Japanese firms form island of calm in Rajasthan amid India’s chaotic business terrain

The sprawling Japanese industrial estatelocated 3 hours from Delhioffers a streamlined licence and approval process that bypasses local officials, besides uninterrupted power, water supplies

Iain Marlow
First Published11 Jul 2017
Japan’s foreign direct investment in India has risen since the global financial crisis, reaching nearly $3.5 billion in 2016. Photo: Hindustan Times
Japan’s foreign direct investment in India has risen since the global financial crisis, reaching nearly $3.5 billion in 2016. Photo: Hindustan Times

New Delhi: In the desert-like scrub land of Rajasthan, beside a barren stretch of highway, an unlikely oasis appears: an island of Japan Inc.

On more than 1,100 acres of land dedicated exclusively to Japan’s corporations, global titans such as Toyota Motor Corp., Daikin Industries Ltd and Hitachi Ltd have clustered together to protect themselves from the vagaries of India’s chaotic business landscape.

Located roughly three hours from New Delhi, the sprawling industrial estate provides Japanese companies with largely uninterrupted power and water supplies. It also offers a streamlined licence and approval process that bypasses local officials who might ask for bribes. These are rare luxuries in a country ranked 130th by the World Bank for ease of doing business. The project has been so successful that there are plans for another location that is similarly dedicated to Japanese firms.

For Japanese expats, the perks are even better. There are three karaoke lounges, a hotel with Japanese TV channels and magazines, traditional pine-wood baths, a golf simulator and four restaurants serving everything from ramen to sushi.

“In India, the size of investment matters,” said Takayoshi Tokimune, the managing director of the India subsidiary for Dainichiseika Color & Chemicals Manufacturing Co. “So we flocked together.”

New markets

Japan’s foreign direct investment in India has risen since the global financial crisis, reaching nearly $3.5 billion in 2016. Japan is India’s 10th largest trading partner with the bilateral relationship worth about $14.5 billion.

Japan has the technological know-how and a cadre of mighty corporations hungry for new, markets, as economic growth and its population shrink at home. India has rapid growth, an expanding middle class eager for higher-quality products and more than one million youth joining the labour force every month.

Prime Ministers Narendra Modi and Shinzo Abe, both right-leaning nationalist leaders, personify the tight-knit relationship, embracing every time they meet.

“They have what we don’t, and we have what they don’t,” said Hiroshi Daikoku, a senior investment adviser to the Japanese external trade promotion agency, JETRO.

Businesses — as well as Abe’s government — also view India as a low-cost regional base to ship Japanese products into Southeast Asia and across the Arabian Sea to the frontier markets of Africa.

“If you look at this whole market from Africa to Southeast Asia, India is the core,” Kenko Sone, economic head of Japan’s embassy in New Delhi, said in an interview. “It’s easier from India to see the African market. And Indian companies also have strong connections with African businesses, especially on the east coast. We can collaborate.”

‘With conditions’

As Japanese capital flowed into India’s fast-growing economy, the intriguing industrial experiment at Neemrana — a collaboration between JETRO and the government of Rajasthan — has created about 10,000 factory jobs.

With the allotted land now more than 90% full of factories, mainly linked to the automotive sector, the project is being expanded to a separate 500-acre plot in Rajasthan, as well as to other Indian states such as Gujarat. Japanese executives in India said the vast Neemrana estate has allowed them to bypass the single biggest hurdle to setting up a factory in India: Obtaining a piece of land at a fair price that won’t be subject to contested land claims at a later date, and without needing to offer bribes to local officials.

“They would say no to investment, and then yes the next day — with conditions,” said Eiichiro Terada, managing director for Mitsui Chemicals Inc. subsidiary Mitsui Prime Advanced Composites India. “It’s very difficult to talk to local government officials.”

New factories

In Neemrana, that was not an issue. JETRO officials and company executives approached several state governments roughly a decade ago. With very little heavy industry, Rajasthan’s government was eager to set up the zone to attract investment.

Investment was slow to start. Interest only picked up after the global financial crisis, fuelled by healthy profits at Maruti Suzuki India Ltd., which is 56%-owned by Japan’s Suzuki Motor Corp. and dominates India’s booming passenger car market.

“Land was cheap, so many companies bought large amounts, but the construction, the initial investment, was small,” Tokimune said. “Now people are expanding.”

Attention’s now turning to a new industrial park in western India, in the state once governed by Modi. “Every Japanese company is now looking at Gujarat,” Tokimune said.

Regional ambitions

Daikin, which has global sales of more than $17 billion, is expanding its factory at Neemrana with a new building, going from around 1500 employees to 2000.

Kohei Yamamoto, the assistant general manager for finance and compliance at Daikin’s Neemrana facility, strolled across the cavernous facility where a 500-person shift was busy at work, some assembling the wall-mounted AC units that are ubiquitous across much of Asia.

“We’re going to export to Southeast Asia and Africa,” Yamamoto said. “But right now it’s mainly India.” Reuters

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