Given how Japanese Emperor Akihito and Empress Michiko’s six-day visit, 53 years after their first one—this is the first Emperor visit to India, the 1960 visit was by the Crown Prince and Crown Princess—is a symbol of just where Japan places its ties with India, it comes as a surprise that Japanese investment in India is not as high as it could be, more so given the high profile of some of its marquee investments like Suzuki. In the 13 years to March 2013, Japanese firms have invested under $15 billion, putting them in fourth place behind Mauritius, Singapore and the UK. While it is true money routed through both Mauritius and Singapore could also have a Japanese component—being routed through for tax purposes—investments from the UK have been almost double those from Japan in the last three years.
One reason is that, after the first flush of automobile investments, Japanese firms haven’t really been investing in the areas that saw the rush of FDI into India—the obvious exception to this is the Daiichi Sankyo investment in Ranbaxy which alone accounts for a third of all Japanese investments in India. Around a fifth of FDI into India since 2000 has been in the services sector and this is a sector that has a small Japanese presence. The other large area of investments is telecom, which accounted for 7% of all FDI in the last 13 years, and though DoCoMo picked up a 26% stake in Tata Teleservices for $2.7 billion, the total FDI in the sector has been $12.8 billion so far—Vodafone has already firmed up plans to invest another $1.6 billion to buy out its Indian shareholders and we’re not talking of the money it will spend in the January auctions. Japanese firms, similarly, are not big in the oil and gas sector which has seen large investments over the past few years, nor in the consumer goods space where, for instance, Unilever just invested $3 billion in buying back shares of its subsidiary. Which is why, while Japanese firms still continue to shy away from investing in India unlike the manner they have invested in China, the government has made a commitment that will catapult relations to an altogether different level. Although it is not equity, Japan’s concessional loans of $6.7 billion for the Dedicated Freight Corridor (DFC) and $4.5 billion for the Delhi Mumbai Industrial Corridor (DMICDC)