Japanese firms invested heavily in India

Japanese firms invested heavily in India

The latest published figures on FDI Foreign Direct Investment in India reveal that Japan’s companies have invested USD 1.5 billion in 34 such ventures up to October 11, 2012

All in all, Japanese companies have spent USD 10.7 billion in 573 overseas acquisitions this year through October 11, thus topping the record of last year that amounted to USD 84 billion and breaking the USD 100 million for the first time. Before there were mainly investments in the automotive sector but the recent deals entail companies from other industries trying expand their business in India, especially also because of the political tensions between China and Japan.

India’s economic growth rate is now estimated at 5.5 % during the actual fiscal year ending March 31, 2013 and thus still amongst the fastest-growing major nations of the world. It has to be noted that half of India’s population is less than 25 years old and therefore the basis for potential growth for many years.

In contrast, Japan’s economy is expected to grow around 2.2 % this year and the number of children in Japan has been shrinking for straight 31 years and nearly a quarter of Japan’s population is now over 65.

India and Japan have historically cordial business relations and this is why India is a natural choice. The latest investments are in financial institutions and insurance businesses, but also in the communication and IT sector. The investment is also propelled by the fact that the Indian government finally is deciding on greater foreign direct investments in retail and aviation but the act is still not validated. TextileFuture has been reporting on the development and keeps you posted.

The global perspective

Let’s just have a glance on global direct investment, according to the United Nations Conference on Trade and Development on October 23, 2012, fell 8 % to USD 668 billion in the first six months of the ongoing year, translating in a backlash of FDI in the U.S. and other mature economies but also Russia and India posted large declines, with the exceptions mentioned. And for the first time FDI in developing economies matched flows to developed economies for the first time ever. At best global FDI activities will remain at last year’s level of USD 1.6 trillion for all of 2012.

China stays at the top of the rankings with an influx of USD 59.1 billion in the first six months of 2012, but in the matching period of 2011 the figure was USD 60.9 billion. As we outlined above, developing economies are more appealing to businesses. And FDI takes a number of forms, including M&A Mergers and Acquisitions, building new facilities, reinvesting profits earned from overseas operations and intercompany loans. It is still a fact that FDI is responsible for a significant portion of total business investment in many countries. Stagnant flows of such investment are deepening a slowdown or compound existing problems. The FDI flows to South Asia – including also India with 43 % leass in the first half – fell 40 % to USD 10.4 billion (USD 18.2 billion) in the first half year of 2012.

FDI into the U.S. peaked in 2000 at more than USD 300 billion but then they were tumbling in the recession following. They surged again in 2008 to their near peak and tumbled again during the financial crises. In the first half year of 2012 FDI amounted to USD 57.4 billion, whereas the figure for the same period in 2011 amounted to USD 94.4 billion.

FDI in the euro zone declined only slightly, but the currency area’s woes led to a slump in flows to many parts of Central and Eastern Europe (-28%) and FDI in Russia fell 39 %. By contrast FDI directed to Latin America rose 8 % and flows to Africa were up 5 %, whereas the inflows to the Middle East were little changed.

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