Business leaders from India and Japan said an early conclusion of the proposed free trade agreement (FTA) between the countries, implementation of the Delhi-Mumbai Industrial Corridor and continuing bilateral dialogue as key measures to boost the economic relationship between the countries.
The India-Japan Business Leaders Forum said it was making the recommendations to both governments so it can lead to more investments.
Indian commerce minister Kamal Nath, speaking ahead of the forum’s meeting, said “We will try to ensure this (FTA) is completed by the end of this year.”
The FTA, which is officially called Comprehensive Economic Partnership Agreement (Cepa), is to cover trade in both goods and services. According to Masakazu Toyoda, vice-minister of Japan’s ministry of economy, trade and industry (Meti), the proposed Cepa would cover 90% of the trade volume, which is $6.5-7 billion (Rs26,650-28,700 crore) at present, between thecountries.
Government officials on both sides have begun talks on the corridor, said a senior Indian government official. It is the superstructure on the dedicated rail freight corridor that is to be constructed between Mumbai and New Delhi with Japanese support.
Though the final project report on the freight corridor will not be ready until October, both governments have decided act on a memorandum of understanding signed in December between the Union commerce ministry and Meti, which sought to create a framework for the industrial corridor.
The freight and industrial corridors are expected to attract investment from Japanese companies. However, the statement from the forum suggests that Japanese companies are unhappy with India’s tax regime.
“The Japanese side expects the import related tax system would be simplified,” said the statement.
“Encouraging the penetration of more Indian companies into the market for the business process outsourcing of Japanese companies will demand the elimination of the 10% tax rate on technical service fees, a matter that remains an issue for the revised India-Japan tax treaty.”
Japan’s concern about taxes in India are not new. A November paper, Financing Activities of Japanese Companies in Asia, issued by the Bank of Japan said 53.4% of respondents in a study of Japanese manufacturers said taxation was the primary issue in doing business in India.
In contrast, when it came to China, Japanese manufacturers said that fluctuations in the local currency rate against the yen were the primary issue.