His visit to Japan is predictably seen to allure Japanese investment in India. Mr Modi, whose first priority is development, seems to have mesmerized the investment hungry Japanese, who are looking for alternative destination after the investment risk reached high in China. The Japanese Prime Minister Shinzo Abe has reiterated that a strong India is in Japan’s interest and vice- versa.

No doubt, his massive win gleamed the faces of Japanese with big hopes. But, Mr Modi would have failed to entice Japanese investors without reforms, which are to be inducted in budget? Budget in India is an important economic policy. As it is the first budget for Modi government, it will unleash the road map for policy reforms. In none of the speeches after becoming Prime Minister, Mr Modi tweeted about policy reforms. Neither in the Presidential address to the joint session of Parliament, policy reforms was referred. So far Mr Modi’s government was beset with administrative reforms, based on his philosophy of minimum government, maximum governance.

After a massive growth in Japanese investment in China since 2006, Japanese investment in China plunged in 2013. It nosedived by 32.5 per cent in 2013 and pushed China to fourth position as potential investment destination from second in 2012. So far issues between India and Japan, which hogged the limelight, were Japanese investment and ODA loan and Japan suggesting India to tide over the infrastructure problems and bureaucratic hassles.

A twist in India-Japan relation linked with the increase in Chinese assertiveness in East Asia. The bilateral relation between India and Japan is on debate as to whether the recent surge in India –China relation will haunt India- Japan relation or it will act as a third force to bring India and Japan closer than before. The departure from the earlier stance was noted with Japan introducing new defence guidelines on December 17, 2013, under new Prime Minister Shinzo Abe. The two strategic documents (National Security Strategy and National Defence Guidelines 2014) identified a number of areas in which Japan would like to strengthen cooperation with India. The main aim is to counter China’s new air-defence information zone (ADIZ) in East China Sea covering disputed islands of Senkakus and Diaoyus. In this perspective, Mr Modi’s attending BRICS summit and gauge the Chinese nerve before visiting Japan attach considerable diplomatic significance. China is the biggest trading partner of India.

Amidst the unpredictable rise of triangular relation between India- Japan – China, Mr Modi’s foray will be to rewrite India-Japan relation and take the advantages of anguished Japanese investors in China. Japanese FDI played significant role in the process of industrialization in India. Japanese firms build up production zone as an extension of their domestic base and helped the less developing countries in industrialization. Thailand was one such country, which was the biggest beneficiary of Japanese FDI in the process of industrialization. Similarly, India too benefitted in developing its automobile industries in totality - with Japanese investment – from parts to assembly.

In 2012, Japan was the second biggest foreign investor in the world, after USA. India gained prominence in this upward trend in Japan’s global outward FDI. Its rank as foreign investor in India improved from seventh in 2008-09 to third in 2012-13. But, in 2013-14, it slipped to fifth. Japanese investment in India declined by 23 per cent to US$ 1,718 million in 2013-14. India’s share in Japan’s global outward investment was paltry. In 2013, it was 1.6 percent of Japan’s global outward investment. Therefore, enough rooms are left for India to attract Japanese investment.

There are certain inherent problems which need to be addressed to attract Japanese investment. One such barrier is land acquisition. Unless the land acquisition problems are eased out, Japanese investors will dither to invest in India. The new Land Acquisition Act 2013 became more problematic for the foreign investors despite the fact that India has vast domestic market and its economic downturn is bouncing back. After the new Land Acquisition Act, it is mandatory for the investors to pay to the farmers two times more than normal value for the land in and around urban areas and four times more in rural areas. Besides, rehabilitation and resettlement of the farmers are additional obligations for the investors.

The second major issue, which desists the investors to invest in India, is the rusted labour laws, according to Professor of Columbia University Arvind Panagarya. The industrial Disputes Act of 1947 stipulates that any company employing more than 100 workers cannot lay off workers without government permission. But, government rarely gives permission. In this perspective, a move by Modi government to relax the regulation in National Investment and Manufacturing Zone (NIMZ) will act as stimulant.

Japanese have propensity in offering high class manufacturing facilities. NDA manifesto was assertive to write India’s growth story by building up the country as a manufacturing hub. Japanese will be the best partner to accomplish NDA dream. But without elucidating reform strategy, how can Mr Modi deliver and build up confidence among the Japanese investors. The budget will be the first policy reform for Mr Modi to splurge the incentives to the Japanese investors. It is a right decision to visit Japan after budget. (IPA Service)