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Rediff.com  » Business » Japan's $34-bn pledge unmasks Modi's growth ploy

Japan's $34-bn pledge unmasks Modi's growth ploy

Last updated on: September 02, 2014 14:57 IST

Prime Minister Narendra ModiNarendra Modi completed his first 100 days in office in style: by inking a $34-billion investment agreement with his Japanese counterpart -- and Twitter buddy -- Shinzo Abe.

But the pact also offers clues about the Indian prime minister's broader growth strategy. He will cut similar deals with China and other countries. In return for investment dollars and local jobs, he will buy their equipment.

Modi has plenty of opportunities to test out his strategy. Chinese President Xi Jinping and Australian Prime Minister Tony Abbott will visit India this month, and Modi will fly to Washington towards the end of September for a summit with US President Barack Obama.

While the agreement with Japan may be the most ambitious of India's commercial accords, there is ample scope for the investment-hungry economy to absorb capital from other countries.

The Indian government remains strapped for cash, while involving the domestic private sector in building roads, industrial zones and power plants has led to stretched corporate balance sheets, unfinished projects and a mountain of bad loans in the banking system.

Those problems have presented Modi with an opportunity. He can welcome foreign investment in infrastructure -- and give equipment orders to companies from countries making the investment.

There won't be much pushback from Indian tycoons, who are more interested in discovering Indian clones of Alibaba and Facebook than in competing with the likes of Mitsubishi, ABB and General Electric.

These global engineering companies will welcome a respite from anaemic demand in the West.

But there will be challenges. Modi will have to cut bureaucratic red tape, streamline taxation and improve India's investment climate.

His track record of running a business-friendly government in the state of Gujarat gives cause for optimism.

The "Tokyo declaration" that Modi and Abe signed on Sept. 1 will be watched closely. If it is implemented well, and leads to more such accords, global companies winning business in India will also push for the country to be included in trade blocs like the proposed Trans-Pacific Partnership.

In that event, Japan's $34 billion investment in India could end up having a far bigger value than either country currently anticipates.

CONTEXT NEWS:

Modi on September 1 signed a five-year, 3.5-trillion yen ($34 billion) investment agreement with Japanese Prime Minister Shinzo Abe.

Under the accord, Japanese public and private companies will invest in urban infrastructure, transportation, manufacturing, water security, food processing and skill-development projects in India.

Japan will also extend 50 billion yen in soft loans to state-run India Infrastructure Finance Co, and set up "Electronics Industrial Parks" and "Japan Industrial Townships" in India with tax concessions from the Indian government.

Chinese President Xi Jinping will visit India in September.

The benchmark Indian equity index, CNX Nifty, has climbed almost 30 per cent since dates for the general elections were announced in early March.

Modi's Bharatiya Janata Party won the parliamentary polls, held in April and May, with the most decisive electoral mandate since 1984.

Image: Narendra Modi alights from the plane at Osaka International Airport. Photograph: PTI photo

Andy Mukherjee in Singapore
Source:
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