Impact of Japan crisis on India: Positive or negative? -MoneyControl

Posted on March 19, 2011 by


The crisis in Japan seems to be alleviating for the moment. However, nuclear plants blast is a case which may impact the entire world.

In an interview with CNBC-TV18, Chandrajit Banerjee, director general of CII; Mohandas Pai, HRD director of Infosys; Prabhat Awasthi, managing director and head of Equities Research of Nomura; Vikram Kirloskar, vice president of Toyota Kirloskar Motors and Hemant Krishan Singh, India’s former ambassador to Japan, discuss the impact of Japanese crisis on India.

Below is the verbatim transcript of the interview with CNBC-TV18’s Karan Thapar. Also watch the accompanying video.

Q: Almost 2% of India’s exports go to Japan. If there is a result of crisis the country is going through a cut back on that exports, would the impact on both, India’s export growth as well as its GDP is likely to be only minimal?

Banerjee: I would absolutely agree with you. The negative effect on India both on export terms from India as well as our GDP growth would be minimum, or rather would not have had any effect on Indian GDP. Over a period of time when Japan gets into a reconstruction mode, there would be a lot of opportunities for India to participate in that.

Q: Is there a possibility of the opposite happening as Japan begins to restructure and redevelop in particular North Honshu which is devastated? Could there be a fillip for people like steel exporters who might find an opportunity to sell to Japan now?

Singh: In the last several years, we have been missing the diversification of India’s exports to Japan. We have several products which have been traditionally exported. We do need infusion of new elements.

Perhaps, in the reconstruction of infrastructure in the North, we may have opportunities, but that will entirely depend on issues relating to quality and kind of requirements which the Japanese have.

Q: Are those areas where sometimes Indian exporters fall short?

Singh: I am not saying that. We hope that opportunities which come our way will be taken in close to perfection which the Japanese product specifications demand.

Q: What about Japanese car manufacturers in India? Toyota has postponed the inauguration of a new plant in Bangalore. Honda has postponed the launch of the Brio. Beyond that, as Japanese manufacturers in Japan understandably turn their attention to the problems they face at home, is there a possibility they might begin to take their eye off the Indian market? Or their interest and time for India might diminish?

Kirloskar: We have postponed the inauguration, but have not postponed the production. We started the production in our second plant in December. Typically, we do the inauguration after the full production, which is not the issue.

There are two kinds of effects. One is the short term effect and the other is the long term effect regarding auto. In the short term effect, the issue is how fast will the plants in Japan start working and supplying us with components.

As far as Toyota is concerned, the plants have been restarted to supply spare parts. We expect supply for overseas components from March 21. On the long term, we see some worries regarding availability of power in Japan.

If the whole crisis on nuclear energy gets worse and people are scared and there is a pressure to shut nuclear power plants, then we will see some kind of a shortage of energy in Japan, as we require a lot of energy for manufacturing.

It is a big opportunity for Indian manufacturers is that they can localise more. There should be a lot of pressure to invest more in India, to localise more components. Japanese won’t take their eye of the Indian market as it is a very important market after China.

China has become one of the largest markets, but the other big market is definitely India. For companies like Suzuki, India is the major market for them. They are not going to get their eyes of the ball. Even for Toyota, there is a huge pressure to increase our output and localise in India.

Q: Do you hope that because of the problems they will face in particular, the power and electricity crisis that Japan may now begin to rely more on producing outside Japan? Therefore, will they choose to step up production in countries like India so that they can make up the shortfall in exports that can’t be met out of Japan itself? Is that a real possibility now?

Kirloskar: It’s a potential opportunity. We will have to convince them that this is one way to de-risk the industry. We can produce more in India.

Q: The Japanese economy and the manner in which it’s growing, how important is it for the Japanese car industry to manufacture in India at the moment today? What do you see as the potential for growth?

Awasthi: It has clearly emerged as a very important market. There are some large car makers and Japanese do dominate the Indian car market in a very significant fashion. There is fair amount of significance, especially for Suzuki as they control 50% of Indian market. They have been saying on record that India is their most important market out of Japan.

Given the growth in the Indian market, it’s been much higher than the western world. The potential of growth from future perspective will continue to be a very dominant market for them.

In terms of whether this earthquake impacts the long term strategies and how they deal and manufacture here, that is something we don’t have a handle on. There will be some production disruptions, but there is some amount of autos concentration in the areas which are most affected by this earthquake.

How bad this crisis gets, does it explode into something, does it get more serious from here or gets controlled, will have implications on how the long term basis play out. In the very short term, there could be some disruptions to part supply.

Q: The story in the papers for IT companies seems to be a little different to what we are hearing at this moment from other people on this show. At least four of them have chosen to pull out staff though it is only temporary, can you explain what does pulling out staff actually entail at this moment in time?

Pai: At this moment in India, parents are worried. We have given an option to people to come back if they wish. There is a fear of nuclear contamination. People are scared of their lives. There is panic on the street in some areas.

Q: At this moment of crisis, are you worried that by pulling out staff, you might be sending a wrong message to the Japanese people at a time when they expect you to be supporting and identifying them. Does that worry you?

Pai: It does worry us. We spoke to our Japanese clients and most of them have agreed to this. A few might be upset, but they will agree as the key fact is to keep the activity going. A few Japanese employees and their families opted to come to India, China and Singapore to work out of Japan.

Q: How will this message go down in Japan that a handful of companies are opting out and pulling out even if it is temporary? Is that a risk that it might look and feel at this moment? Would it add a certain insult to injury?

Singh: The Japanese people have suffered from an unprecedented disaster. There are elements where we need to be careful. But, companies and people are taking decisions depending on the comfort level of the work force. Understandably, that process is on going, not only for Indians, but also for Europeans and others as well.

Q: Is there a danger that if companies pull out even temporary, they could lose market share which is important in a competitive environment like Japan. Winning them back when they return, might be a problem regardless the sentimental side of it. Is there a real danger of losing market share and competition?

Banerjee: We do not think so. Today, things happening in the IT sphere, much of the work that was happening in Japan can be done from India as well. It is not that we are pulling out; it is that we are relocating from where the services would be provided. It is just a matter of relocation rather than stopping any service to that market.

Q: Will there be a sizeable substantive impact on Japanese investments coming into India because they have a much more increased and urgent need for their own resources at home?

Kirloskar: They have an urgent need for their own resources. The longer term plans are in place in India. I am not sure whether they will be affected. We have been expanding and continuing to expand our capacity. We have announced new engine, transmission plant and further capacity expansion at the end of this year.

The major projects like Delhi-Mumbai Industrial Corridor are long term projects. People would not take their eyes of those. There will be some re-looking at their resources and what they can immediately take out. In the long run, the investments will continue.

Q: If there will be a re-looking at what investments can be taken out or postponed, what is the sort of danger that the railways dedicated freight corridor faces? The Japanese are already frustrated by the glaze they have experienced. What will be the dangers that phase III of the Delhi Metro will face? Around 40% of funding of Rs 11,200 crore was supposed to come from Japan. Could these two vital projects be in danger of delay?

Awasthi: At this point, it is very short term thinking. There will be immediate delays because there will be needs of funds at home. Japanese economy saves a fair amount of money. If there will be a delay sort of impact, it won’t be a permanent pulling out of money.

Q: Do you agree that it will be a delay and not a permanent pulling out?

Singh: I have been directly involved with the Japanese ODA over the last several years. Despite the fact that ODA overall has been shrinking, India has continued to receive about USD 2.4 billion a year from the Japanese funding.

Q: As the pie has shrunk, will our share remains the same?

Singh: Our share has remained the same over the last several years.

Q: In absolute terms, our share must have shrunk with the pie?

Singh: No. Our dollar values have remained almost exactly the same. There might be a little of a funding delay in terms of the dedicated freight corridor or other projects. The commitments the Japanese have made will be maintained.

Q: For emotional and political reasons, or rather than just business alone?

Singh: These are strong commitments which have been arrived at after high level meeting and they will be maintained.

Posted in: APAC, India