A resurgence of Japanese interest in India is worth meditating on. Nippon Steel is part of a bid for its bankrupt rival on the subcontinent, Essar Steel. That would mark a revival of high-profile dealmaking in India after several big flops. The two countries share a spiritual affinity through Buddhism; healthier financial relations will also help create the harmonious, democracy-led region that Tokyo and Washington both want.
Market opportunity
India’s rapidly growing middle class represents a huge opportunity for Japan, a rich country with a shrinking population. Still, Mumbai’s bankers have enjoyed fewer trips to Tokyo in recent years as companies there grew wary of investing in the developing market.
Data from the Indian embassy in Tokyo shows foreign direct investment peaked around 2008 and 2009, with mega-deals including NTT DoCoMo’s $2 billion purchase of a stake in Tata Teleservices and Daiichi’s Sankyo’s $3 billion-plus acquisition of drugmaker Ranbaxy Laboratories.
Both deals were disasters. Tata Teleservices performed badly and then, to exacerbate the pain, the RBI tried to prevent DoCoMo from recouping half of its original investment as part of a pre-deal insurance policy agreed upon between the two companies. Meanwhile, Ranbaxy ran into big trouble with U.S. regulators. Daiichi Sankyo alleged that the previous Indian shareholders hid information; it eventually sold the company to a domestic rival. Both Japanese groups took their cases to international courts.
The two cases are not the best advertisement for big bets on the subcontinent. It is against this backdrop that Nippon has teamed up with Luxembourg-based ArcelorMittal to bid around $6 billion for Essar Steel. The Japanese probably hope that investing alongside the Mittal family, as a quasi-local partner, will help avoid nasty surprises. A deal would follow smaller investments by Japan’s SoftBank into tech start-ups and a 50-year loan from Tokyo to build a bullet train linking Mumbai with Ahmedabad.
More investment will also lend credibility to the idea of a “free and open Indo-Pacific”. This regional concept, in which authoritarian China is not the centre, is a core plank of Japan’s foreign policy, and has been talked up by U.S. President Donald Trump. It is an ambitious vision that will sound more plausible if Japanese companies can invest in India without losing their shirt.
(The writer is a Reuters Breakingviews columnist. Opinions expressed are her own.)
