‘Implementation is really the biggest problem in infrastructure’

‘Implementation is really the biggest problem in infrastructure’

New Delhi:Eisuke Sakakibara, 66, is director of the Institute of Advanced Indian Studies, Waseda University, Japan. A former Japanese vice-minister for finance for international affairs, he earned the sobriquet Mr Yen in the late 1990s for his sway over markets. Sakakibara chaired a task force of the Policy Council of the Japan Forum of International Relations that strongly recommended, in September, a big push towards increasing private investment in India. In early December, Sakakibara headed a delegation of Japanese companies to India. In an interviewwith Mint, he spoke about Japan’s view on India. Editedexcerpts:

What did your delegation set out to achieve with this trip and what has been the outcome?

We are trying to increase both Japanese physical and portfolio investment in India, which is lagging in areas other than automobiles. We are a little late—behind Koreans, Europeans and Americans—but we could catch up. We had meetings on this with the Prime Minister, the finance minister, the Planning Commission deputy chairman and the Investment Commission.

We discussed the ultra mega power projects with the prime minister and he was very interested in the environment angle, our plan to reduce carbon emissions and converting from coal-based to electric power projects.

We had intensive discussions with Investment Commission members Ratan Tata, Deepak Parekh and Ashok Ganguly. We discussed the possibility of forming a Japanese consortium, with Indian help, to participate in ultra mega power projects. Power companies such as Kyushu Electric Power and trading firms such as the Mitsubishi Corp. are interested.

So we have decided to form a joint task force with a specific agenda. Since tenders have been called, we have to be very quick with the results of the task force. Secondly, lot of Japanese money is coming in by way of investments in mutual funds, individual investments, and infrastructure funds. There was a proposal from the Indian financial institutions for collaborations over a private equity fund. So we will study this possibility.

Third, our institute has been asked to promote human resource exchanges and reciprocal education programmes on business cultures. We would come up with advanced management courses for Indian businessmen in Japan, and vice versa.

One immediate action, as Mr Tata suggested, is on an intern system. We will start with five Indians (or five Japanese) working in Japanese (or Indian) companies. Tata Sons already has an internship agreement with Mitsubishi, so we can expand that immediately.

Our institute also works to support and encourage Indian companies working in Japan. There’s a lot of potential for IT and pharmaceutical companies. In financial services, Indian companies also want to list on the Tokyo Stock Exchange and float bonds, where we could help.

This is a win-win situation. We have lots of excess savings; our interest rates are low. So we can support Indian companies to raise funds to invest in mega projects here and there.

Do you feel infrastructure projects in India suffer from slow pace of implementation?

We are really pushing power. In the case of mega power projects, tenders have already taken place. The Japanese are participating in the bidding of the metro project in Mumbai; they are already in the Delhi Metro. There’s a lot of interest in manufacturing as well. Nippon Steel, our biggest iron and steel company, has an agreement with Tata Steel.

Mitsui Steel is setting up a factory in Surat. Japanese retail companies are interested in coming in too. Things are moving steadily from our side. But these projects are huge, challenging projects. There would be hiccups here and there. Implementation is really the biggest problem in infrastructure. There are also lots of political problems.

How has Japanese risk perception about India changed over the years?

It first struck me three years ago when I wrote a book on the Indian economy (in Japanese). It became a best-seller. So you can see that the Japanese perception has become positive. It is spreading now. The Japanese perspective has dramatically changed from what it was five years ago. It hasn’t become big yet, but within two years you will see a big wave.

The Japanese came here before the Koreans, but they also had some big failures such as Enron. There was a trauma due to that, so they concentrated too much on China. But now the companies visit and see the energy and the aggression in Indian companies.

What is a bigger attraction: the change in the corporate sector or that in the policy framework?

Private sector. Your companies have become really dynamic. Ratan Tata hastransformed his group. Reliance is aggressive.

But the government is also ambitious. They have drafted a good plan (11th Plan).

Don’t you see the risks involved in doing business in India going up once the global financial climate changes due a possible US recession?

So far, it has not affected Asia or India. If the US economy goes into a recession next year, there may be some impact because the world is getting integrated. Asian economies including India’s, have benefited from the subprime crisis;?funds have come to Asia. India also has a very strong domestic demand—it is not dependent on the external sector.

But the Indian government is worried about capital flows…

That’s understandable because the money flow into the equity market has been too rapid. Finance minister P. Chidambaram told the representatives of the financial institutions in our delegation that the restrictions on financial flows are temporary.

But India needs a steady flow of money, and it should be able to identify from where it comes.

What the Reserve Bank of India has done is reasonable. You have to be cautious, particularly when you monitor the markets. Markets always overreact and overshoot.

You have been a big advocate of an Asian monetary fund. Do we need one now since there is excess money in the region?

Suppose we are able to pool about 5% of our forex reserves, it would be a first step towards coordination of monetary policy. We are talking about only $100 billion (Rs3.94 trillion), we can get that easily. With that, we can have some kind of gentle interventions (in the money market). Forex management basically is a fast-track (way) to closer coordination in the region.

Asian common currency is a long-term objective. India has come into the East Asian production network, trade with China has shot up. Pooling and co-managing resources would take us closer to a regional economic union.