India and Japan’s courtship may help Scotland

The brainchild of Vibhav Kant Upadhyay, an Indian economic development specialist with longstanding ties to Japan, the summit was held to promote ties between the countries in the belief that both had much to gain from closer links.

With talk about the need for an “environmentally responsible” development model and altruistic business, there was an idealistic tone to the event.

This was reinforced by the repeated thanks that senior Japanese figures including ex-Prime Minister Yoshiro Mori offered for the help India provided following the terrible earthquake in March.

The presence of many sharply dressed young executives suggested both countries felt the summit could generate good money-making opportunities.

As Japan grapples with the legacy of the financial crash that left its economy in the doldrums for more than a decade and the strong yen, its leaders will want to make the most of any opportunities that may be created by the emergence of new economic powers such as India.

Earlier this year India and Japan signed a Comprehensive Economic Partnership Agreement, under which tariffs on many Indian products will be reduced or scrapped.

This should boost exports to Japan from India, where production costs are often lower.

The real action, however, is happening in India. The message from presentations was that if India sustains the growth rate it has achieved in recent years, the country will generate demand for unprecedented inputs of materials and expertise.

There are obvious implications for developed countries trying to boost anaemic growth rates, including Scotland.

Earlier this month, Finance Secretary John Swinney put increasing Scotland’s exports to emerging markets at the heart of the Scottish Government’s updated economic strategy.

Statistics of what is set to happen in India are mind-boggling.

Planners are targeting 9% annual growth in Indian’s Gross Domestic Product for the next 40 years. This will transform one of the world’s most populous countries, where 250 million people are expected to move from rural areas to the cities.

Some believe this process can not be left to the market.

For example, if car-ownership in India reached Western levels, the strains on fuel supplies and the environment would be immense. “India can’t afford to have 1.2 billion cars,” Mr Upadhyay told The Herald.

Technocrats have developed plans to address the challenge that involve directing development along clear lines.

They plan to build huge numbers of urban centres for industries such as advanced manufacturing in a development called the Delhi Mumbai Industrial Corridor. These will be “smart” cities using renewable energy and intelligent grid systems to help minimise strain on the environment.

But production from conventional sources like oil and gas will have to increase massively.

India’s urbanisation will create opportunities for infrastructure and technology firms and the expected growth will accelerate the emergence of a new middle class adopting Western habits in food and drink.

“Soccer will be the centre of attention in India,” said Naho Shigeta, a Japanese marketing expert who has spent 15 years in India.

A recurring summit theme was that it would make obvious sense to combine the expertise available in the small and medium-sized enterprise sector in Japan with the lower-cost labour resource and armies of young people that India offers.

“You have the wisdom, we have the workforce,” Randeep Singh Surjewala, a member of the cabinet for Haryana state, told Japanese listeners.

As in the UK, the SME sector is Japan’s main economy driver, where the workforce is ageing.

The benefits could extend well beyond the productive sector.

While India’s banking system emerged unscathed from the credit crunch, local lenders cannot provide debt to fund some long-term infrastructure programmes at rates needed to make them viable.

This leaves a gap that overseas banks with experience of funding infrastructure projects could fulfil.

Indian ministers also want banking services and investment products such as pensions to be supplied to hundreds of millions of people on timescales that will mean providers have to use technology to serve customers rather than branches.

With the population expected to include 500 million people below the age of 25 by 2020, India needs a quantum increase in the number of people who get a university education, without waiting for a similar rise in the number of universities.

As these are all areas in which Scotland has recognised strengths, some might feel concerned that efforts to promote ties between Japan and India could turn out to be bad news for Scottish firms.

The chairman of India’s mighty Reliance Industries Mukesh Ambani told the summit: “The world has shifted and the centre of gravity has shifted to Asia.”

He said firms from Japan and India could combine to mount a low-cost/high technology push in other fast-growing markets like Brazil, Russia and China.

However, asked whether Western companies might be excluded, Mr Upadhyay said: “No, no for sure Western com-panies can play a part.”

For example, he added: “The wisdom that the Western world has on technologies, industries, optimisation -- this will be very helpful.”

Mr Upadhyay said Scottish companies should initiate dialogue about how they could participate in the process before the next summit in 2013.

Frank Boyland, head of Asia for Scottish Development International, discounted concerns about closer links between Japan and India.

“We wouldn’t view increasing trade between India and Japan as a threat to Scottish exports ... it represents another route to market for Scottish firms looking to target Asia.”

He claimed the “Asia opportunity” lies in being part of the trade flow between Asian countries and other third markets as well as exporting Scottish products to Asia.

Mr Boyland believes there are great opportunities for Scottish companies to grow by partnering with Asian companies which are doing well in third markets.

Scottish oil and gas firms are working with national oil companies in Asia to explore opportunities in Africa.

However, Scottish companies need to move fast to ensure others do not beat them to it.

“Where a Scottish company has a specialist service they can offer Asian firms, we would encourage them to be pro-actively lobbying these companies to consider them as partners,” said Mr Boyland.