Dr. Srabani RoychoudhuryVisiting Scholar, Policy Research Institute

Ministry of Finance, Japan

Associate ProfessorCentre for East Asian Studies

Jawaharlal Nehru University

(CEPA)Section :1 An analysis

November 2004,H.E Mr. Junichiro Koizumi and H.E. Dr. Manmohan Singh initiated India- Japan Joint Study group to give its recommendations for strengthening economic relations between the two nations.

June 2006 , Joint Study group submits report . “ huge untapped potential”

December 15, 2006 – A Joint Ministerial statement announcing the launch of negotiations for the conclusion of an economic partnership agreement (‘EPA’)/ comprehensive economic partnership agreement (‘CEPA’ or the ‘Agreement’)through a Joint Task Force (‘JTF’).

February 16, 2011 – India - Japan Agreement was signed in Tokyo.

August 1, 2011 - The CEPA came into force. Also, concessional rates of duties of various products were notified by the customs authorities vide Notification no. 55/2011 –Cus (NT) dated August 1, 2011

India Rule of origin Pharma Sector Agriculture Service Sector

Japan Rule of origin Custom duties FDI in other sectors

specially Retail, Banking and Insurance

The Agreement has 15 Chapters, 147 Articles, covering goods, services, rules of origin, movement of natural persons, telecom, financial services, investment, intellectual property rights, government procurement, sanitary measures, customs procedures and cooperation in other services.

Document size of 1083 pages inclusive of annexes

Liberalize and facilitate trade in goods and services between India -Japan

Increase investment opportunities and strengthen protection forinvestments and investment activities in both the countries

Ensure protection of intellectual property and promote cooperation in the field thereof

Promote cooperation for the effective enforcement of competition laws in each Party

Improve business environment in each country

Establish a framework to enhance closer cooperation in the fields agreed in the Agreement

Create effective procedures for the implementation and application of this Agreement and for the resolution of disputes.

Coverage of Japan-India CEPA: Trade in Goods (Market Access, General Rules, Rules of Origin,

Customs Procedures) TBT/SPS Trade in Services Movement of Natural Persons Investment Intellectual Property Government Procurement Competition Improvement of Business Environment Cooperation

For India: Access to US$ 5 trillion GDP

●For Japan: More business opportunities in India

Export 36,85,68Import 24,88,588Balance 11,97,047Year on Year % Change Export

4.9%

Year on Year %Change Import

7.2%

Share of Export

1.4

Share of Import

0.8

Trade between Japan and India April2011/April2012

Trade Between Japan and India 2008‐2011

Source: compiled from MOF and JETRO Japan

(Millions of USD)

Japan’s FDI into India has QUADRUPLED.Japan was the 3rd largest source of FDI in India in 2010.

Foreign Direct Investment in INDIA

FDI Break up from July 2011

July –Sep $496 Million

Oct-Dec $1,492million

Jan- Mar 2012 $565*million

•Provisional•Source JETRO

Trade in GoodsAbout 94% of the tariffs between Japan and India will be eliminated within 10 years (about 97% by Japan and about 90% by India) (on a trade value basis)Access to a highly developed Japanese market for the pharmaceutical sectorThe textile products including readymade garments

Service sectorServices sector, greater access for contractual suppliers, professionals such as accountants, researchers, tourist guides and management consultants who will now be able to provide their services in Japan.

Computer engineers but whole range of engineering services such as mechanical, electrical, construction, industrial, designengineers and project management specialists.

Instructors for yoga practitioners, classical musical and dance practitioners, chefs and English language teachers.

Computer engineers but whole range of engineering services such as mechanical, electrical, construction, industrial, design engineers and project management specialists.

Instructors for yoga practitioners, classical musical and dance practitioners, chefs and English language teachers.

Market Opportunities

Services

Investment opportunities in more sectors

INDIA’S STRENGTH•Human Resource-medical services-IT and ITES-educational services-Yoga- Legal services-Restaurant •Medical Tourism•pharmaceutical

OPPORTUNITY IN JAPAN•Aging population•Backend Support•Lifestyle Changes

JAPAN’S STRENGTH•Technology and proven SME•Large capital base•Processing industry•Need for market

OPPORTUNITY IN INDIA•SME needs a boost•Infrastructure development•Fruits and vegetables•Huge consumption market

Source: Japan Chamber of Commerce, Japan

India This agreement assumes more

significance it is the first time that India has concluded a bilateral agreement with an advanced industrialized country

It is also the first truly comprehensive agreement concluded by India as it goes far beyond the other agreements, given the wide range of issues it covers.

Japan With this agreement Japan

moves beyond the geography of East Asia.

With the need for new market to survive -India a growing economy and a growing population provides the necessary platform

An agreement encompassing a large area of cooperation is expected to give a boost in the positive direction

Section: 2 Some Insight

India’s ascendance as an economic power has among other things unraveled a huge consumer market.

Mckinsey Global Institute suggests that if India continues at an average 7% -7.5% growth, average household income will triple in next two decades and India will move from 12th position to 5th position as a consumer economy

Population of India 1,027,015,247.2 % of thepopulation Means > 2 million

Source: compiled from census data and Mckinsy report 2010

Estimated Population of India  1.4 billion

Source: compiled from census data and Mckinsy report 2010

There are 300 million children aged between 4–14 years in India — a vast market by any standards. They are today influencing buying products like mobiles, cars, air conditioners, which were earlier decided by their parents.Moreover, the age bracket of 10-14 years are often playing the role of a consultant as they are tech savvy and are able to access comparative data and give a justification to the product choice. At the same time double income has boosted economic power and parents have become more indulgent towards their children.

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Kids  are decision makers !

With the vast majority of its population below the age of 30 years

This group has high disposable income,

internet savvy have a great love for brands and

gadgets.

They are well informed about global fashion and aspire to be trendy and in sync with the youth of the world.

High on consumerism and ever looking for new features in consumer durable products, they are high on replacement.

They have significantly changed the dynamics in the cosmetic market,

mobile phones and apparels

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“Darling” for the consumer goods industry!

New Consumer RURAL SECTOR

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Future of 

India

There  are  regions  of  India  that  are growing  at  15–30  per  cent  in  terms  of spending  power.  The  aspirations  of  the populations  in  the  semi‐urban  and  rural areas  are  also  much  greater  than  their urban  counterparts,  especially  because they  are  being  exposed  to  a  range  of products  and  services  that  they  have never seen before. This  translates  into a larger  marketing  opportunity  for companies.

Technology  has  given  rural  India  a  new identity 

With  a  lot  of  policies  driving  literacy, health  and  community  development  in the  rural  sector,  and  a  strong move  to integrate the two worlds 

New Consumer WOMEN

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The urban woman wants to break out from her traditional sacrificing image, but does not want to go all the way. She wants to conform to the values she believes in and yet wants to do her own thing.

This category has two distinct groups-The professional self earners-The educated house wifeHowever both are the key decision makers of the sectors under consideration

A growing number of high profile women, who desire the best and are creating niche market for power dressing and boutiques.

A strong desire for self indulgence, leading to self pampering in the form of beauty services, vacations.

Progressively Assertive !

This consumer is wealthy, eager to spend

and most importantly, has the desire to indulge in luxury.

This segment is in an emerging phase with a strong desire

to connect to luxury. Source: Consumer Analysis Technopack 2011‐2012

200 respondents in the family income bracket of Rs 100,000 ( $ 2000) to > Rs.300,000 (>$ 6000)per month

Age Bracket of 25 – 60 Selective Purposive Sampling Gender Males 26.5%, Female 73.5%

From National Capital Region- Delhi, Gurgaon and Noida

Age group25-30 2%30-40 28%40-50 64.8%50-60 5.2%

Family Income level above 100,000 rupees a month US $ 2000, Yen 150,000 an upwardly mobile

2.7% of Indian population pay income tax and this group is well within this category

Selective sampling such as to include professional and housewives.

Most of the families take an yearly vacation abroad.

MONTHLY INCOME

Compiled from Questionnaire data

• 25.7% of the Respondents are professional

- Earning Rs 100,000 a month

- They have high disposable income for self pampering

- Well travelled

- Major consumers of - cosmetics

• 71.9% of the respondent are

• Housewives • With very high

Disposable income• Spends sizable amount

of money on self • Strongly influenced by

international brands• Extremely scrutinizing

and strong price sensitive

• 2.4% of the respondent

• Both professional and housewives.

• In the category of income level 10 0 thousand and 200 thousand

Rupees as family income.

• Strong priority driven consumers

• Have little interest in self pampering

Section :3 Some Pointers

Compiled from Japan national Tourism organisation 2003‐2010

Pacific Asia Travel Agency estimates 12.5 million Indians travelled abroad in 2010 and by 2020, predicts the World Tourism Organisation, India will account for 50-million outbound travellers.

In 1997, India’s outbound market, the fastest growing in the world, stood at 3.7 million visitors. This year, it is estimated to touch between 11 million and 13 million.

“Greater spending power has resulted in Indian families taking multiple international holidays in a year,” says Thomas Cook India COO Madhav Pai.

Hotel Price Index by Hotels.com, the world’s leading hotel booking website, shows that Indian travellers are now the sixth largest spenders on hotels abroad.

On an average, Indians spent Rs. 6,722 while travelling overseas, compared to Rs. 4,136 while travelling within their country in 2010. .

2.9%

Compiled from Respondent data

Source: respondent data

?

Source: compiled from respondent data

Source: compiled from respondent data

Source: compiled from respondent data

Confederation of Industry of India claims 20% growth per annum for cosmetic market.

More women are in the job market and are also becoming independent financial decision makers.

As older women have more cash and are more conscious of their appearance, especially skin, they are willing to spend more on separate sets of creams and lotions that target problem areas.

Various surveys in 2011 highlight that males have developed a special craze for cosmetic application and their monthly expenses rose by about 60%-80% during the period.

New awareness in the rural sector, resulting in aspirations to follow the urban consumers.

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SME Sector Infrastructure financing

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…experience, technology and finance

WHAT INDIA NEEDS

Quality Labor

Manufacturing Sector

‘ Increase the share of manufacturing in GDP from 16% to 25% and create 100 million additional jobs by 2022. ’

(National Manufacturing Policy, Jun 08, 2011 )

Innovative strategies for entering SME sector of India growth potential calculated to be 55%

WHAT JAPAN CAN OFFER

Expertise and technology in such areas as steel, electronics, auto, pharma…

Human resource development

Finance

Salary (USD/month)

Viet Nam

Myanmar

Pakistan

Bangladesh

Sri Lanka

Cambodia

ThailandPhilippine

Malaysia

Indonesia

INDIA China

Increase in Basic Salary (%/year)

(Source: JETRO)

AVERAGE (177USD)Labor Cost in Asia

AVERAGE (9.4%)

Auto Components  and Accessory market

Started with Japanese component but lost to China

Price being the major deciding factor

Further, growing trust on some Chinese companies

Some components of Japan continue to have a presence because of quality

India needs US $1 trillion and more towards infrastructure financing which includes

Road Ports Power Airports On a Public- Private Partnership ( PPP)

There are some Infrastructure financing companies who have necessary balance sheet strength to absorb Japanese long term debt and equity.

Reserve Bank of India (RBI) has now created a special category of Non- Banking Finance Company(NBFC) called Infrastructure finance companies

These companies are closely monitored by RBI hence is a good opportunity

- A legal framework between two government giving a clear direction of long term vision.- A bilateral agreement harmonizing a historical relation between two countries.- A document essential in current world scenario, where EPA/FTA is becoming a order of the day

Japanese business understanding of India market dynamics needs more probing

Positioning the product to the right segment of Indian consumers and addressing them effectively is important.

The need therefore is to focus and identifying the relevant consumer/ business segment

To do this it possibly requires an approach significantly different from that of the current approach.

The sectors selected were those which there are phenomenal opportunities for Japanese

business.

Japanese SME have a great market awaiting them.

With CEPA and strong government to government relations only way is

FORWARD

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