to mention each state regulation based on the above acts, and a plethora of rules and regulations including minor rules derived from above acts. Any foreign firm getting itself embroiled in any of the above is likely to get sick of India itself.

Good lawyers and good consultants are required to help overcome and sort out the complicated issue deriving from these Acts.


19. Payment of Tips at Every Stage – The Complaint of a Granite Shipper

It is said that a small tip to a servant in medieval Europe, would smoothen things out even beyond boundaries and regimes.

To my regret, such a system is now at work in Indian governmental procedures. Without such tips no paper moves smoothly even in export business. A shipper of south India complained to me that he was paying tips at every stage of his consignment from Bangalore to Chennai. Such tips push up the cost of export items.

Newcomers to India may be surprised to know that such things are common. Someone said jokingly that any signature required on any paper needs a tip. This is no doubt the germination of very big corruption.


20. Speedy Clearance by the Foreign Investment Promotion Board (FIPB)

Clearance by the FIPB is very good these days. Not only the speed of its clearance but transparency as well. Almost all the information on clearances can be obtained from FIPBfs Website. (Website address is http://indmin.nic.in)

Through the Website one can come to know who makes applications on a daily and weekly basis. Twice a month, the results of any clearance can also be known from the site.

21. Red Tape --- The Slow Procedure of Government Clearance

While FIPB's clearance is very quick and transparent, certain Government departments still remain very slow without any reason. Any foreign businessman who does business in India cannot explain to his headquarters why things are so. This kind of bureaucratic delay certainly tarnishes the Indian governmentfs reputation.
( FICCI date as Attached 2)

22.Insufficient Condition of Infrastructure

Insufficient condition of infrastructure may be some chance for new business in some case. To invest money to such area as power, ports, roads, etc. are considered higher in risk than usual industries. So such area would be taken care by public sector.

Not only business people but also many high officials of Indian central government as well as state government are visiting China and they could have to observe what have been happening in China. China is said that in order to attract foreign money they put efforts for improvement for infrastructure.

Shortage of power supply is almost all over the country, ports congestion will be getting more in future, road condition is not improved much and those factors makes less competitiveness in global competition.

Many Japanese companies point out that availability of infrastructure is not good enough but quality is very important. Quality of power, roads, telecommunication, ports facilities are bad examples.

Captive generators are facilitated almost all factories in NOIDA, Grugaon not for back up but for usual power source which is rarely observed in other countries. Roads condition especially in monsoon is very bad in some area. This may be one of reasons why no foreign investment goes to West Bengal.

23. The Infrastructure for Daily Living

While infrastructure for industry is extremely important in setting up a new company or factory, the importance of infrastructure for daily living should not be underestimated. Whether or not a foreigner can stay comfortably in India plays a big part in the selection of India as an investment destination.

The comforts of daily life depend on a constant supply of electricity, water, fuel, on the availability of the right foodstuffs and good entertainment. In this respect, Indian conditions are not on par with other Asian countries.

It takes a minimum of three months for any foreigner to settle down in India. Finding a proper residence, furnishing it, making sure of adequate electricity and water supply, arranging telephone connections are all things which take up enormous time and effort. After settling down with the basics, come other things like entertainment, eating out etc.

For the average Japanese, India is not a comfortable place. Cable TV and cinema may be just about all right but music is not. No good concerts are available. Food is far from satisfactory. No Japanese foodstuffs are available in India and there are very few Japanese restaurants.

Hence, many Japanese go to Thailand or Singapore periodically to enjoy Japanese food and avail themselves of Japanese foodstuff. The Indian government does not permit the import of raw fish, which is a very serious drawback for the Japanese.

There are more than 400 Indian restaurants in Japan and around 10,000 Indian nationals in Japan, while there are 2,500 Japanese in India.


24. The problem of Alcohol Prohibition

There is a state in India, Gujarat, which has total alcohol prohibition.

After a day's work, the majority of Japanese like to take a light drink and consider this as one of the great pleasures of life, and as providing them the energy to face the next day. Therefore the management of Japanese firms do not like to set up factories in places like Gujarat. As a result, there are few Japanese collaborations in Gujarat State. Of course it may not be the most important reason but it does nevertheless play a part.

Some people in India could say foreigners easily get liquor permits and can enjoy alcohol privately in their rooms. Also, it is a fact that many Indians also enjoy alcohol in their homes. While according to regulations the argument is absolutely valid the whole point about drinking is the atmosphere and not the argument and so, whether a person can take a drink without any restriction becomes very very important. So the argument falls apart and could damage the pleasure of drinking.

Some Indians could say that it is only one state which has prohibition in India, but the important point is that the number of such states can increase any moment. Also it has been pointed out that the example of even one state can be quoted very often, which may give the impression that India is a difficult country on the question of alcohol.


25. Indocentrism

India is big country with a big population and a promising future. So it is quite understandable for Indian to wonder why more FDIs are not coming their way.

When I was on the staff of Mitsubishi Corp. in New Delhi, many Indian companies would approach me saying that they were exporting their product to the USA and/or Europe and asking me why not to Japan. I immediately regretted to such an approach. Japanese culture and American culture are completely different; therefore, what is good for the USA cannot be good for the Japanese market.

As regards Indians saying why not to Japan, I do not mind this at all. If any Indian company is looking for ways and means to export to, this may be worthwhile to take up.

India is a good market for the near future and it is a moot question why Japanese do not come. Japanese are now seriously looking to outsourcing production and are seriously considering various options. When China came to Japan seeking FDI from Japan, they opened a Chinese publicity office or center sponsored by the government in the main provinces and big cities of Japan, whereas India is just sitting put and asking is why Japan is not coming to India.

If any of the influences from ancient China and India are taken away from South East Asian countries, no cultural fragment of any importance would remain. Indian and Chinese influences have been very significant in South East Asia. But modern industry is different from culture. Indians are very quick to catch up on the knowledge of the most modern or latest technology through the media and make use of such knowledge for any negotiation for FDI as if they were aware of such technology for the last ten years. They pretend that the center of the world is India and its business companies. Theoretical knowledge can sometimes burn onefs fingers. It would be better to be honest and ask the counterpart all the possible data and information and make him feel important.


26. Comparisons with China

India opened up its economy in 1991. First very big changes were introduced in 1991 followed by many further changes --- all epoch-making phenomena for India. The confidence placed by Mahatma Gandhi and Nehru on self-reliance was replaced by interdependence --- a 180-degree changes, so to speak.

Considering the gigantic steps this meant from earlier times, India should proudly broadcast these changes to the outside world. But the more important practical issue here is how these changes can attract more foreign direct investment money to India rather than to other countries. Historical comparisons in India are only ones of self-complacency, what is required, is a horizontal comparison with other countries.

According to JBIC's research of last August, India had been ranked 5th for FDI destination by Japanese firms from 8th or 9th the previous year. This is good news no doubt, but when one thinks of how many Japanese firms would come to a 5th ranked destination, one gets sunk. The top of the list is China, followed by the US. India needs to be compared on par with China. Comparisons must be made with China not with historical India.


27. How to Treat the Japanese

An important point to be noted is that most Indian companies and their management have very poor knowledge of the Japanese way of doing business. While other countries have already adapted to the Japanese way of thinking, Indians are less prepared to deal with the Japanese and so are often completely at odds when things do not go their way.

Several rounds of meetings and negotiations often result in a minimal amount of business fructifying. Japanese companies often put more importance on the spirit of the understanding between the two rather than on the commercial terms and conditions. Indian management do not understand the key philosophy of enduring relationships practiced by Japanese companies. Indians look more at technical competency and the financial structuring of deals. The Japanese need to understand the other fully before any negotiations can take place, whilst Indians are keener on the nitty-gritty and the fine text of a deal. This gap is hard to bridge, as both parties need to meet half way. At best, negotiations are carried but no conclusive business is conducted.

Consensus-building is key to the Japanese way of work. Most Japanese companies have a bottom-up approach to decision-making. The lower and middle management are the keys to decision-making, and their opinions count in the ultimate end.

Indian companies are more top-down in their approach, where top managementfs say really matters.

There is again a dichotomy between the Indian and Japanese management style that has led to failed negotiations. The top-down approach usually results in quick decision-making whereas the bottom-up approach involves consensus-building and allround participation, all of which takes time to fructify. Indians do not understood the context in which slow Japanese decision-making takes place. This is generally construed as edragging onefs feetf. So, when Indian management meets Japanese management to solve pending negotiation issues this does not help. Such a top-to-top meeting needs to be done only for establishing a spiritual understanding or on ceremonial occasions like signing an agreement.

China on its part has had better success with Japanese business. For one, they may have better infrastructure, and better conditions as compared with India, but more importantly, they tend to have better developed skills in dealing with the Japanese. The Chinese pretend to refrain from hard bargaining initially and stress on their relying on the Japanese exclusively. And they engage with their counterparts with the full knowledge that a long-term business relation would surpass any short-term price advantage. Even when negotiations are inconclusive, they continue to engage with their investors rather than seek competitive quotes. And they put forth an attitude like that of a crying child which may bring out sympathy from the Japanese. It is said that the Japanese are weak when it comes to 'crying' and Chinese are good at 'crying'. This type of crying attitude sometimes, helps in building both reliance and confidence especially amongst Japanese investors, and in most cases can culminate in business deal.

In order for Indo-Japan trade to flourish, both parties need to understand each other better. The best way to do so is to appreciate and understand each otherfs culture and way of life. Indians for one need to back away from the negotiation mode initially, and try to understand the business objectives of Japanese companies they are dealing with. The Japanese on their part need to expedite their decision-making process, so that both parties can meet each other half way and fulfill their objectives.


28. Setting up Cultural Centers in Both Countries

India and Japan are not small countries. In the 21st century, these two countries will be two among the five gigantic countries in the economic field. The world admits this as a fact.

But a simple understanding between the two is not good enough. An in-depth appreciation is required on many issues --- culture, language, philosophy, etc.

It is a surprising matter that there are no such cultural centers, bhawans or institutes to introduce each otherfs culture in both countries. Japan should build such cultural centers or Japan Bhawans at least in the four main cities. And India also should at least consider setting up India Bhawans in Tokyo and Osaka.

The numbers of students who are learning Japanese and Indian languages is rather small. Their numbers have to be ten times that of present figures. This type of teaching can be one of the main functions of the above-mentioned Bhawans and Japanese cultural centers.

The number of scholars on Japanology and Indology are also too few. Bhawans and cultural centers should facilitate the stay of scholars.

Cultural performances in both countries are also very restricted --- there should be more opportunities given for the performance of dances, songs, dramas etc. The Bhawans would be ideal places for them.

Without such cultural exchanges how can economic relation grow ?


29. The New Indians

India can attain a very good place in the development of software. This is a field which requires a new type of business approach. People working in this field belong to a new Indian generation. They work according to world standards.

Some of these new Indians are now working in Japan and contribute to an image of Indians in Japan. These new Indians are very fond of working --- are workaholic, a term once used for the Japanese. They never speculate. They listen to what their counter parts have to say. They apply themselves to Japanese culture. They learn correct and accurate Japanese. They are very capable, efficient, social and young. A new generation from Indians is born.

Japanese business society have accepted such new Indians. Sony, Shinsei Bank, Fanuc, CITI Bank, etc. all have examples of such Indians working for them. This young new generation also establish relations with their counterparts among the Japanese young generation. These new relations will bring in a new era between our two countries. And I put all my hope on such new relations.

30. Dream joint venture

At the anniversary of the 50-year diplomatic relationship between India and Japan, I propose dream joint ventures that two countries can possibly realize. The ideas of these dream joint ventures have come back and forth in my mind during my 19-year stay in India. I have thought about the projects over and over, and I wish that even one of them would come true in the future.

1. Water from Himalaya into Decan Heights

It is said that India has larger land suitable for farming land, compared with China. However, Decan Heights, which is located in the center of India, is not blessed with water, though the land shape is flat. The Indus and Ganges Rivers, which stem from the Himalaya Mountains, collecting water of glacier, flow into Arabian Sea and the Bay of Bengal, respectively. Only few rivers run on Decan Heights, and thus water supply is not sufficient there.

From the era of British colonization until several years passed after its independence, India had suffered from hunger roughly about every five years. In the time of famine hundreds of thousands of people would die. In contrast, the present India produces sufficient food for 1 billion people and provides it for most of the people without causing serious allocation problem. Moreover, India produces dozens of millions of surplus grain. India achieved this only about one and a half decades after its independence. This was said to be due to Green Revolution, which is based on intensive fertilization, the improvement of irrigation facilities, and the introduction of improved hybrid variety of grain.

The late Shigeo Nagano and the late Masaki Nakajima thought that, if the water could be brought from Himalaya to Decan Heights, the land would become the granary of the world. I hope that this dream project will be considered seriously as one of the global project of the 21st Century.

Population and grain production of India

year population (million) grain production (million tons)
1950 369.9 50.82
1960 445.9 82.02
1970 555.0 108.42
1980 692.3 129.59
1990 855.6 176.36
2000 1012.9 195.92


2. Cooperation in Defense

The former U.S. President Clintonfs visit to India lasted for five days. Behind this unusually long stay in India is the fact that Indian IT engineers are now indispensable to the U.S. IT industry, as well as the construction and maintenance of U.S. defense system. The commitments by the U.S. government to India, year by year, become so deep that two countries exercise joint military training. Korean business people, noticing this change in the relationship between two countries, are making an aggressive entry into Indian market. In my opinion it would be mutually beneficial for both India and Japan to start various joint research projects, especially in the field of space development. I could say that India is a desirable place to launch a space rocket because the most southern point of India is close to the equator.

3. Prospecting the Bay of Bengal for Crude Oil

It is quite likely that Bay of Bengal, including the area off the coast of Aracan, has the reservoir of natural gas and oil underground. I think that India and Japan should cooperate in prospecting of the region and development of the reservoir.

4. Peaceful Development of the Strait of Malacca

One of the bottlenecks to the sea-lane of Japanese imports of crude oil from Arab is the Strait of Malacca. The Andaman and Nicobar Islands are geographically scattered as if a dagger was pointed at the throat of the Strait of Malacca. During the World War II Japanese army landed some of the islands. During the Cold War the U.S.S.R.(The Soviet Union) worked on India to construct naval base on the Andaman and Nicobar Islands.@If the islands became the naval base, the tension at the Strait of Malacca would be heightened, leading to higher tension of the whole Asia.

Peaceful development of the Andaman and Nicobar Islands, such as transportation development including free port, special economic zone, tourism development, agricultural development, fishery development and ocean research institute, would be highly appreciated in the international arena as a global project contributing to the ease of tension at Malacca Strait.

5. Construction of the World Largest Databank

In the field of information technology the level of Indian software development is now well accepted all over the world. The Indian software development capability can be combined with Japanese capability of hardware manufacturing to contribute to the world peace. The former Japanese Prime Minister Mori expressed his opinion of Indian software and Japanese hardware .

One of the possible ways to prevent terrorism is to give 15-digit number to each human-being on the earth and keep an eye on the behavior of everyone. This would be the worldfs largest databank.

6. Development of Clean Energy including Solar Energy as the Remote Area

I think that, with disastrous environmental problems, the development of solar energy, wind power and marine energy is a critical agenda for the future of the earth. The collaboration between India and Japan for the development of alternative energy on the land of India endowed with abundant nature will contribute to the sustainability of the earth. Since Japan maintains strength in technology, Japanese people should think highly of collaboration with India in the technological field.

7. Development of Biotechnology

Some technologies were intensively used in the past but is no longer used in Japan. One example of such technologies is silk manufacturing technology. In India there still remains a huge demand for silk as materials for womenfs clothes, and it is unlikely to decline in the near future. I think that it is meaningful to shift Japanese sericulture institute, which successfully developed technology of manufacturing the world-class silk thread, to India and transfer Japanese silk manufacturing technology.

I also think that it is worthwhile to establish, on the cooperation between India and Japan, a research institute for mushroom, which is expected to be food for the 21st century.

Furthermore, research institutes for ocean species, mentioned in section4, and for breed improvement of fruit also merit consideration.

8. Development of the Coast Line

According to Indian mythology the devil lives in the sea and the coast line has not been well developed. Since Japan is surrounded by sea, it has obtained sufficient technological knowledge in ocean development. I propose that the know-how should be transferred to India, in the fields such as the development of tourism, fishery, transportation, and the generation of windmill power generation.

9. Purification of Ganges River

The Holy Ganges River has been polluted and its purification is an urgent agenda. It is said that Japan has an excellent technology of purifying polluted water. If Japan succeeds in purification of Ganges River, the sympathy of Indian people with Japan will be further reinforced. (Good impression by Indian people towards Japan may become even better) Some Indian people have come to know that due to the efforts only for the last several years the water in the moat around the Japanese Imperial Palace has become so clean that people now can see through the bottom. This project is one of the most urgent projects between India and Japan.

10. Research on Common Recognition of Asia

It is difficult to obtain an answer to the question, gWhat is the common recognition among Asian people?h Although it is not a positive answer, gSecession from Asiah might be a common recognition shared among Asian people. All the countries in Asia in their histories have put up gsecession from Asia,h almost as national objectives. It seems irony and sad that common recognition among Asian countries is gsecession from Asia.h However, is it really the sole recognition that is common to Asian people and countries, or are there any others?

I propose a research project whereby we will explore psychological deep layers of Asian people and find Asian common recognition. Throughout this research I hope that we can recover our confidence in Asia and can send a message from Asia. I might be able to call it gAsian Deep Philosophy Research Institute.h

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