Investment Prospects in Japanese Industrial Communities in India – Domestic/Foreign Investment

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1. OVERVIEW

India and Japan maintain strategic bilateral ties due to the evolving vision of economic strength and cross-border assimilation of sustained growth, which is vital to the philosophy of achieving prosperity for both nations. While there is a rich history of shared cultural values ​​of democracy, a legacy of Buddhism, and a cooperative defense and security framework between the two nations, the purpose of this article is to highlight the steady expansion of economic ties that has led to the development of Japanese industrial communities (” JITs”) to encourage investment by Japanese investors in India. This article attempts to establish the context in which JITs were developed in India, the incentives offered, the process of sourcing leased land in the JITs, and the key permitting and registration requirements for establishing a manufacturing unit in the JITs to enable a potential investor to determine the most profitable location for investing and setting up a production unit based on their requirements.

2. LATEST TRENDS

Since the establishment of the strategic and global partnership in 2006, India and Japan have held annual summits for their respective prime ministers to appropriately seize economic opportunities and take pro-growth policies. At the Annual Summit in September 2014, bilateral relations between India and Japan were elevated to a special strategic and global partnership.1 On September 1, 2014, then Japanese Prime Minister Shinzo Abe announced the India-Japan Investment Promotion Partnership in Tokyo.

In 2014, Japan forecast an investment of approximately USD 33.5 billion through public and private investment in India to promote the partnership.2 Subsequently, in 2015, the Ministry of Promotion of Industry and Domestic Trade (the “DPIIT”) and the Ministry of Economy, Trade and Industry of Japan (the “METI”) signed the “India-Japan Investment and Trade Agenda for Action”. Promotion and Economic Integration in the Asia-Pacific Region”3after which the development of JITs in India began.

Then Japanese Prime Minister Shinzo Abe’s 2014 investment forecast came true according to official data from 2022. She points out that Japanese investors and the Japanese government (through the Japan International Cooperation Agency) are investing a total of US$36.2 billion (a government agency that primarily provides debt financing in the form of overseas development assistance to developing countries) in various sectors such as automotive, chemicals, food processing, electronic systems design and manufacture and food processing. In March this year, current Japanese Prime Minister Fumio Kishida forecast a USD 42 billion investment in India over the next five years.

Due to the efforts made in recent years to promote economic relations between India and Japan, there has been an increase in the inflow of foreign direct investment (“FDI”) from Japan to India, and Japan has reportedly been ranked as the fifth largest investor for India in FY 2020-2021 with over 1,400 Japanese companies currently operating across India.4

The positive investment trend from Japan has encouraged the creation of a robust, investor-friendly environment in India, and one of the most important steps in this direction has been the development of JITs as nationwide ways to strengthen the manufacturing sector.

3. INVESTMENT ROUTES: JAPANESE INDUSTRIAL CITIES

3.1. Introduction of JITs

India and Japan had envisaged the development of JITs mainly in the Delhi-Mumbai Industrial Corridor (“DMIC”) and Chennai-Bengaluru Industrial Corridor regions to facilitate Japanese investment in India. In this context, 11 candidate locations for setting up JITs were identified.5 In addition, it was agreed that the incentives for companies to invest in JITs will be the same as those of “Special Economic Zones” and “National Investment and Manufacturing Zones”, with both India and Japan offering special packages to attract Japanese investment in JITs.6

The first JIT in India was established at Neemrana Industrial Park in Rajasthan following the establishment of the Special Strategic and Global Partnership between India and Japan. Shortly after the success of the first JIT, the government undertook the development of a second JIT in Ghilot, Rajasthan with the vision of making it a center for the ceramics and Electronic System Design and Manufacturing (ESDM) industries.7 Currently, companies from various sectors such as autos and auto components, capital goods, chemicals, consumer durables, textiles, renewable energy, etc. operate in Neemrana Industrial Park in Rajasthan, including 49 Japanese companies including Daikin, Nissin Brake, Mytex Plymer and Nippon Pipe.8th

Japan is the only country that has its own industrial communities in India and the Indian government has taken various measures and initiatives to guide Japanese companies through the entire investment process/cycle in an expeditious manner.

Although COVID-19 caused a hiccup in the robust development of these JITs, the Indian government has developed state-of-the-art infrastructure for Japanese companies to establish their business in these townships. As part of the Government of India’s Invest India initiative and in view of actions under the India-Japan Investment Promotion Partnership, a Japan Plus desk has been established by the National Investment Promotion and Facilitation Agency under the DPIIT, consisting of a dedicated team of consultants to provide specific detailed information to Japanese companies wishing to enter India.

There are currently 114 Japanese companies operating in a total of 12 JITs across India9, including Neemrana Industrial Park in Rajasthan, Mandal Industrial Park in Gujarat and Supa Industrial Park in Maharashtra.

footnotes

1 “Brief Note on India-Japan Bilateral Relations”, available online at: https://www.mea.gov.in/Portal/ForeignRelation/India-Japan_Bilateral_Brief_feb_2020.pdflast accessed on: 05.03.2022.

2 FICCI, available online at https://ficci.in/spdocument/23100/India-Japan-Bilateral-Relations-2019.pdflast accessed on: 04.03.2022.

3 ET Online, India and Japan Sign Action Plan for Investment and Trade Promotion, available online at: https://economictimes.indiatimes.com/news/economy/foreign-trade/india-and-japan-sign-action-plan-for-investment-and-trade-promotion/articleshow/47106630.cms?from=mdrlast called on: 04.03.

4 ANI, Japan is India’s 5th largest investor, 114 Japanese companies are currently operating across India, available online at: https://theprint.in/economy/japan-is-indias-5th-largest-investor-114-japanese-companies-currently-operate-across-india/830858/last accessed on: 04.03.2022.

5 Japan Industrial Township, Reliance Model Economic Township, available online at: https://www.modeleconomictownship.com/japan-industrial-township.htmllast accessed on: 03/02/2022.

6 See footnote 3.

7 IANS, Rajasthan Gets Second Industrial Zone, Available online at: https://www.business-standard.com/article/news-ians/rajasthan-to-have-second-japanese-industrial-zone-115040800931_1.htmllast accessed on: 03/01/2022

8 Indian Council for Research on International Economic Relations, Post COVID-19 Prospects for India-Japan Economic Partnership, available online at: http://icrier.org/pdf/Post_COVID-19_Prospects_for_India-Japan_Economic_Partnership.pdflast accessed on: 04.03.2022

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