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How India-Japan tie up will fuel strategic growth for SMEs

The term - low cost manufacturing hub will make India a sourcing destination for countries worldwide and will give huge boost to the small domestic exporter community.

Tags: manufacturing hub, India-Japan, Narendra Modi, Shinzo Abe, SMEs, MSMEs, Small businesses, Infrastructure

BY Aparajita Choudhury  |  Oct 01, 2014 comments ( 0 ) |

Narendra Modi’s five day visit to Japan has been very successful in terms of taking strategic and economic cooperation between the two countries to a new level. Japan agreed to provide $35 billion to India over the next 5 years for various developmental projects in areas like clean energy, healthcare, roads, railways and highways, building smart cities, etc. Huge foreign investment will eventually bring India’s manufacturing industry on a global map making the country’s business environment friendlier, economic environment conducive for growth, generating employment opportunities, and creating level-playing field for Indian SMEs.


“The recent visit of Modi in Japan laid stress on India-Japan economic co-operation which is likely to have good impact on major sectors such as automotive, engineering, textile, agro food, etc,” says Vijay Kalantri, President, All India Industries Association.


The term ‘low cost manufacturing hub’ will make India a sourcing destination for countries worldwide and will give huge boost to the small domestic exporter community. Exporters in automotive industry and pharma industry have already experienced huge growth with India becoming a base for all major manufacturers to manufacture small vehicles, automotive components and spare parts, which are then shipped to their factories or assembly units in other countries.


“There are many instances where active pharma ingredients are sourced from India for use in global operations of pharma giants. If the emphasis on manufacturing stays, then India will emerge as a strong manufacturing base over the course of a few years,” says Vikram Dham, CEO and Co-Founder, Emkor Solutions.


India-Japan strategic tie-up can open the doors for small domestic manufacturers to manufacture more and more goods. Besides, the growth opportunity in India is very tremendous and MSMEs have always played a significant role in grabbing these opportunities.


“India-Japan tie up should create significant opportunities for domestic manufacturing as this is how it started in China several years back,” says Rahul Gupta, Chairman-SME Chapter, MAIT.


Sourcing from India is likely to create huge opportunity for small businesses to flourish over the next decade. But to gain foothold in the marketplace, there are some key factors which a small business needs to consider like building scale, reducing costs, strengthening innovation skills and building global standards of operation and quality control.


The only way to gain competitive advantage is to focus on the core business imperatives. Dham stresses on the fact that in order to survive, grow and thrive, SMEs in India need to have right systems, best practices, discipline and processes in place.


How will Indian SMEs Benefit?

India has realised that in order to build a sustainable bilateral relations between two countries, the first and foremost need is to invest in country’s infrastructure. Therefore, Modi has invited Japan to pump in around $33.58 billion in various development projects like infrastructure, and building smart cities over a five-year period.


With this investment, India is all set to upgrade its poor infrastructure by building better highways, efficient power plants and better ports. The SMEs in India will definitely experience the trickledown effect of such huge investment.


“If one infrastructural project gets implemented in India, then it will create a great opportunity for small companies. The Japanese investment will be very helpful and useful for SMEs, both in terms of increasing their revenue and lowering the cost,” states Viren Malhotra, a scale-up expert in the SME industry.


Kalantri agrees with the above statement and asserts, “Whatever investment comes, the beneficiary will be the Indian SMEs. Big companies like Suzuki, Maruti, Toyota and others are supplied by SMEs only.”


Small businesses always play a crucial role in tapping the growing market. Modi has endorsed inclusive growth many times and the involvement of SMEs in any project can serve as the next wave of growth. “Projects like the freight corridors along Eastern and Western India cannot be completed without outsourcing small local businesses. All these outsourcings and the zeal to build infrastructure will lead the flow of capital to small and medium businesses in India,” explains Dham.


Boost to IT, Engineering Sectors

The definition of smart cities is apparently assembled to urban settlement which involves usage of technology to build efficient public transportation, structured living conditions with better management of energy resources, water, traffic, safety and security for residents. The much hyped smart city initiative intends to minimise pollution, maximise recycling and reduce wastage.  All this requires a huge level of investment into technology and infrastructure which will enable the tech start-ups and small IT firms to scale up.


Anil Khaitan, Chairman (Industry Affairs Committee), PHD Chamber, says, "Smart cities project will provide proper housing, entertainment facility, shopping, education, medical facilities, hospitals and nursing homes. Smart cities are going to be wi-fi  enabled cities, so that will also be a tremendous advantage to the MSMEs." 


However, Malhotra emphasises that Wi-Fi connectivity is just one element of smart city project. To progress the quality of the existing cities, there are multiple elements which need to be improved like land acquisition, water supply, power supply, good roads, schools, and hospitals so that it will be a good fall out for IT and infrastructure companies when smart city project will get implemented in India.


“Smart cities can only be built if we develop every nook and corner of the country. So the project will benefit not only IT sector but various sectors simultaneously,” says Kalantri.


Amendments in Existing Policies

In India, plethora of unfavourable policies restricts foreign countries to establish their business in India. The vital task of the government is to make business environment friendly and remove policy bottlenecks to attract more and more investments.


The present policy and tax structure in India requires some of the key amendments which encompasses uniform goods and services tax, reduction in the cost of finance, progressive policies, smoother functioning of the bureaucracy and better taxation regime. Policies that are both rational and transparent will encourage companies to invest locally for long term.


With the new government at the helm, India is all set to open its centres of investment for private capital and making India emblematic of business efficiency, speed and scale. And if this move gets implemented, then it is likely to create an environment which will be friendly to both – business and investment.


“We have to make it business-friendly. Right now, we are not business friendly. Issues like land acquisition, retrospective tax issues, infrastructural issue are making it difficult to invest and operate on a day-to-day basis. All these things need to be sorted out,” asserts Malhotra.


Impact on Business Eco-system

The progressive relation between India and Japan seems to trim down the tariff barriers for small domestic companies. With new investment pouring into infrastructure and communication, smaller companies can take the benefit of better export performance via better ports and shipping, railways, roads, airports, telecommunication, business environment and logistics.


The successful India-Japan tie-up will provide a growth and innovation platform for small businesses and help them to build strategic expertise on every aspect of business. It will also open the Japanese market for small companies based in India and make it easier for them to do business there. SMEs in sectors like biotechnology, engineering, specialty manufacturing, electronic hardware and energy etc will gain learning from the best manufacturing practices of Japanese SMEs.


“There is much reason to cheer for Indian SMBs as both India and Japan look forward to concluding regional partnership agreements and promoting greater co-operation between businesses in both countries,” concludes Dham.


Image Courtesy: PTI and Agencies

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