Mr Modi’s summit focused on three issues. They were uptick in defence ties - an aberration from economic ties which India persisted under UPA, chided expansionism (vistarvad) interpreted as an oblique reference to Chinese incursion in Japanese controlled Senkaku Island and a special preference to Japanese investors, committing to set up special management team under Prime Minister.

Mr Modi’s assertion on dwarfing expansionism touched hearts of many Japanese. But, it left China bewildered, particularly when the Chinese President Xi Jinping is scheduled to visit New Delhi this month. A Chinese think tank, Centre for Globalization Studies, was sarcastic in saying that the development in China- India strategic ties would jitter Japan and would be the key issue of Mr Shinzo Abe to divide China and India

Mr Modi’s shift to woo Japanese investment from automobile to defence and development of smart cities will make a new vista for Japanese cooperation in India. India has raised FDI cap in defence from 26 percent to 49 percent under Mr. Modi’s Prime Ministership. Mr Modi yearned for Japanese technical cooperation in building US-2 aircraft in India, besides importing US-2 amphilan aircraft from Japan. His success in winning Japanese cooperation in the development of Varanasi a smart city – a non-economic area for commercial investment- will make a landmark move in India- Japan relation. Back in home, it will win the hearts of millions of Indians.

Japanese Prime Minster Shinzo Abe’s ambitious target for doubling Japanese investment within 5 years and his commitment for US $ 35 billion for different infrastructure projects for 5 years glossed Mr Modi’s dream for “Make in India’. While welcoming Japanese investors, he ensured red carpet minus red tape with his Minimum Government Maximum Governance approach.

Japanese wooing of India began with China’s assertiveness to dominate Asia. Visits of Japan’s Imperial couple Emperor Akihito and Empress Michiko (November 30-December 5, 2013) after five decades symbolizes Japanese bent towards India. The visits stir up a surprise that the Imperial couple don’t travel often overseas on state visits, given the fragile health due to old age. The visits unleashed a paradigm shift to a bipolar relations, embracing economy and politics.

Looking for alternative destinations for investment after China turned a risky investment destination – China+1 strategy - is another factor to propel up Japanese interests in India. After a spurt in Japanese investment in China, Japanese investment in China plunged in 2013. It is said that much of Japanese Prime Minister Shinzo Abe’s economic reforms in Japan would not bear fruits without a significant contribution by emerging markets, such as India.

In 2013-14, Japan was the fifth biggest investor in India. In fact, there was some slippage in Japanese investment in India. In 2013-14 Japanese investment in India declined by 23 percent to US$ 1,718 million. In 2012-13, Japan was the third biggest foreign investor in India. 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 there to attract Japanese investment in India.

Along with Mr Modi’s 3D lure (democracy, demography and demand), the new global China+1 strategy, hailed by Japanese investors, should help India to woo Japanese investment. With the depletion of low cost regime in China and sagging export opportunities in the west, China is turning an investment risk country for the Japanese investors. Instead of closing down their operations in China, the Japanese investors are contemplating to invest in other South East Asian countries for their expansion. It ensures them that this investment will insulate their investment in China. Close on the heels, Thailand +1 strategy is also contemplated by the Japanese investors after Thailand was embroiled into political turmoil since past two years. Japanese are the biggest investors in Thailand.

Till 2012, China was the second biggest destination for Japanese investors. In 2013, Japanese investment plunged in China. It nosedived by 33 percent in China in 2013. In contrast, Japanese investment surged in Vietnam and Myanmar. In Vietnam, Japanese investment surged by over 75 percent in between 2011-2013.

Given China and Thailand are into investment risks, India should usher Japanese investment and ensure for a hedge for their risks in China and Thailand. Global FDI in India improved in 2013-14, despite drop in Japanese investment. The growth unveiled the foreign investors’ confidence in the country. The factors, which bolstered FDI confidence, were the bouncing back of the economy, strong parameters of the economy, reflected in stock market, liberal and forward looking of the new government towards foreign investment and the assertiveness to make India the manufacturing hub of the world. In other words, India moves forward on Chinese growth pattern with the help of foreign 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. Even if special management team is set up under Prime Minister, it will fail to cut the ice unless the land acquisition becomes viable. Former Prime Minister Rajiv Gandhi also initiated Fast Track Channel to lure Japanese investors in late eighties. But the remedies recommended in the Committee remained on paper since they were stuck in the process of implementation.

The second major issue, which desists the Japanese investors, is the old labour laws. 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 have positive impact. (IPA Service)