News related to Indo-Japan Business Tie ups, Deals and new developments. in IJTI, June 2013- a monthly Newsletter by Japan Desk of Corporate Professionals, New Delhi, India.

1. 2013
Indo-Japan Trade & Investment
Bulletin
June Issue
Japan Desk, Corporate Professionals

2. Indo-Japan Trade & Investment Highlights
Isuzu Motors assembles a Contract Manufacturing Agreement with Hindustan Motors
NTT DoCoMo to Sell its Stake in Tata Teleservices
Dr. Reddy‟s Laboratories and Fujifilm Call-off the JV Plans
Trade Organisations of India and Japan to Strengthen Trade Relations
India to buy Amphibious Aircrafts from Japan
SAIL to establish a Joint Venture with Japan‟s Kobe Steel
Larsen & Toubro along with Japan‟s Sojitz wins INR 6700 Crore Railway Project
Mitsubishi Heavy Industries enters Licensing Agreement with India‟s Tecpro Systems
Maruti Indigenizing its Production to Counter Increased Costs due to Falling Rupee
India becomes one of the Top 5 Key Global Markets for Sony
Japanese Electronics Companies turn to India for Brighter Opportunities
Consistent Growth in India‟s FMCG Market attracts Japanese Food & Beverage
Companies
Coal India to Prepay Japanese Loan as Indian Rupee loses Ground to US Dollar
Japan‟s GIFTEX WORLD 2013 Exhibition to see an Overwhelming Indian Participation
Toyota‟s decision to Set-up a Diesel Engine Plant in India yet to be Finalized
Japan‟s Print and Imaging Major Konica Minolta has Robust Growth Projections from
Indian Operations
Japan‟s Auto Maker Honda finds Provisions of the Proposed Indo-EU Free Trade Treaty
Unfair
Reliance Capital Partners with Japan‟s Leading Financial Institutions to Set-up Bank
India surpasses Japan to Become the Third Largest Smartphone Market in the World
Knowledge Centre
The Curious Case of FDI in Multi-Brand Retail Trading: Life after DIPP Clarifications
INDEX

3. Isuzu Motors assembles a Contract Manufacturing Agreement with Hindustan Motors
Isuzu Motors India Pvt. Ltd., a subsidiary of Japanese auto major Isuzu Motors Limited has
finalised its arrangement with Hindustan Motors Limited of India for contract manufacturing of
Isuzu brand named SUVs and pick-up trucks in India. As per the agreement, Isuzu will import
components for production of these vehicles from Thailand and assembly will take place at
Hindustan Motors‟ plant at Thiruvallur, near Chennai, Tamil Nadu.
Isuzu is already in the process of building its own manufacturing plant in India which is likely to
be located at Sri City, Andhra Pradesh, roughly 70 kilometres away from the Hindustan Motors‟
plant in Thiruvallur. The arrangement with Hindustan Motors will enable Isuzu to advance the
scope of their sales operations and strengthen the scale of supply volumes before the Sri 100 acre
site in Sri City, which is coming up with a planned investment of around Rs. 1,500 Crore1
,
commences commercial operations by the end of 2015 or early 2016.
NTT DoCoMo to Sell its Stake in Tata Teleservices
Sistema Shyam TeleServices Limited (SSTL), a joint venture between Shyam Telecom of India
and Sistema of Russia, is said to be in advance talks with Tata Teleservices to acquire stake of
Japan‟s NTT DoCoMo‟s and part of the Tata Group's holding in Tata Teleservices. However, it
is believed that the transaction will be held up for the time being awaiting the new merger and
acquisition norms in the telecom sector to be notified soon. The current norms may not be
conducive for the deal as SSTL may be required to either surrender or pay market price in order
to retain the rights to airwaves held by Tata Teleservices.
Dr. Reddy’s Laboratories and Fujifilm Call-off the JV Plans
Dr. Reddy‟s Laboratories of India and Fujifilm of Japan have cancelled their plan to form joint
venture to manufacture and distribute generic drugs in Japan. Both the parties had entered into a
memorandum of understanding, which was signed on 28 July 2011, to exploit opportunities in
the Japanese generic drugs market. The decision to terminate plans came after mutual consent of
both the parties to realign their long-term growth strategies. Both the companies plan to continue
the relationship with each other to exploit opportunities in the other fields of pharmaceutical
sector such as active pharmaceutical ingredient, contract research and development,
manufacturing, and marketing of super-generics.
1
1 Crore = 10 Million
Indo-Japan Trade & Investment Highlights

4. Trade Organisations of India and Japan to Strengthen Trade Relations
Federation of Indian Export Organisations and the Japan External Trade Organization signed a
memorandum of understanding (MOU) that is aimed at strengthening bilateral trade and business
ties apart from facilitating information exchange among business communities and new trade
avenues in each other‟s countries. The objectives of the MOU are sought to be fulfilled through
activities like business match-making events, seminars, exchange of trade information and
participation in trade exhibitions. Both the organisations intend to focus primarily on promoting
business ties amongst small and medium enterprises (SMEs) from India and Japan as SMEs have
limited resources and platforms for business networking across the borders.
India to buy Amphibious Aircrafts from Japan
After testing amphibious aircraft from Canadian manufacturer Bombardier, Japan‟s Shin Mayqa
and Russia‟s Beriev, the Indian Government plans to buy 15 amphibious aircrafts from Japan
after deciding the terms of cooperation. The amphibian aircrafts will help the country in keeping
up with its Geo- Strategic Security and shall be used for maritime patrol, anti-surface warfare,
electronic intelligence and search-and-rescue missions. This sale will be the first sale of a
finished defence product manufactured by a Japanese firm after the lifting of the age old ban by
Tokyo from the arms export.
SAIL to establish a Joint Venture with Japan’s Kobe Steel
Going ahead with the MOU signed last year, India‟s largest steel maker Steel Authority of India
Limited (SAIL) will soon establish a joint venture with Japan‟s Kobe Steel to set up an iron
nugget plant in the State of West Bengal. The plant which will be able to produce 0.5 million
tonnes of iron nuggets would cost around INR 1500 Crores. The plant is touted as the second
biggest foreign direct investment (FDI) in West Bengal after Mitsubishi Chemicals' MCC PTA
project.
Larsen & Toubro along with Japan’s Sojitz wins INR 6700 Crore Railway Project
Indian engineering major Larsen & Toubro (L&T) along with its Japanese consortium partner
Sojitz has won the INR 6700 Crore contract in railway business from Dedicated Freight Corridor
Corporation which would require the Company to build a 626 km long double track corridor
spanning three states. This contract is the country‟s largest project awarded so far in the rail
sector.
Mitsubishi Heavy Industries enters Licensing Agreement with India’s Tecpro Systems
Japan‟s Mitsubishi Heavy Industries through its subsidiary MHI Mechatronics Systems has
entered into a licensing agreement with India‟s leading engineering, procurement and
construction (EPC) company Tecpro Systems Limited to provide its advanced electrostatic

5. precipitator technology. Pursuant to the agreement, Mitsubishi will provide technology related to
EP engineering, procurement and construction. This has come in the wake of expectation for
increased demand for high performance EPs based on the 12th Five Year Plan during which a
number of power plant construction projects are expected to come up and environmental
protection regulations strengthened.
Maruti Indigenizing its Production to Counter Increased Costs due to Falling Rupee
In the wake of the ever depreciating Indian Rupee, the car market leader Maruti Suzuki which
has till now been importing steel and machine tools from Japan has been forced to think about
localization in India to keep the costs under control. This is because the fallen Rupee increases
not only the royalty which Maruti pays to its parent for using its brand name and technology but
also shoots up the import bills. Maruti has asked its vendors to use more local materials like steel
alloy and has been emphasizing on local machine tools to keep the costs under check.
India becomes one of the Top 5 Key Global Markets for Sony
India has become one of the top five markets in Japanese electronics giant Sony‟s portfolio,
thanks to the high sales of televisions and mobile phones. Within 2 years, Sony India has jumped
from 9th to the 4th position among Sony‟s key global markets, trailing behind only US, China
and Japan. However despite this, Sony India which has been importing goods from China,
Malaysia, Japan and Thailand, does not seem to have any plans to start major manufacturing
operations in India.
Japanese Electronics Companies turn to India for Brighter Opportunities
India has emerged as the knight in shining armour for Japanese consumer electronics companies
like Sony, Panasonic, Hitachi, Daikin and Sharp as the sales in developed economies have
steadily dwindled down. This has led to these companies investing heavily in India. Earlier
Japanese companies stayed focused on the Chinese markets while the Korean players like
Samsung and LG established a strong foothold in the Indian market; but now as the political
problems have led to weakening of demand in Chinese market, Japanese companies are diverting
focus to other strategic markets. In line with the same, the Japanese companies have reduced
prices of their products in India by 10%– 20% to keep in sync with their Korean competitors.
Consistent Growth in India’s FMCG Market attracts Japanese Food & Beverage
Companies
Japanese Processed Foods & Beverages (F&B) companies are investing in the Indian market
whole-heartedly, which is evident from Japanese businesses both old and new foraying into India
either through joint ventures (JV) or acquisitions. One major example of this is Kagome, a
leading tomato ketchup and juice manufacturer in Japan which has recently entered into a JV

6. with Indian agro & branded foods major Ruchi Soya and Japanese trading company Mitsui to
launch premium tomato purees, sauces, ketchups, etc by June 2014. As per KPMG, Japanese
attraction in the F&B sector can be majorly attributed to India‟s consumption growth which has
relatively been stable in the last few years.
Coal India to Prepay Japanese Loan as Indian Rupee loses Ground to US Dollar
In the wake of Indian Rupee continuously falling against the US Dollar, Coal India has decided
to prepay a loan from the Japanese Exim Bank the outstanding amount of which shall linger
somewhere between INR 300 – 400 Crores owing to the current foreign exchange scenario. The
Company would have gone ahead to prepay the World Bank Loan as well but supposedly no
provision is available for the same.
Japan’s GIFTEX WORLD 2013 Exhibition to see an Overwhelming Indian Participation
Reaffirming the tremendous business opportunities that exist between India and Japan, the three
day GIFTEX WORLD 2013 - 8th International Variety Gift Expo - to be held from June 26-28,
2013 at the Tokyo Big Sight, Japan is likely to see an enthusiastic Indian participation with Ms.
Deepa Gopalan Wadhwa, ambassador, Embassy of India, Tokyo - Japan inaugurating the India
pavilion. Around 21 Indian handicrafts exporters will showcase a wide array of products ranging
from home accessories to kitchen ware, Christmas accessories to gift wrapping supplies and from
eco-friendly goods to gardening products. Japan reportedly imports goods & services worth USD
700 billion and is presently India's key trading partner in the Asian region.
Toyota’s decision to Set-up a Diesel Engine Plant in India yet to be Finalized
Toyota India in the wake of rising petrol prices and the demand for diesel engine vehicles, had
proposed setting up of diesel engine plant in India to the Japanese car maker. However, with the
scenario slowly changing and the gap between diesel and petrol prices narrowing, the final
decision to be taken doesn‟t seem to be on cards as of now. On the contrary, the Japan media has
already reported about Toyota India working towards setting up of a new diesel engine plant
with an annual capacity of 50,000 units.
Japan’s Print and Imaging Major Konica Minolta has Robust Growth Projections from
Indian Operations
Japanese print and imaging business house Konica Minolta hopes to more than double its
revenue from its India operations by the end of Financial Year 2015-16. The company which
sells production printing machines used for tabloid, magazines, posters etc and office printing
machines is looking to achieve a 50% and 25% market share in both the segments respectively.

7. Japan’s Auto Maker Honda finds Provisions of the Proposed Indo-EU Free Trade Treaty
Unfair
The Japanese auto maker Honda has expressed that though the Indo-EU Free Trade Treaty would
help India in development of its economy, it would make equal competition a little difficult by
providing preference to specific car makers. The company has planned to launch 4 new models
by the 2015 and is trying to reduce the waiting period which is currently around 4-5 months. The
company which has so far invested INR 6700 Crores in India since its entry believes in being
where the market is and has plants in South America, North America, Europe and most of Asia.
Reliance Capital Partners with Japan’s Leading Financial Institutions to Set-up Bank
The share prices of Reliance Capital jumped by more than 5% after the company announced that
it will soon move an application with the Reserve Bank of India for a banking license. The
company said that while it will be a promoter of the proposed bank, leading financial institutions
of Japan Sumitomo Mitsui Trust Bank and Nippon Life Insurance have proposed to invest
between 4% – 5% stakes in the proposed bank keeping in mind the regulatory approvals.
Another corporate which announced application for a banking license was Aditya Birla Nuvo.
India surpasses Japan to Become the Third Largest Smartphone Market in the World
For the first time ever, in this quarter of the year, India has surpassed Japan to become the third
largest smartphone market on the basis of volume with China and US leading the tow. The major
brands which sell like hot cakes in India are Samsung, Apple and Micromax along with other
indigenous brands like Karbonn and Spice growing by as high as 200-500 percent every year. As
per an independent research firm, Strategy Analytics, around 10 million smartphones were
shipped in India during the first quarter which is almost triple the number of smartphones
shipped in last year. As per the firm, smarphones market in India is growing four times faster
than the global average.

8. The Curious Case of FDI in Multi-Brand Retail Trading: Life after DIPP Clarifications
The Government of India has recently come out with a slew of clarifications on Foreign Direct
Investment (FDI) Policy that has a direct impact on the FDI Policy on Multi-Brand Retail
Trading (MBRT).
Group Company
Department of Industrial Policy and Promotion (DIPP) released the Press Note No. 2 (2013
Series) on 3rd
June, 2013 with the decision to incorporate the definition of “Group Company”. As
per the newly introduced definition, if two or more companies, directly or indirectly, hold 26%
or more of voting rights in the other or have the authority to appoint more than 50% of the
members of the board of directors in the other company, they shall be considered to be group
companies for the purposes of FDI Policy.
The newly introduced definition of “Group Company”:
“Group Company” means two or more enterprises which, directly or indirectly, are in a position
to:
(i) Exercise twenty-six percent (26%) or more of voting rights in other enterprises; or
(ii) Appoint more than fifty percent (50%) of members of board of directors in the other
enterprises.
Impact on Retail Sector
The notification promulgating the decision to include the definition of a group company has the
potential to affect the sourcing arrangements of some of the companies engaged in Cash & Carry
Wholesale Trading (C&C) and MBRT sector businesses.
As per the applicable law i.e. Consolidated FDI Policy, 2013 (FDI Policy), upto 100% FDI under
automatic route is allowed for those companies which are engaged in C&C business. However,
in the year 2010, when 100% FDI was allowed in C&C, FDI in MBRT was not allowed. DIPP
through Press Note no. 5 (2012 Series), issued on 20th
September, 2012, liberalised the MBRT
sector and allowed foreign investment of upto 51% in MBRT under the government approval
route. The approval for investment has been subject to certain conditions such as minimum
Knowledge Center

9. investment amount ($100 million), local sourcing requirement (30%), minimum investment in
back-end infrastructure and geographical limitations. It was an important milestone in the
liberalisation history of the Indian economy and a major step towards organizing India‟s largely
unorganized retail sector2
.
In order to circumvent the cap of 51% in MBRT and/or other regulations provided for by the FDI
Policy, a number of legal structures and arrangements were created that let the foreign investors
enjoy benefits without having to comply with FDI Policy regulations. The MBRT companies in
India entered into exclusive sourcing arrangements with the C&C companies having foreign
investments from big international retail companies. This structure ensured de-facto control of
the revenues of the investee MBRT companies having such arrangements with C&C companies.
Sensing such circumvention of legal limitations on FDI in MBRT and in order to bring certainty
to the definition of the concept of “Group Company”, DIPP notified the definition of a “Group
Company”. This definition has direct impact on such exclusive sourcing arrangements between
MBRT and C&C companies as the FDI Policy explicitly restricts wholesale trading of goods
among companies of the same group to a maximum of 25% of the total turnover of the wholesale
venture.3
Therefore, it means that if a C&C company has 26% or more voting rights, or has the authority
to appoint more than 50% of members of board of directors in an MBRT company, the C&C
company would be required to restrict its trading with the group company (i.e. MBRT company)
to 25% of the total turnover of the C&C company Consequently, it would appear that the above
mentioned cap of 25% on wholesale businesses‟ turnover to group companies is intended to
restrict the back-door entry of FDI in retail sector.
The effect of the provisions stated above it can be understood better in the context of one of the
most talked about investments in the sector, i.e. Bharti Walmart.
The companies like Bharti Walmart Private Limited, which is a 50:50 joint venture between
India‟s Bharti group and Walmart of USA, engaged in wholesale C&C business. Therefore, if
Bharti Walmart Pvt. Ltd. will either have to restrict their sale to the MBRT arm of Bharti i.e.
Bharti Retail Limited at 25% of turnover of the C&C venture, or Bharti will have to consider
reduction in its stake in Bharti Walmart Pvt. Ltd. to below 26% should it like to source more than
2
“Reforming India‟s Retail and Aviation Sectors and the Opportunities for Overseas Indians”, Overseas Indian Facilitation
Center, Mr. Pankaj Singla, October, 2012, available at:
http://m.oifc.in/Investing-in-India/Investment-Info/Insight/OIFC-Reforming-India-s-Retail-and-Aviation-Sectors-and-the-
Opportunities-for-Overseas-Indians
3
Consolidated FDI Policy, 2013, Point (d) of Para 6.2.16.1.2, “Wholesale trading of goods would be permitted among companies
of the same group. However, such wholesale trading to group companies taken together should not exceed 25% of the total
turnover of the wholesale venture.”

10. 25% of the total turnover of the C&C company.4
Interestingly, in the year 2011, sourcing by
Bharti Retail from its group company Bharti Walmart accounted for almost 60% of the turnover
of Bharti Walmart.5
Clarificatory Notes on FDI in MBRT
DIPP has also issued a clarificatory note on 7th
June, 2013 clarifying the various issues related to
conditions stipulated for FDI in MBRT. Clarified issues are written herein below:
1. Mandatory Sourcing from SMEs: One of the conditions of bringing FDI into MBRT is that
the investee company shall ensure at least 30% of the value of procurement of manufactured/
processed products purchased are sourced from Indian 'small industries' (SMEs) which have
a total investment in plant & machinery not exceeding US $ 1.00 million. There were a lot of
speculations with regard to the nature of this mandatory sourcing requirement. It was being
speculated that the mandatorily sourced products could be distributed either through retail
operations and/or C&C operations and/or export. However, DIPP has clarified that 30%
sourcing from SMEs will be reckoned only with reference to the front end store and that
MBRT companies cannot engage in any other form of distribution like cash & carry or
export for the foreign investor‟s international retail & trading operations.
It is very surprising that DIPP would decide to exclude distribution of mandatory sourced
goods through export as such a restriction not only discourages the potential investors but
also is a counter-productive mechanism that will directly discourage the potential export of
goods from India. One could argue that if the government policy (of having provision for
mandatory sourcing requirement and the recent clarification) was truly intended to save and
promote the SMEs, restriction on exports is only going to prove counter-productive. Foreign
investors must rather be encouraged to engage actively in promoting exports both from
SMEs and other entities.
DIPP has also clarified that procurement from SMEs shall be only manufactured and
processed products and not fresh produce, which is, however, in line with the original
provision governing the mandatory sourcing.
2. Investment in back-end Infrastructure: As per the FDI Policy, 50% of the contribution
received in FDI shall be used to build the back-end infrastructure of the investee MBRT
company. It has been clarified that:
4
“New Norm to hit e-commerce firms, cash-and-carry chains in India”, Live Mint & The Wall Street Journal, 03rd June, 2013,
available at: http://www.livemint.com/Industry/HquD6J3UMB7mrg3T6mLs5J/New-norm-to-hit-ecommerce-firms-
cashandcarry-chains-in-I.html
5
“FDI in retail: Respite for wholesalers like Bharti Walmart as government reviews 25% restriction clause”, The Economic
Times, 05th
June, 2013, available at: http://articles.economictimes.indiatimes.com/2013-06-05/news/39764570_1_bharti-
walmart-multi-brand-retail-dipp

11. a. 50% investment in back-end infrastructure has to be an additionality i.e. the
investment can be done in greenfield assets only and any acquisition of
supply/chain/back-end assets of existing entity is not allowed;
b. the investment towards back-end infrastructure can be made across the states,
irrespective of whether or not FDI in multi-brand retail is permitted in that state;
c. investments made in the companies operating in wholesale trading/ cash and carry
trading cannot be considered as providing back-end infrastructure to the MBRT
company. Therefore, foreign investment in MBRT will require fresh investment
in back-end infrastructure only;
d. investment made by single foreign investor into multiple infrastructure companies
will also not fulfill the condition of investment of 50% FDI in back-end
infrastructure of MBRT. Therefore, if the same foreign investor is an investor in
various companies for logistics, services etc., such investment will made by the
investor will not be aggregated.
e. an investor may individually invest upto 100% FDI in back-end infrastructure as
long as it fulfills the condition of 50% investment in back-end infrastructure.
3. Certification of SMEs as „small industries‟: It has been clarified that suppliers should
have some form of authentication to confirm their status as „small industry‟. Certificate
issued by District Industries Centre would be adequate authentication to confirm status of
supplier as „small industry‟.
4. Any amendment in the policy falls under the domain of the Central Government;
however state laws and regulations will also prevail and therefore the state government
have prerogative of imposing additional conditions, in case foreign investor approaches a
state government for setting up a retail store.
5. Back-end infrastructure developed by MBRT can be used across the states but not under
franchisee model. Front end stores set up by MBRT entity will have to be ‘Company
owned and company operated’ only.
6. 50% of the investment brought in, must be invested in back-end infrastructure and any
amount spent in acquiring front end retail store would not be counted towards back-end
infrastructure. The front-end retail stores must also be set up as additionality and not
through acquisition of existing stores.
Future of FDI in MBRT
The newly added definition of “Group Company” is believed to have an indirect impact the
investor sentiments since the FDI in MBRT already heavily regulated. Many argue that the
newly added definition of group companies is very stringent given the fact that Competition Act
has, for the definition of group companies, kept the threshold limit at 50%.6
Moreover, the
clarificatory note on FDI in MBRT has only complicated the things more. The mandatory
6
See Note 3

12. sourcing from SMEs and investment in back-end infrastructure are some of the key provisions
seen as hurdles by the foreign investors.
However, there is a silver lining for the investors as the DIPP on 02nd
July, 2013 held discussions
with various ministries and departments of the government including ministry of micro, small
and medium enterprises (MSME) and the department of consumer affairs in a bid to build
consensus on raising FDI cap in MBRT from the present 51% to 74%. The government is also
considering relaxations in the mandatory 50% investment requirement in the back-end
infrastructure by limiting such requirement to the initial investment of $100 million only.
Moreover, there is also a proposal to relax the 30% mandatory sourcing from SMEs requirement
as the DIPP is awaiting comments from the ministry of MSME. Further, the limit on sale of 25%
total turnover to group companies is also likely to be relaxed for the C&C sector. If the
speculations in the media reports are to be believed, the government may be preparing to
announce the relaxations in the FDI rules for MBRT and C&C sectors as early as the second or
third week of this month of July, 2013 i.e. before the monsoon session of the parliament, which
starts in the third week of this month.7
DISCLAIMER: The entire content of this document has been developed on the basis of relevant statutory
provisions and as per the information available at the time of the preparation. Though the author has made utmost
efforts to provide authentic information, however, the material contained in this document does not
constitute/substitute professional advice that may be required before acting on any matter. The document has been
produced only for the informational purposes; the author and the firm expressly disclaim all and any liability to any
person who has read this document, or otherwise, in respect of anything, and of consequences of anything done, or
omitted to be done by any such person in reliance upon the contents of this document.
7
“FDI policy for multi-brand retail may be toned down”, Live Mint & The Wall Street Journal, 02nd
July, 2013, available at:
http://www.livemint.com/Politics/rKvEUJTOGfhx0IvL3PWzxH/FDI-policy-for-multibrand-retail-may-be-toned-down.html

13. CONTACT US
PANKAJ SINGLA
Japan Desk, Corporate Professionals
NEW DELHI (Head Office)
D-28, South Extension Part - I, New
Delhi – 110049
Tel: +91-11-40622200
Dir: +91-11-40622293
Fax: +91-11-40622201
Mob:+91-99715-08320
Email: pankaj@indiacp.com
MUMBAI:
Mastermind- I, Royal Palms Estate, Aarey Colony,
Goregaon (East), Mumbai -400065
Tel: +91 9820079664
Fax: +91 9810037390
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565, Sector-7B, Faridabad, Haryana-121006
Tel: +91 129 4061130
Fax: +91 129 2241017
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Tel: +44 (0) 2030063240
Fax: +44 (0) 2030063241