By: Subrata Majumder
While USA-based investors are euphoric about India, Japanese are morose. Both are major foreign investors in India. During pandemic, FDI from USA boomed. It increased by over 230 percent in the first half of 2020-21-from US $ 2,151 million in April-September 2019-20 to US$ 7,123 million in April-September 2020-21. In contrast, Japanese investment dipped less than half during the first six months of 2021-22. Japanese investment dropped to US $ 653 million in April-September 2020-21, from US $ 1784 million in April-September 2019-20. USA emerged the second biggest foreign investor in 2020-21 and Japan trailed to fifth biggest.
Where does the fallacy lie? Notwithstanding global FDI plunged to half in the first half of 2020and where fall was more steep in developed nations than in developing countries, USA’s splurging of investment in India wondered many analysts. The main factors inciting the US investors were India’s strategic dynamism in the economy –boosting self reliance and building a new India with digital economy by 2030. To this end, Trump’s tightening of H1B visa became blessing in disguise to push US investment in India.
USA investors rushed to pour investment in Indian IT sector during the pandemic to offset the losses due to curb on H1B Visa. Eventually, computer software and hardware witnessed a boom in FDI during the first six months of 2020-21. It increased by over 236 percent over the corresponding period last year.
US investors stepped in the Indian shoes for building a new model of economy to push Make in India. Against this, Japanese investors lagged to pursue India’s new vision. They continued to plank on automobile and electronic. Automobile and electronic industries are import intensive industries. These industries received backlash with protectionist movement in the post Covid period. The Budget 2021-22 ponders to eliminate custom incentives in 400 items to reduce import dependency.
The pandemic dented the automobile industry in India. In April 2020, not a single car was sold in the country, making a history. This resulted in a major dip in Japanese investment in India during pandemic. Japanese investors faced double whammy. The sharp decline in auto sales and financial crunch in small and medium scale industries, which embrace auto component industries, imparted a debilitating impact on Indian automobile industry.
Japanese investors have always compared India with South East Asian nations in respect of development and cost competitiveness. They targeted these nations as a part of their production network to reap the benefits of low cost production, after the Yen shock in late eighties. They focused on supply side, leaving the demand a global issue. COVID 19 led to a retreat in the globalization and contraction in global demand. Eventually, they marred the growth of export base economies. India is laden with big domestic demand. To this end, India edges small ASEAN nations and China, which are export based economies.
Small ASEAN nations and China harp on exports. USA is the major destination for exports of these countries. After Trump’s America First policy, these nations are grappling to find new markets by forming trade blocks, such as RCEP. So are the Japanese, who are floating on the same boat to give a new lease of life to its export based economy.
Japanese failed to assess new India’s macroeconomic strength. India emerged a new economy with dynamic transformation into digital economy and world class platform for pharmaceutical industry. It is not only a major global exporter of pharmaceutical products, but also hog the limelight for R&D. It has emerging third biggest producer of corona vaccine in the world.
US investment is significant to resurrect the coronavirus inflicted Indian economy. Besides investing largely, US investment pushes India’s exports during pandemic. USA is the biggest destination for IT exports as well as merchandise exports. It accounts for over 60 percent of India’s IT exports. During pandemic, IT exports are expected to post a growth. This helps in sustaining India’s net service receipts stable during the pandemic. It is expected to push a current account surplus at UD $ 34.7 billion in 2020-21 (3.1 per cent of GDP).
Another area where Japanese were outperformed by American investors is the localization of management in host countries. Japanese are ethnocentric in their management style. They believe that their management practices are the best and must be followed in overseas despite cultural differences. They keep their own managers-expatriate in higher management positions in host countries. This led to a lag in Japanese farsightedness of host countries’ new policy directives. This could have been waved off, had the recognition been given to the role of national staff in the management. They are engulfed in trepidation whenever there are major reforms, instead of decoding the bright sides of the reforms.
In contrary, American managements are largely localized in overseas. In most American companies, Indians are either in board room or at higher managerial posts or both. This helps Americans to adopt right strategies at right moment, commensurate with host countries’ new policy perspectives. Amazon’s recent decision to manufacture fire stick in India toes with India’s current self reliance policy. Japanese are still grappling to unearth the objectives of India’s new model of self reliance. (IPA Service)