India / SEZs, industry corridor: Delhi, Tokyo in new economic deal

Kandula Subramaniam
Indian Express, December 14

Tokyo, December 13 - Set to upgrade ties to a full-fledged strategic partnership, India and Japan will underline this by firming up a “special economic partnership” for a Delhi-Mumbai industrial corridor during Prime Minister Manmohan Singh’s visit to Japan which began today.

Ahead of Singh’s formal talks with counterpart Shinzo Abe, Union Commerce Minister Kamal Nath today signed an MoU with Akira Amari, Japan’s Minister of Economy, Trade and Industry, to upgrade the Japan-India Policy Dialogue from an official to ministerial level and even reached an agreement to develop “an industrial corridor along the Delhi-Mumbai multi-modal freight corridor”.

This will see setting up of SEZs, industrial parks, upgrading transport infrastructure including ports, roads, power facilities along the sensitive western coast. In that regard, this initiative would essentially be scaling up the existing rail freight corridor project between Delhi and Mumbai which, by current estimates, needs an investment of around $5 billion alone.

This is the first time that India will enter into a bilateral partnership of this sort with any country. Principal Secretary to Prime Minister T K A Nair told The Indian Express that this is a “unique” proposal which has never been attempted with any other country.

The idea is to secure Japanese investment and assistance in key infrastructure projects. It will open up special investment opportunities for Japanese companies as well. In fact, Nair, while briefing reporters on board the PM’s aircraft, admitted that infrastructure is an area of “concern” that’s preventing Japanese investments from coming in a big way.

In fact, this line of thinking is expected to address some of the key concerns of Tokyo that despite Japanese credit coming into India, these do not necessarily convert into business opportunities for Japanese firms.

The India-Japan joint study group in June 2006 pointed out that “Japan’s Official Development Assistance (ODA) has played an important role in India’s infrastructure development” but in the same breath also added “unlike in East Asian countries, there are few investments by Japanese companies to date in infrastructure development.” Speaking to the media on the economic cooperation between the two countries, Nair said that “facilitating Japanese investments” and involving the Japanese in the freight corridor will be on the agenda of the PM’s meetings in Japan. While Nair said that Japanese funds would be sought for the second phase of the Delhi Metro project, sources said that this could be extended to metro projects in other cities as well.

While Japanese credit, like in the Delhi Metro Project, is expected to be used for the rail freight corridor, the idea behind converting the Delhi-Mumbai leg into an industrial corridor implies that new investment opportunities would be created along this link in terms of feeder routes from, say ports along the western coast, and even in new special economic zones that can use the corridor in the movement of goods. In fact, Japanese investments in such ports would be critical for Japanese companies. Nair told The Indian Express that the proposal for this unique industrial corridor was put forward by the Japanese themselves. The two sides would now go about giving this a final shape after this proposal is formally concretized.

This direct boost to Japanese investment flows into the country’s infrastructure — which needs around $150 billion of FDI — is part of a larger strategy to convert the Indo-Japanese partnership which, during former Japanese PM Junichiro Koizumi’s visit last year, was termed as a “Strategic Orientation of India-Japan Global Partnership” into a “Global and Strategic Partnership” between the two countries.

Manmohan Singh and Abe are expected to announce that the countries would start work on a Comprehensive Economic Partnership Agreement (CEPA) that could tap comparative advantages of the two countries and are complementary to each other. For instance, India would provide Japan with labour, services and investment opportunities such as in infrastructure while Japan would offer India their investible surpluses along with Japanese technology.

During the PM’s speech to the Diet tomorrow, an announcement on “Investing in the future initiative” is expected where Japan would fund student exchange programmes between the two countries and new opportunities would be created at the university level for study of the Japanese language.

This initiative is crucial keeping in mind that India wants to partner Japan in cutting-edge technology — be it biotechnology or for that matter nano technology where Japan is already an established leader. Such initiatives would help bridge the language gap and would foster a long term relationship between the two countries.

In fact, as part of the CEPA which would have to be completed by the end of 2008, the intention is to have more than a ten-fold increase in the current bilateral trade between the two countries that is pegged around $6 billion.