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The Rediff Business Special:

'India ought to be world's moral leader, no power can threaten it'

By Hiroshi Hirabayashi

India is a country with high potential, and I came to India as Japan's ambassador with high hopes of advancing our cooperative relationship. Regrettably, however, my dreams were shattered, even though temporarily, by the nuclear tests conducted by India in May this year.

Through conducting the test, India has taken the nuclear genie out of the bottle it was corked in. We do not know who and how many countries will follow Pakistan in conducting the tests.

What has happened to India's moral leadership of the last 50 years? Where is the India of Mahatma Gandhi and Nehru? Such thoughts disturb me.

I do understand to some extent India's concern about security environment around it. However, it does not justify India to go nuclear.

The Pokhran tests were denounced all over the world. Many countries have imposed economic sanctions against India. The measures this time contrast with the measures taken against China because this time Japan is not the only country to take measures against India. It shows how the present nuclear tests, which may ignite the chain reaction of nuclear proliferation, are considered more detrimental to world order.

Measures have been taken by the United States, Germany, Australia, Canada, Denmark, Norway, Holland and Switzerland.

Japan imposed sanctions on the moral ground that ours is the only country to have suffered atomic bombs. Another reason is the resolve of the Japanese people against proliferation of nuclear weapons and the principles of Japan's Official Development Assistance Charter.

The measures were thus imposed not with any intention to penalise India; rather they are expression of dismay and disappointment of the Japanese people over nuclear tests.

The Japanese measures include freezing of grant aid for new projects and withdrawal of the offer to host the India Development Fund meeting in Tokyo where it was scheduled to be held. These actions matched with the measures that were taken at the time of Chinese nuclear tests. Emergency and humanitarian aid, as well as grass-root assistance, have, however, been exempted.

The yen loan for new projects was also frozen. It was decided to cautiously examine the loans extended by international financial institutions.

Even so, these measures do not affect the ongoing projects for which commitments have already been made through such international agreements as exchange of notes.

These measures do not represent anything more or anything less than that.

Trade and investment is out of the scope of Japanese government's measures. The Exim Bank loans and trade insurance are also out of scope. The Japanese businessmen, free to take independent decisions, are working normally, and I, too, am promoting this.

But what about the future prospects of Indo-Japanese relations? Following the nuclear tests, the Indian government displayed a rather rigid stance. We can see some flexibility in it now. The Indo-US dialogue is going on. Also, way is being cleared for the International Monetary Fund loans to Pakistan. Further, we are looking forward to India-Japan dialogue.

I welcome such moves by India in the right direction, which should lead to positive Indo-Japan dialogue. While Japan will do its best towards nuclear disarmament, I hope India would listen to the voice of international community and move ahead in the direction of signing and joining the comprehensive test ban treaty and nuclear non-proliferation treaty.

As a big democratic nation, India ought to play the role of a moral leader for the world. There is no power which can threaten India. The whole international community is its all ally.

I would wish to see India act in a true India-like manner.

India and Japan have enjoyed a long history of friendly relationship, and over the years, bilateral economic relations have expanded significantly. India's attributes -- a very large market, a country endowed with immense human resource and rich natural resources, and with a functioning judiciary -- make it greatly attractive for Japanese businesses.

Current level of Indo-Japanese bilateral trade is approximately Rs 148.1 billion. Japan's major export items to India are general machinery, steel, transport equipment. As for Japanese investment in India, though at one time there was a feeling that Japan was being left behind, but of late investment has gone up significantly.

Cumulative Japanese investment uptil now was Rs 62.3 billion. As recently as in 1997, the actual investment was to the tune of Rs 19 billion.

According to a survey by Exim Bank of Japan, India was considered by prospective investors as second most attractive investment destination in long-term perspective (ten years) and fifth most attractive destination in medium-term perspective (three years).

Delhi has 50 Japanese companies in operation, followed by Bombay with 44, Madras with 41, Calcutta with 13. They include several world class companies.

As regards economic assistance, Japan annually provides more than $1 billion worth ODA to India, and India happens to be the third largest recipient of Japanese assistance, after China and Indonesia.

Following the nuclear tests by India, Japan was compelled to bring into force the economic measures that I referred to earlier. Notwithstanding these measures, we should work together to promote trade and investment.

You may recall that the forex reserve crisis of 1991 preceded the economic reforms. Japan played a key role then in extending emergency bridge loan to India to stave off the crisis, thus paving the way for economic reform process. Thanks to the economic reforms, we can see today an improved investment climate in India. Enthused by the future prospects, foreign businessmen have begun coming to India in large numbers to explore business opportunities.

I notice some positive signs emerging from this year's Budget. Like processing of investment proposals within 90 days, promotion of power and oil exploration, solution to the Maruti-Suzuki tangle.

But there are some impediments to Japanese investment. The Japanese entrepreneurs involved in India have been pointing out towards these impediments. They are: the inadequate infrastructure, the inadequacy of power, water and sewerage, poor transportation and telecommunication facilities.

I would therefore like to see the Indian government making more vigorous public investment for upgrading the infrastructure facilities.

Let me elaborate on some problems by citing some examples. I learn that a company, while constructing its factory, that too in an industrial estate, had to install its own power transmission line running into several kilometres.

Customs / goods clearance procedures at Indian ports take several weeks to complete. ( I know this from personal experience. Bombay customs took more than three months to clear my luggage, in spite of my diplomatic status). This should change. In Singapore, goods arriving at the port are cleared and they reach the shop floor within 24 hours.

A certain company imported some machinery to be used in the factory in India. Thanks to the bad condition of the roads, the machine got damaged while in transit. As a result, even after its arrival, several weeks were lost in repairing the machine until it could be made operational.

There are cases were due to poor telecommunication services, factories have to use mobile phones or set up wireless facility. Many companies whose factories are located away from city areas and poorly served by the telecom department, have been compelled to open additional offices in the cities, primarily to take care of their communication problems.

A Japanese company seeking investment approval to set up a new venture or seeking expansion of existing facilities, has to complete procedures of the Foreign Investment Promotion Board, and often the procedures are duplicated in seeking state-level approvals. Although the Budget this year has sought to address this problem, still we would like to see that one stop and transparent processing system is set up to cut down the present lengthy and complicated procedures.

The states seeking investment are talking of single window clearance of all necessary permissions, but in fact even in the matter of state-level approvals, enough cases can be cited contradicting such claims.

The growing protectionism as represented by the additional customs duty introduced in this year's Budget together with the swadeshi rhetoric give out the impression that the economic liberalisation that started in 1991 has slowed down. This should not merely be seen as a disincentive to incoming foreign direct investment, but as something beyond that, as a weakening of international competitive strength of Indian manufacturers.

In concrete terms, the four per cent additional customs duty introduced in this year's Budget has brought into effect an increase in customs duties -- which reverses the trend of the plan for reduction of tariff followed so far.

Unless corrective steps are taken, the negative shadow of nuclear tests, coupled with the weak business sentiments caused by worsening economic situation of East Asia, might lead the foreign investors, including those from Japan, to prefer adopting a wait-and-watch attitude. In fact, there is already a trend visible among the foreign portfolio investors who seem to be pulling out from India.

It is not my intention to criticise India. I fully appreciate the efforts jointly being made by the government and the private sector towards economic liberalisation. However, the three impediments that I mentioned, are ones that even private entrepreneurs must also be facing in no less measure. I should therefore hope that both the Indian as well as foreign entrepreneurs should join hands in urging the Indian government to address these problems with a greater sense of urgency and importance and facilitate accelerated development in the country.

It is my conviction that business requires an environment of peace and mutual understanding. On my part, I will do my best and work as a friend of India. I shall lobby not merely with foreign governments but with Indian government to promote both.

The writer is Ambassador of Japan to India. The write-up is an edited extract from his lecture on 'Indo-Japan Economic Relations', delivered at the PHD Chamber of Commerce and Industry in New Delhi recently .

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