What worries Japanese investors about India

However, survey by Japanese firm shows India as most preferred Asian market for Japanese investors.

Despite the possible settlement of arbitration dispute between Tata Sons and NTT DoCoMo, Japanese investors remain concerned about sudden changes in rules for capital, land or labour, once projects get underway in India.

Speaking on the sidelines of a seminar to promote infrastructure investment in India, Takema Sakamoto, chief representative of Japan International Cooperative Agency (Jica), said the dispute in the telecom sector has got plenty of other Japanese companies worried.

“India has huge potential but to make those fruitful, there is a need for more stable and transparent operation of regulations,” he said.

The drawn out arbitration between the two companies is about a dispute over Tata Sons’ inability to buy back NTT DoCoMo’s 26 per cent share in their joint venture, Tata Teleservices. It had been agreed upon by both when they signed up for the joint venture, but subsequently, the Reserve Bank of India (RBI) held the buyback invalid, since it would be at a pre-determined share price.

The change was rung in by RBI in its foreign exchange regulations quite after the telecom companies had inked their agreement.

Japan is one of the largest investors in India. Under the India-Japan Investment Promotion Partnership, signed in September 2014, when Prime Minister Narendra Modi-led government came to power, Tokyo offered to invest 3.5 trillion yen ($ 33.5 billion) as investment and financing over the next five years.

The sector which hopes to draw in the largest chunk of that investment is the Indian Railways. On Thursday, Railway Minister Suresh Prabhu rolled out investment plans of over Rs 8.5 lakh crore he expects to draw in by 2020. A large part of that could come from Jica as technical cooperation and bilateral aid, as overseas development assistance or ODA. India is Jica’s largest partner.

In FY15, Japanese ODA to India was about Rs 22,000 crore. The investment, in turn, draws in supportive private sector investment from Japan which Jica, too, encourages. But Sakamoto underlined that concerns about sudden changes in rules could be a dampener for those investors.

A survey, carried out by the Japan Bank for International Cooperation recently, shows India occupies the number one position as the preferred Asian foreign market for Japanese investors. It has pipped both China and Thailand to occupy this position by 2016, even though there are far more Japanese companies in those countries.

But Sakamoto and Chief Economist of Jica, Koki Hirota, said for India to keep this momentum going, it must reduce uncertainty in regulations. “For Japanese private sector investors, the chief concerns are rule changes and shortage of critical infrastructure,” the chief India representative added.

NTT DoCoMo had made the investment according to the rules, he said. “I am worried the abrupt change in those by RBI, could make Japanese private sector could look at DoCoMo case sympathetically.”

Sakamoto said he appreciated the reasons why the India government had to issue the demonetisation order, but offered it as an example of sudden change in rules that the government here keeps throwing up. Hirota added the attraction of the Indian markets for Japanese investors is likely to persist.

Image: The Mumbai-Ahmedabad bullet train for which Japan will provide 80 per cent of the project funds at 0.1 per cent interest for a period of 50 years.