Addressing Concerns of MNCs: The green channel

“The new cell for South Korea will be tasked with dispensing information to Korean companies on Indian policies and give them a platform to put forward their concerns. The cell will comprise officials from all the economic ministries. The plan is to also rope in private sector to ensure stakeholder participation. Terms of reference will be issued soon,” an official in the know of the development told The Indian Express. The official added that the special facilitation cell will have people who are well-versed with the language and issues concerning South Korea.
South Korea, with which India had a two-way trade worth $16.67 billion in 2013-14, had demanded such a committee while seeking equal treatment with Japan. The country, which has brought in FDI equity inflows worth $1.54 billion in India since 2000, has “also demanded an upgrade of their comprehensive economic partnership agreement (CEPA) with India, seeking similar concessions given to Japan and a wider access to the Indian market”. The CEPA between Seoul and New Delhi was signed in 2009 and took effect in January 2010.

In October 2014, the Department of Industrial Policy and Promotion (DIPP) had set up a special management team comprising representatives from the government and ministry of economy, trade and industry (METI) of Japan. The team, called Japan Plus, was tasked with entire spectrum of investment promotion including research, outreach, promotion, and facilitation. It was also to handhold Japanese investments across the sectors.

Two months later, ahead of US President Barack Obama’s visit to India as chief guest for Republic Day celebration, the DIPP, on December 3, set up another panel — an inter-ministerial committee — to iron out kinks in investment commitments worth Rs 20,000 crore from several US-based companies in sectors including automobile, railways, defence and information technology. Some 22 companies approached the committee with their concerns and wish-list.

Over six months and two meetings each later, the results are mixed. While some of the issues have been resolved, officials said, some of them are stuck at state level or require policy changes. Industry, however, is glad to have a platform to engage with the government.

“Directly or indirectly, around 20 Japanese companies are being facilitated by Japan Plus. So far, around 140 companies have been facilitated by it. As far as Japanese investments into India are concerned we see a positive trend in the coming years,” an industry representative of Japan Plus said.

Japan ranks fourth in terms of bringing FDI inflows into the country. In 2014-15, it brought in $1.72 billion compared to $1.71 billion in 2013-14. From April 2000 to February 2015, India has seen FDI inflows worth $18 billion from Japan, making it an important partner for India. The two countries implemented a CEPA in August 2011.

Kazuharu Kono, secretary general, Japan Chamber of Commerce and Industry in India (JCCII), said, “We have been making suggestions and raising concerns of various sectors to the DIPP and Japan Plus. We appreciate that the DIPP is seriously engaging with us and also the reactions to the concerns being raised by us. Nothing is going really smoothly but we have certainly noticed progress”.

Major issues taken up by Japan Plus:

Broadly, the main grievances being resolved through the Japan cell relate to taxation, lengthy procedures, infrastructure and ease of doing business. For instance, several Japanese companies have requested the government to ensure that the system of EDI (electronic data interchange) customs should interact with other regulatory agencies as well so that a single-window clearance is created. An official dealing with the matter said that the Customs department has already started 24X7 services at all major ports while its system has started interacting with plant quarantine and food safety standards departments. “Other systems are being linked too and single-window would soon be in place in true sense,” the official added.

Another issue pertains to Japanese pharmaceutical major Eisai Co. Ltd, which has requested for a restoration of tax benefits given to special economic zones. It had invested $50 million to set up a manufacturing unit in Visakhapatnam SEZ.

Further, tax treatment of trading units from Japan has also been raised. “They contend that they should be treated as services units as they are just acting as an intermediary for sale of goods. However, the income tax department is treating them as sogo shosha (general trading companies in Japan that trade in a wide range of products and materials along with acting as intermediaries). This increases their tax. They have sought an amendment in the income tax act,” another official added.

Further, while Mitsubishi Chemical Corporation has sought a hike in basic Customs duty for PTA from the current 5 per cent to 10 per cent, medical equipment traders have urged the government to prune the process for selling the equipment in the country. Then there are concerns relating to lack of proper infrastructure in states like Tamil Nadu, Haryana and Maharashtra. However, the states are yet to respond to them.

US inter-ministerial committee:

The committee has so far received 40 presentations from over 20 companies which have approached the government through the panel to get their matters resolved.

“Almost all of them have been taken up by the DIPP and there has been some progress in a few cases. Some of them are policy issues, others relate to infrastructure, and procedural in nature. The work is on but for anything concrete to emerge, it will take some time. It is too soon to measure the success rate,” a senior DIPP official said.

The official added that many of the issues are stuck at state-government level and not much movement has happened there. Industry body CII said that these task forces reflect the intent of the government to make India an attractive investment destination.

Chandrajit Banerjee, director general, CII, said, “The constitution of the inter-ministerial taskforce on the US and separately the management team on Japan Plus are examples of how focused attention can be given to attract investments. Going forward, these would become examples which, we are certain, even other countries would start to emulate. This is also demonstrative of the high importance that the government attaches to foreign investments, especially those that come at the high end of technology.”

Companies including JP Morgan, GE India, Ford India, Heinz India, Jupiter Satellite India Ltd, Dell International Services, NCR Corporation, eBay, BAE Systems and Honeywell have approached the fast-track committee to get their issues resolved. Since April 2000, FDI worth $13.62 billion has flown into the country from the US, the sixth largest share in top 10 countries in terms of FDI.

“JP Morgan wants to set up an ITeS LLP. However, telecom department allows only companies. After they approached the committee, the telecom department formed a panel in January to look into the issue. The report is expected soon,” a telecom department official said.

Similarly, Ford India has raised the problem of connectivity in Chennai and Gujarat and has sought flyover, improvement in road connecting Sanand to Pipavav Port, widening of Sanand-Bangaluru road, elevated express highway of 19 km between port and Chennai city outskirts among other demands. “Such issues will take time to resolve as these involve state governments as well and involve building of large infrastructure,” the DIPP official said.

As such, the official added that along with the improvement in ease of doing business in the country, several matters are likely to get resolved as states’ participation increases in attracting foreign investment and boosting foreign trade.