Indo-Japan Trade & Investment Bulletin

February Issue
Japan Desk, Corporate Professionals

2013

INDEX

Indo-Japan Trade & Investment Highlights

India and Japan to Set-Up Information and Communication Technology Working Group to Boost Bilateral Trade Suntory Explores Acquisition Route to Tap Indian Liquor Market Japan Keen to Help India Achieve its Target of Eightfold Expansion in Solar-Power Output Nissan Pushes Aggressively to Double Sales in India Japanese Giant YKK AP Buys Aluminium Extrusions Business of Bhoruka Aluminium Japan Seeks Relaxation of Banking Norms for Foreign Banks Operating in India Nissan to Set up a 1,700 Crore Plant on the Outskirts of Chennai Japans All Nippon Airways to be the Next Gateway Carrier Japanese Financial and Retail Chain 7-Eleven is Considering Entering the Indian White Label ATM Space Japanese Auto-Component Makers to Enter India through Set-Up in Tamil Nadu Japans KYB Corporation acquires 50% stake in Conmat System Private Limited Japanese Manga for India

Knowledge Centre
Corporate Social Responsibility

Indo-Japan Trade & Investment Highlights

India and Japan to Set-Up Information and Communication Technology Working Group to Boost Bilateral Trade India and Japan have agreed to set up working group of Information and Communication Technology (ICT) in order to provide a boost to the bilateral trade between the two nations. Indian Telecom and IT Minister Mr. Kapil Sibal put forward the proposal during his visit to Japan to encourage Japanese investment in ICT Sector in India. A Joint Working Group between Ministry of Economy Trade and Industry (METI) of Japan and Department of Electronics and Information Technology (DEITY) of India will be set up. The Working Group is likely to submit their report in three months time. India will also be forming a special Japan desk to focus on Industrial and bilateral relations between the two nations in the areas of ICT and to facilitate the collaboration and coordination between companies from both the countries.

Suntory Explores Acquisition Route to Tap Indian Liquor Market Japanese Liquor major, Suntory Liquors Ltd. is said to be in talks with John Distilleries (JDL) to pick-up stake to enter Indian liquor market. JDL is said to be in the process of raising funds in order to fund their expansion plans in India and abroad. Suntory has been exploring its options in India to set-up presence in the lucrative Indian alcoholic drinks market and may have found its local partner in JDL. Suntory had announced its India entry by acquisition of controlling stake in Narang Connect to tap the non-alcoholic drinks market in India last year.

Japan Keen to Help India Achieve its Target of Eightfold Expansion in Solar-Power Output Japanese companies are looking at exploiting the opportunities in the clean energy market in India as Indian Government has offered a range of tax benefits to encourage increased investment. India has set a target of 9,000 megawatts of grid-connected solar plants by 2017, which is more than eight times the current capacity.

Nissan Pushes Aggressively to Double Sales in India Japanese auto major Nissan has set out an aggressive strategy for India to push its sale volume to double by next year. Nissan expects to close the current year with sale of 50,000 cars and has a market share of 1.6%. The company is optimistic about pushing aggressively in the Indian market to gain a share of 10% by 2017. Nissans plant in Tamil Nadu has a capacity of manufacturing 500,000 units a year that it operates jointly with Renault. With an estimate production of 300,000 units this year, company exports most of the manufactured units to other countries.

Japanese Giant YKK AP Buys Aluminium Extrusions Business of Bhoruka Aluminium YKK AP has bought the unit of Bhoruka Aluminium Ltd. (BAL), Indias second largest commercial extrusions firm, in a slump sale. This has come in the wake of BALs efforts to pay debts after it became a Non Performing Asset for its lender State Bank of India. YKK Group, a significant player in the global aluminium products will shell out Rs. 120 Crores to buy out the unit.

Japan Seeks Relaxation of Banking Norms for Foreign Banks Operating in India Japan has formally approached the Finance Ministry and the Reserve Bank of India looking for relaxation in guidelines for its banks operating in India. The Japanese banks Mizuho Corporate Bank Ltd. and The Bank of Tokyo- Mitsubishi UFJ Ltd have branches in India, while Sumitomo Mitsui Banking Corp has a representative office in India. The present norms require the foreign banks to first open branches in non-metro cities and then shift to urban centers apart from allocating 32% of their lending to the priority sector consisting of Agriculture, Small scale Industries, Export Credit, Education loans, etc. The relaxation sought will target its dwindling profit margins as their main clientele consists of large corporate entities and not businesses engaged in rural activities.

Nissan to Set up a 1,700 Crore Plant on the Outskirts of Chennai Japanese automaker Nissan plans to set up a factory producing the Datsun range of low cost small cars, most likely near the Renault- Nissan factory at Oragadam. This is in an effort to revive the companys brand which has the potential to contribute to half of its sales.

Japans All Nippon Airways to be the Next Gateway Carrier Japans ANA has made plans to become a gateway to US for Indian passengers i.e. US bound passengers will now be able to reach their destination via the Japanese transit hub Tokyo. Apart from daily flights from Delhi and Mumbai, the carrier plans to increase the capacity for Mumbai by threefold. Not only this, it even plans to fly to Chennai four times a week and to Bangalore thrice a week.

Japanese Financial and Retail Chain 7-Eleven is Considering Entering the Indian White Label ATM Space White label ATMs are those Automatic Teller Machines which are set up, owned and operated by Non Banking Companies. The sector has been opened up for Non-banking entities in India by the apex bank to increase penetration of alternative payment channels in semi-urban and rural areas. The Japanese Financial and retail chain player, 7-Eleven, plans to enter the country through its Japanese banking unit Seven Bank which has an ATM business arm.

Japanese Auto-Component Makers to Enter India through Set-Up in Tamil Nadu A delegation of 46 Japanese MSMEs with more than 40 being from auto component sector are on a spree to explore investment opportunities in Tamil Nadu. This comes after large Japanese Automobile companies have taken the country by a storm. Tamil Nadu is home to over 300 Japanese companies who would benefit from the entry of these Tier-2 component makers in this Indian state.

Japans KYB Corporation acquires 50% stake in Conmat System Private Limited The Japanese construction equipment manufacturer has acquired the stake in Conmat Systems Private Limited for Rs. 100 Cr. KYB will have a representative on the Companys Board while the existing management of Conmat will continue to operate. The Companys name will however be changed to KYB- Conmat Private Limited. Over the next 3 years, Conmat, a company having its presence in various segments like construction equipments, material handling equipments, storage solutions and Oil & Gas pipeline, plans to set up a new manufacturing unit and make an investment of Rs. 100 Crore.

Japanese Manga for India American Company Vertical Inc. announced its plans to launch Japanese Manga in the Indian Market at the 3rd Annual Indian Comic Con held in New Delhi. Japanese Manga has been gaining popularity in India and is made available in the country by online book stores through imports from other countries. The formal launch of Manga is likely to decrease the cost significantly and will result in better knowledge about Japanese form of comic art in the subcontinent.

Knowledge Center

CORPORATE SOCIAL RESPONSIBILITY

Corporate Social Responsibility is now accepted as a means to achieve sustainable development of an organization. Hence, it needs to be accepted as an organizational objective. The Companies Bill, 2012 will make Indian companies to consciously work towards that objective, as it requires a prescribed class of companies to spend a portion of their profits on CSR activities. Businesses can no longer limit themselves to using resources to engage in activities that increase their profits. They have to be socially responsible corporate citizens and also contribute to the social good. Corporate Social Responsibility (CSR) is about integrating economic, environmental and social objectives with a companys operations and growth. Many consider CSR philanthropy, but that is a limited definition. An organization can accomplish sustainable development if CSR becomes an integral part of its business process. CSR impacts almost every area of operations: governance and ethics; employee hiring, providing opportunity; stakeholders benefit sharing and energy usage and environment protection. The Companies Bill, 2012 intends to inculcate the philosophy of CSR among Indian companies. STIPULATIONS OF THE COMPANIES BILL, 2012 Every company with net worth of Rs 500 crore or more, or turnover of Rs 1,000 crore or more or a net profit of Rs 5 crore or more during any financial year to constitute a CSR Committee of the Board consisting of three or more directors, of which at least one director shall be an independent director The Boards report to disclose the composition of the CSR Committee The main functions of the CSR Committee are to:

(a) Formulate and recommend to the board, a CSR policy indicating the activity or activities to be undertaken by the company as specified in Schedule VII of the Act; (b) Recommend the amount to be spent on these activities; and (c) Monitor the companys CSR policy periodically. After the CSR Committee makes it recommendations, Board of the company shall approve the CSR Policy and disclose contents of such policy in its report and also place it on the companys website. Further, details about the policy developed and implemented by the company on CSR initiatives during the year to be included in the Boards report every year. Board to ensure that the activities listed in the CSR Policy are undertaken by the company Board to ensure that at least 2% of average net profits of the company in the three immediately preceding financial years are spent in every financial year on such activity. Preference to be given to the local area and areas around the company operates for CSR spending. If a company fails to provide or spend such amount, Board to specify reasons in its report for that failure Companies required to comply with CSR shall give additional Information by way of notes to the Statement of Profit and Loss about the aggregate expenditure on CSR activities. Schedule VII of the Companies Bill 2012 prescribes activities that may be included by companies in their CSR policies Eradicating extreme hunger and poverty; Promotion of education; Promoting gender equality and empowering women; Reducing child mortality and improving maternal health; Combating human immunodeficiency virus, acquired immune deficiency syndrome, malaria and other diseases; Ensuring environmental sustainability; Employment enhancing vocational skills; Social business projects; Contribution to the Prime Minister's National Relief Fund or any other fund set up by the central government or the state governments for socioeconomic development and

relief and funds for the welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women; and Other matters as may be prescribed.

EXISTING ACT: There are no mandatory provisions in The Companies Act, 1956 on CSR

IMPACT/ INDUSTRY RESPONSE With CSR spending becoming mandatory for prescribed class of companies, there is bound to be increased engagement of companies with social and development projects. So far, there were only voluntary guidelines for companies to follow. The rationale for CSR activity is that corporates earn their profit by exploiting different resources of the society, and so a portion of the benefit derived by them should be channelled for the betterment of society. Though compulsory CSR spending may seem burdensome for some class of companies, it will create of a sense of responsibility among corporates, especially when they see benefits in the long term. Children, women, uneducated, and unemployed would be among the beneficiaries as CSR activities may be focused on them. The intention of policy makers is quite clear - to report business communitys contribution for fulfilment of social, environmental and economic responsibilities. While contribution to the local community is a good objective, businesses should choose social, environmental and economic activities that contribute to society at large. CSR activities will also help improve the image of a company within the society as one that cares for the community. Significantly, there is no penalty for defaulting on CSR norms. Only an explanation is to be given by the board in its report for such non-compliance. So, it seems there is no real coercive factor. The Government has adopted a Gandhi wad with the provision - either contribute to society or inform to society why you are not contributing.

Existing CSR Activities of some companies

Company Name ITC Ltd

Major CSR Initiatives e-Choupal, social & farm forestry, watershed development, women's empowerment, livestock development, primary education Employees take up social causes like education, rural rehabilitation and inclusive growth. energy conservation, water sustainability, afforestation, waste management, awareness on carbon footprint

Infosys

Jubilant Sciences

Work Basic healthcare facilities, supporting government rural primary education system, developing resource pool through vocational training programmes Health, education, infrastructure development (drinking water, improving village infrastructure, construction of schools etc.), environment (effluent treatment, tree plantation, treatment of hazardous waste), relief and assistance in the event of a natural disaster, and miscellaneous activities such as contribution to other social development organizations

Reliance Industries Ltd

Illustration of Expected contribution for CSR after the CSR provisions come into force:

No.

Name of the companies

Average Profits (of the FY 200910, 2010-11, 2011-12) (Amount in Rs. millions)

Proposed contribution in CSR (2% of the Average Profits) (Amount in Rs. millions) 690.32

1. GAIL (INDIA) LIMITED 2. HINDUSTAN UNILEVER LTD 3. Infosys 4. Larsen & Toubro Ltd 5. NTPC Ltd

34,516.03

23,998.00

479.96

69,053.33 42,633.03 90,181.73

1,381.07 852.66 1,803.63

CONTACT US

PANKAJ SINGLA Japan Desk, Corporate Professionals

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DISCLAIMER: The entire contents of this document have 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.