Phase II Post Liberalisation. Japanese FDI in the post liberalisation phase can be divided into two phases – in the first phase from 1991 to 2000 the permissible equity participation was 49 percent in a limited number of sectors. The FDI inflows received from Japan during the period 1996 was US$ 0.26 billion, which significantly increased to US$ 2.8 in 2012 (figure 3). The FDI outflows (OFDI) are meagre in comparison to FDI inflows during this period. Major surge in FDI inflows occurred after 2006. These figures have been detailed in Annexure 2. FDI came into automobiles, telecommunications, fuel, chemicals and trading, mainly through technical collaborations. In the initial years, Honda in the automobile sector and Sony in the electronics sector were the two important Japanese brands that made their entry. By the end of the decade, important brands like Toyota, Toshiba and Panasonic had also entered the Indian market. There was also a proliferation of companies in auto parts, fuels and chemical and industrial goods. India’s diverse culture and complex socio-economic factors accompanied by a plethora of legal provisions, different policies and regulations in different parts of the country and a volatile labour situation created a challenging business environment which discouraged Japanese enterprise. In the second phase, from the 2000 till date the cap on foreign equity participation and on permissible sectors was gradually raised. Foreign participation was permitted up to 100 per cent in most sectors from 2000 onwards. FERA was replaced by the new Foreign Exchange Management Act (FEMA) and in a significant development in 2005, foreign companies already operating in one sector were allowed to re-invest in another sector, through the automatic route. This permitted the foreign company to be treated as the equivalent of a domestic company, allowing it access to sectors that had so far been denied to it (Choudhury, 2009). The period 2000 – 14 saw Japan emerge as the fourth largest contributor of FDI to India, accounting for 7.46% of total inflows, but India lags far behind China, USA and smaller Asian nations such as Thailand and Indonesia which receive a greater magnitude of FDI from Japan.iv There were 2542 Japanese business establishments in India in 2013v, which is an increase of 25.09% over the previous year. The drugs and pharmaceuticals and automobiles sector emerged as the highest recipients of Japanese FDIvi, driven to an attractive emerging market with a high disposable income a...
