Policy Proposals Asia and Oceania Joint Report of the India-Japan Business Leaders Forum 2014
Business leaders from Japan and India warmly welcome the appointment of Mr. Narendra Modi as the Prime Minister of India. Business leaders have high hopes that Prime Minister Modi will accelerate the reforms process to improve the business environment in India and promote trade and investment between Japan and India. It is expected that the leaders of both nations will further strengthen their strategic global partnership to help India and Japan drive the world economy forward.
Since its establishment in 2007, the Indian and Japanese members of this Forum have cooperated in resolving many bilateral issues, including those related to the implementation of the Japan-India Comprehensive Economic Partnership Agreement (CEPA). The business communities of Japan and India will collaborate with their governments from a business perspective to enable both countries to play their roles as growth engines for the global economy. To this end, the Japanese and Indian business leaders decided to establish a mechanism for working with their respective governments to follow up progress on issues raised in this Forum, and as a part of the follow up, Japanese side will send a business mission to India before the next Summit meeting to discuss issues of mutual interest.
The business leaders submit the following report to the heads of the two governments.
1. Improving the Business Environment through Effective Use of Japan-India CEPA
Both Indian and Japanese business leaders expressed concern over reducing trend of bilateral trade during the last few years. They suggested following measures are necessary to further enhance Japanese trade and investment in India, especially in high-tech industries, as well as to enhance value added Indian product exports to Japan:
As a key element of institutional infrastructure, CEPA is essential to further accelerate and consolidate business activities including investment and trade between Japan and India. The Japanese and Indian business leaders again stressed the need to further promote understanding of CEPA provisions and the benefits of utilizing them among the customs authorities and business communities in both countries. The business leaders requested that in order to further improve the business environment to increase investment, manufacturing, and job opportunities in India, the governments of both countries should regularly hold meetings of the Sub-Committee on Improvement of the Business Environment set up under the CEPA framework. In addition, the two sides recognized that to further promote free trade globally, there is a need to create better enabling environment for trade and investment.
Business leaders of the two countries noted with concern that the bilateral trade between India and Japan has declined to $16.3 billion in 2013-2014 as compared to $18.5 billion in 2012-2013. Business leaders expressed hope that the volume of bilateral trade should be commensurate with the size of the two countries' economies.
The business leaders urged regulatory authorities in Japan and India to initiate discussions on domestic regulations regarding the mutual recognition of qualifications, as mandated by CEPA, with a view to further promote bilateral trade in services.
The Indian side highlighted the need to address India's concerns regarding access for marine and agricultural products in the Japanese market and removal of non-tariff barriers. Indian business leaders also requested the development of mechanisms to streamline testing, inspection, and record-keeping procedures for the export of food, especially seafood, from India to Japan.
The Indian side specifically highlighted the need to lift the ban on 17 food additives which are registered in India, reducing the cost of certification by Japanese agencies and relaxing the maximum residue levels of Ethoxyquin on various products. The Indian side also suggested that a Mutual Recognition Agreement (MRA) in pharmaceutical sector should be concluded, which would enable both the countries to identify the testing procedures and standards used in the other country for their goods.
Indian Industry would like Japan to facilitate improvement in movement of natural persons in such areas as relaxation of academic qualifications criteria in issuing visas for computer engineers as well as introduction of mutual recognition agreement on services professionals such as lawyers and accountants when such services are called for by Japanese clients.
In addition, Indian side also suggested that the Withholding Tax of 10% on dividend, royalty and technical service fees should be eliminated.
The Japanese side stressed the importance of promptly resolving outstanding business environment issues including: simplification of land acquisition; early implementation of a goods and services tax; resolution of inconsistencies in tax collection between central and state governments; rectification of the discrepancy between real profit and assumed profit in the context of deemed taxation; application of transfer pricing taxation which does not reflect reality of the businesses; issues related with taxation on permanent entity (PE); allowing inspection data on electrical and electronic appliances by method stipulated by International Electrotechnical Commission (IEC); provision of one-stop services for procedures relating to customs and interstate trade; allowing maximum price label to be tacked on after landing in India to reduce risks associated with time required to go through the customs; removal of restrictions on granting foreign financial institutions permits to operate in city centers; relaxation of restrictions on foreign capital investment in Indian banks (4.99 percent under new bank approval guidelines and 26 percent under the revised banking law) to allow the exchange of financial expertise between the two countries; greater deregulation in the financial and insurance sectors including relaxation of restrictions on external commercial borrowing (ECB); and operation of intellectual property laws relating to such areas as patent and trademark rights and securing of their international conformity.
The business leaders of India and Japan welcome the proposal of the Indian cabinet to raise the foreign investment limit in insurance to 49% from 26%.
The Japanese business leaders expressed continued interest in the Indian government policy towards foreign investment in retailing business. Both Indian and Japanese business leaders welcomed the partial relaxation of ECB regulations announced in June 2014 by the Reserve Bank of India as another step toward creating a more favorable investment environment. Furthermore, both sides welcomed the initiative of the two governments in developing an Action Plan to expand bilateral FDI through Japan-India business partnership, cooperation with central and state governments to encourage investment, and enhancement of the business environment.
The Indian service sector has a strong interest in the Japanese market, especially in fields such as IT, IT Enabled Services, and professional services. Indian pharmaceutical companies with strong global reputations and solid records have also shown interest in accessing the Japanese market. Indian companies again urged for improved access to Japanese markets to enable them to operate on equal terms with Japanese companies.
Both sides agreed on the importance of developing internationally competitive Indian industries, particularly in manufacturing and promoting investment by Japanese SMEs in India through the creation of favorable business conditions including rental factories / plug and play factories. Japanese SMEs can create more jobs for young people in India and contribute to the development of supporting industries. This will also encourage the decision of the Prime Minister of India to promote the "Make in India" campaign.
Smooth procedures for acquiring visas are essential to facilitate human exchanges between the two countries. Business leaders welcomed the Japanese government's decision in July 2014 to simplify the issuance of multiple-entry visitor visas for Indian citizens and expressed hope that the procedure for the issuance of multiple-entry business visas for Indian citizens would also be simplified soon. In additions, both sides expressed the need for visa issuance procedures to be further simplified and streamlined including reduction in the volume of document that are currently required for submission of visa applications.
The business leaders from both sides also called for prompt implementation of the Agreement between Japan and the Republic of India on Social Security, which was ratified in 2013 but is yet to be put into effect.
2. Importance of Infrastructure Development and Japan-India Cooperation
Japanese and Indian business leaders appreciate the direction for infrastructure development set out in the Indian government's 12th Five-Year Plan, sharing the view that the development of industrial and social infrastructure throughout India, including power supply, smart grids, water supply with water treatment and recycling, roads, railways, transport connectivity through Mass Rapid Transit Systems, high speed rail and ports, along with the development of logistics and industrial parks, is an urgent requirement to promote the development of industry in India.
The Indian business leaders welcomed progress on the Delhi-Mumbai Industrial Corridor (DMIC) and the Chennai Bengaluru Industrial Corridor (CBIC) as symbols of economic cooperation between Japan and India. They expressed the view that promoting DMIC and CBIC related projects within the comprehensive framework of the National Manufacturing Policy of the Government of India and smart city concepts with manufacturing as a key economic driver will bring major benefits to both countries while acting as a catalyst for manufacturing and urbanization, and should enable the flow of next-generation cutting edge technologies to India.
Both sides agreed on the need to encourage swift and steady progress towards completing the Western Dedicated Freight Corridor (WDFC) between Delhi and Mumbai. With a view to also forge ahead on the DMIC and the Chennai-Bangalore Industrial Corridor, the business leaders urged both governments to steadily resolve the issues through forums such as the Ministerial-Level Public-Private Policy Dialogue, the DMIC Vice-Ministerial Taskforce, and sector-specific discussion in order to facilitate swift progress on related projects being undertaken by Japanese companies and harness Japanese technology, expertise, and long-term funding in all aspects of infrastructure development. Both sides welcomed the establishment of a US$4.5 billion DMIC facility, investment by the Japan Bank for International Cooperation (JBIC), and the appointment of JBIC members to the board of the DMIC Development Corporation. They expressed the hope that measures taken by the Indian government will lead to the creation of innovative cutting-edge technologies in a range of infrastructure sectors including smart community development. Indian members also urged for an early start to work on other development projects including the Bengaluru Mumbai Economic Corridor, Mumbai-Bangalore Industrial Corridor and the Amritsar-Kolkata Industrial Corridor and the East Coast Economic Corridor with the Vizag-Chennai Industrial Corridor as its first phase.
The business leaders agreed to continue requesting the governments of Japan and India to relax legal restrictions relating to infrastructure development; improving transparency and speed of processing by Central and State Governments; provide support for minimizing project risks to increase the number of Japanese companies to participate in infrastructure projects in India; and facilitate public-private partnerships through comprehensive de-risking and government guarantees wherever necessary to mitigate risk on demand side. This will require establishment of a forum for regular dialogue between the public and private sectors of both countries.
For enabling the availability of quality and uninterrupted power supply for Japanese companies in India, particularly in Industrial Parks, both sides agreed on the need for smooth approval procedures for land acquisition, and environmental, and other required permits, ample and stable supply of key fuels such as natural gas and coal at appropriate prices, transfer of fuel price rises to electricity users, deregulation relating to electricity generation, transmission, distribution, and sales, and conclusion of medium and long-term contracts for these services.
3. Cooperation in Strategic Areas
Japanese and Indian business leaders recognized the need to expand bilateral energy cooperation on a commercial basis and called for further exploration of ways to deploy Japanese energy sector technologies in India. The Indian side again requested for greater participation of Japanese companies, showcasing their cutting edge environmental technologies, in various trade fairs being held in India. Both sides also expressed hopes for steady progress in the Japan-India Energy Dialogue. The two sides expressed interest in expanding cooperation in Indian Universal ID (UID) system through which improvement in governance can be expected. Cooperation in upgrading Indian agriculture by use of ICT technologies are also under trial.
The business leaders of the two countries welcomed the decision of the Indian government to develop infrastructure for high speed rail connection between Mumbai and Ahmedabad and a diamond quadrilateral of bullet trains to connect the four major cities of Mumbai, Delhi, Kolkata and Chennai.
Both sides recognized the need to place greater emphasis on manufacturing and introduction of state-of-the-art technologies in fields of automobiles, machinery, material sciences, electronic hardware, telecommunications equipment, heavy industries, and rail transport management systems. At the same time, technological exchanges are also required in agriculture and environment management fields such as water treatment, sanitation, and recycling.
Japan-India cooperation in constructing nuclear power plants is a strategically important aspect of improving electricity sector infrastructure in India. Business leaders urged their governments to boost cooperation in this field, including the signing of a nuclear power agreement, while continuing to assure the maximum levels of nuclear power plant safety.
Both sides called for broader and deeper cooperation between the two countries in fields of science and technology, human resources development, R&D, and innovation, since efforts in these areas will increasingly define the path of economic development and manufacturing competitiveness in coming years.
The business leaders voiced hopes for new joint Japan-India initiatives to develop strategically important resources in India, including rare earths.
Development of high-caliber human resources as a form of intangible infrastructure will be essential to implementing joint projects in such strategic fields. The business leaders reaffirmed the importance of cooperation in skills enhancement through initiatives including training and certification, bilateral student exchanges, and corporate internships.
4. Global Cooperation
Japanese and Indian business leaders agree that the birth of ASEAN Economic Community targeted for 2015 will offer both nations considerable opportunities to expand their cooperation in trade and investment. They are confident that the Japan-India Strategic and Global Partnership will have a positive effect on the economic development of the Asia Pacific Region.
Both sides agreed to continue joint initiatives aimed at ensuring that the ongoing Regional Comprehensive Economic Partnership (RCEP) negotiations bring widespread benefits. This partnership will help to expand production networks and strengthen supply chains in the region by standardizing rules of origin and liberalizing investment and trade in goods and services.
As part of the global partnership between Japan and India, the business leaders also recognized the importance of promoting cooperation between the public and private sectors of both countries for projects in other regions including the Middle East and Africa.
The Way Forward
To have a follow-up mechanism in place, business leaders from both sides agreed to study further on setting up of sectoral Joint Working Groups as necessity arises. Indian side introduced initiatives of CII in setting up Japan Investment Desk and Japan-India B2B portal to facilitate Japanese investment in advanced manufacturing and high technology areas. Japanese business leaders highly welcomed CII initiatives.
Japan and India have historically shared strong bilateral relations based on an abiding sense of mutual respect and cooperation. Both countries have great potential to develop strategic economic partnerships into an alliance based on mutual complementarities and geopolitical significance. For example, partnership between Japan and India can be effective for addressing the problem of piracy in the Indian Ocean, which is important for securing sea routes. The business leaders of the two countries again called for greater cooperation in the fields of cyber security and counterterrorism.
Business leaders from Japan and India firmly believe that joint efforts by the two leading democracies in Asia can contribute to the stability and prosperity of the Asia-Pacific region.
Finally, members of this Forum wish to express their appreciation for the trust placed in them by H. E. Mr. Shinzo Abe, Prime Minister of Japan and H. E. Mr. Narendra Modi, Prime Minister of India.
India-Japan Business Leaders Forum
India-Japan Business Leaders Forum