Mitsui Is Hesitant to Invest in India on Poor Infrastructure
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Nov. 19 (Bloomberg) -- Mitsui & Co. has been discouraged from investing in
India because of the country's poor roads, ports and other infrastructure,
said Gempachiro Aihara, the head of Asian operations at Japan's
second-largest trading firm.
Congested ports and roads and power shortages add to the cost of operations
in India, prompting Mitsui, Ford Motor Co. and other multinationals to
invest more in China, which spends three times more on infrastructure than
India.
``Quite frankly, there is still a lack of infrastructure in India,'' Aihara,
chief executive officer of Mitsui & Co. (Asia Pacific) Pte., said in an
interview in Singapore at the weekend. ``These basic issues are still very
much needed in high speed.''
Prime Minister Manmohan Singh had identified India's inadequate capacity in
roads, ports and power as the main barrier to faster economic growth, and
has focused on enhancing them since he assumed office in May 2004. Mitsui's
comment suggests his efforts haven't paid off as yet.
Japanese companies invested $2.15 billion, or just 6 percent of the total
foreign direct investments into India, according to the Confederation of
Indian Industry. They have shied away from investing in India because of the
country's inadequate infrastructure, a 2006 survey by the Japan Bank for
International Cooperation said.
Mitsui, for example has invested $5 billion in China in areas ranging from
manufacture of silicon for semiconductors to oil and coal mining. Mitsui's
investment in China is more than 10 times the amount it has put into India,
where it has a stake in a free-trade warehouse zone near New Delhi.
Cash to China
Finance Minister Palaniappan Chidambaram said last month that India, which
spends about 5 percent of its $906 billion gross domestic product on
infrastructure each year, needs to raise it to 9 percent of GDP. China
spends about $150 billion on public works each year.
Better infrastructure in China has allowed it to attract an average $60
billion of foreign direct investment each year since 2004, more than four
times the flows into India, helping drive growth of more than 11 percent in
the past three quarters. India has grown close to 9 percent during the same
period.
India's expansion, the world's second-fastest after China, is fueled mainly
by local private and government spending, which make up 95 percent of the
total investment in the South Asian economy.
India's electricity shortage reached an eight-year high last year. Highways,
which move almost 80 percent of the goods transported in India, account for
only about 2 percent of the country's roads. It takes an average 85 hours to
unload and reload a ship at India's major ports, 10 times longer than in
Hong Kong or Singapore, according to government figures.
Tax Breaks
``If infrastructure improves in India, then lots of companies from Japan and
other parts of the world will come,'' Aihara said.
Improving infrastructure has a long gestation period. To address it in the
immediate term, India is providing as many as 10-year tax holidays to Indian
and foreign companies to build special economic zones, which are industrial
enclaves with world-class roads, power connectivity and other public works.
``We are little bit cautious about that,'' Aihara said. ``There is a lot of
protest against it by farmers.''
While many special economic zones have taken off, some such as the one in
Nandigram, a village in India's eastern state of West Bengal, have seen
violent protests by locals against factories being set up on their land,
creating doubts among international investors about the success of these
zones.
Japan is now taking the lead to build a $90 billion infrastructure corridor
between India's capital of New Delhi and Mumbai, the nation's financial
center. The project includes freight lines, power stations and improved
access to ports and airports.
``We are now looking with interest in the corridor between Delhi and
Mumbai -- there are lots of possibilities for industrial zones in this
stretch,'' Aihara said.
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