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AUGUST
2023

INDIA:THE RISE OF
A NEW ECONOMIC
SUPERPOWER

S P E C I A L F E AT U R E
Prime Minister Modi has been
driving India’s economic growthsince he took office in 2014.

RISING INDIAPOINT

The Modi government’s key economic policies

Make in India September 2014 –• Set targets for 12-14% manufacturing industry annual growth,and its share of GDP to rise from 15% to 25%.

• Aimed to establish a good investment environment,

attract FDI (foreign direct investment), create jobs, and increase exports.

• On the other hand, measures such as tariff hikes were cited as protectionist.

Self-reliant India May 2020 –INDIA:• A grand economic and diplomatic strategy that adds economic security and reduced

The Rise of a New Economic Superpower

dependence on imports to the “Make in India” policy.

• Announced a special economic package on the scale of INR 20 trillion (about 10% of GDP).
• Despite protectionist aspects, India shows a strong will to play a major role

Many Japanese still have an image of India as a “mysterious country” with two sides to it: an “IT superpower” anda “place with poor sanitation.” Under the leadership of Prime Minister Modi, however, India is now growing rapidly.
In this issue’s special feature, the head of the JBIC Representative Office in New Delhi delves enthusiastically into
India’s industrial structure and key investment issues. In addition, diplomatic and economic experts fromthe country’s think tanks speak about India’s diplomatic strategy and promising investment sectors.

in the global value chain.

• Policies include attracting investments in designated areas of manufacturing,building infrastructure throughout the country, and securing energy independence.

RISING INDIA

Photo: Bloomberg/Getty Images

The government’s strong push to make India the factory of
the world is creating many investment opportunities

Areas with high growth potential extend beyond IT to include manufacturing, agriculture, and other sectors,
with economic growth still in its initial stages.
The Modi government’s key policy has shifted from “Make in India” to “Self-reliant India,”
and while focusing on strategic sectors, its eagerness to attract foreign investment remains unchanged.
Business potential exists in all parts of the country, making it essential to understand the characteristics of each region
and develop business accordingly based on Indian-style management. JBIC is also expanding its efforts here.

V-shaped recovery from the pandemic,
healthy IT and strong public investment

Chief Representative
JBIC Representative Office in New Delhi

KURIHARA Toshihiko
Joined JBIC in 2006 after working at a megabank.
Assumed his current position in 2019 after assignments
including the Mining and Metals Finance Department
and Treasury Department. Also holds positions in India
as Director of the Board, National Industrial Corridor
Development Corporation Limited (NICDC); Visiting
Fellow, Centre for Social and Economic Progress; Chair,
Finance Committee, Japan Chamber of Commerceand Industry in India. Graduated from Keio University,
Faculty of Business and Commerce, and received his
MBA from the University of Southern California.

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“These four years have been quite
the roller coaster,” reflects KURIHARA
Toshihiko, Chief Representative of theJapan Bank for International Cooperation(JBIC) Representative Office in New
Delhi. He took up his current position in
July 2019, and just as he was getting settled in, COVID-19 swept the world. “India
went into a strict lockdown, almost likemartial law. We were not allowed to go
outside at all, not even to take a walk.”
But now that the pandemic is under control, it appears that India is flourishing.
KURIHARA says that he had never visited
India or had any particular attachment tothe country before taking up his post.
That’s precisely why he can approach
the reality of India’s rise and carry out
his work on the ground unhindered byexisting images or preconceptions of thecountry.
Although India’s economy contracted
by 6.6% in 2020 when the pandemic
began, it made a V-shaped recovery thefollowing year with 8.7% growth. In 2022,
growth was 6.7%. India’s nominal GDP issome USD 3.38 trillion, surpassing thatof the U.K., and reaching nearly 80%
of Japan’s. “The Indian government’s
policy is to stabilize the growth rate at
6-7% over the next 10 years or so,” says
KURIHARA.
What is astonishing is that such levelsof growth projections are just the beginning. India will become the world’s mostpopulous country when it overtakes
China this year. China’s population has
been declining since 2022, but India’s
is expected to continue growing until
the 2060s. Moreover, as it is estimatedthat about 1 billion people, more than

two-thirds of the total population, are still
living in rural areas, there is huge potential for domestic demand to expand.
When viewing the industrial structure,
agriculture accounts for about 15% ofGDP, but people employed in agriculture
make up some 40% of the labor force.
This means there is more than enoughcapacity to shift labor to the manufacturing industry, which is expected tocontribute to future economic growth,
as well as to other highly productive service sectors such as finance, real estate,
and logistics. “Ownership of cars andconsumer electronics has not yet penetrated rural areas, signifying that there is
still much room for growth in economic
and financial inclusion.”
Public investment in infrastructure,
which is showing a strong recovery, isalso supporting India’s remarkable progress. “In India, even basic infrastructure
is not yet fully in place. The construction
rush is continuing at a staggering pace,
and the government budget for infrastructure investment is increasing at a
rate of about 30% annually.” Economic
growth continuing at high levels andstable tax revenues from progress madein digitalization of government are supporting this aggressive investment.
“For a developing country, India has
a reputation for its robust monetary

policy. Backed by hefty foreign-exchange
reserves, the Indian rupee’s fluctuations
against the dollar, yen, and other key
currencies are surprisingly low, andfew Western investors fear ‘rupee risk.’
Despite soaring resource prices, theinflation rate is also well within the economic growth rate range.”
The IT industry, which has been amajor driver of India’s economy, remains
strong. In May 2023, Amazon announced
that it would invest INR 1.56 trillion(USD 19 billion) through 2030 in building large-scale data centers and othercloud-related infrastructure. This is projected to create hundreds of thousandsof jobs a year in sectors including construction, equipment maintenance, andtelecommunications. “Regarding IT, India
has the very clear advantage of being thesecond largest English-speaking country
in the world. In addition, behind India’s
development as an outsourcing destination was its national policy of fostering
STEM (science, technology, engineering,and mathematics) talent and so it has apool of human resources that can meetthe standards demanded.”

PM Modi’s leadership andattraction of foreign investment
The true aim of “Self-reliant India”
The leadership of Prime Minister Modi,
who took office in 2014, cannot be overlooked when speaking about India’s
rapid progress. One of his first initiatives was “Make in India,” a national
policy to promote and strengthen thedomestic manufacturing industry byattracting investment from around theworld. KURIHARA says, “It was a very

easy-to-understand theme and was
fairly effective in announcing India’s
intentions,” but, he points out, “It was
not able to establish a strong Indian
manufacturing sector.”
In 2020, the Modi-led government,
then entering its second term, announced“Self-reliant India,” an updated version
of “Make in India.” A major national
strategy that goes beyond economic
and investment policies to incorporate
the concept of economic security, “thispolicy focuses on and gives priority tostrengthening strategic areas that willcontribute to a self-reliant India,” says
KURIHARA. For example, in the energy
sector, India is almost 100% dependent on imports of oil, coal, and otherresources. So, this strategic approachcalls for a switch from these to naturalgas, for which India is only about 50%
dependent on imports, and renewableenergy. In addition, regarding renewables, as India also relies on imports
for solar panels, measures to promote
their domestic production are being
implemented, including the provision ofcentral government subsidies and interest-free loans from state governments.
Prime Minister Modi has sent astrong message to the public and private
sectors that actions not consistent with
“Self-reliant India” will not be accepted.
India is not alone in having government
silos and approval barriers, but withclear top-down political leadership, amood of cooperation and breaking with
old habits is developing among ministries and agencies.
At first glance, these measures canseem protectionist. “It is true that thisAUGUST 2023

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S P E C I A L F E AT U R E

RISING INDIA

JBIC’S key support to India in recent years
JBIC holds a 26% share of NICDC, the National Industrial Corridor Development Corporation, which supports the development of industrial
corridors throughout India. In addition to aligning with the Indian government’s measures to promote the manufacturing industry andsupporting Japanese companies entering the Indian market, a current key pillar of JBIC’s operations is providing loans for green projects.

Global Environment Conservation
Manufacturing & Service Industry

Solar power generation projects(state-owned company SJVN)
Credit lines for renewable energy/energy efficiency(government-affiliated financial institution PFC)
Solar power generation andother environmental conservation projects(National Thermal Power Corporation, NTPC)Greater Noida Industrial Area
(developed by NICDC)
Vikram Udyogpuri Industrial Area
(developed by NICDC)

ShimlaDholeraAcquisition of steelmaking company(Joint venture between Nippon Steel Corporation and ArcelorMittal)
Steel mill expansion(Joint venture between Nippon Steel and ArcelorMittal)

National Capital
Territory of Delhi

Ahmedabad

Dholera Industrial Area
(developed by NICDC)

UjjainIndoreHaziraKolkata

Pune

Waste-to-energy project (PFC)
Auto parts manufacturing and sales (ENKEI)
Introduction of steel-manufacturing facilities (JSW Steel)Auto parts manufacturing and sales (Miyama Electric)
Coil center business(JSWMI, a joint venture between
Marubeni-Itochu Steel and JSW Steel)Automobile sales finance services(Toyota Financial Services)
Tumakuru Industrial Area (developed by NICDC)

Population

Note: Projects approved since FY2019

A look at this vast country by area
Regional GDP

Regional economy characteristics

North

507
millionUSD
811 billion

Half of the Japanese residing in India live in and around India’ s capital, Delhi.
Manufacturing industries are concentrated near Delhi, and there are many
government agencies and state-run company centers.

West

186
millionUSD
554 billion

Includes India’s financial center, Mumbai, where there is a high proportion of
automotive and other secondary sector industries and numerous Westerncompanies, and Gujarat, the birthplace of Prime Minister Modi.

South

265
millionUSD
747 billion

Includes the IT cities of Bengaluru and Hyderabad, and Chennai, where theautomotive industry is concentrated. The level of education is high, making it easy tohire capable talent.

East

340
millionUSD
390 billion

Has a high proportion of the agriculture, forestry, and fishing industries and theinfrastructure is underdeveloped, but the government is especially focusing on
developing the northeastern area. Proximity to Southeast Asia is also an advantage.
Source: JETRO

can be viewed as restricting foreign
investment and free trade. That’s where
the government is very smart, however.
It has been managing this in a balanced
way by emphasizing the good sides offoreign investment and products. And
what India especially wants to fix now is
its dependence on one country, China.”
Trade with China had steadily
increased, but a trade imbalance existedwith imports greatly outweighing
exports. “A trend to buy anything at
lower prices from China was emerging,but since this was directly linked to the
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AUGUST 2023

Shendra Bidkin Industrial Area
(developed by NICDC)
Concrete production and sales(Ueda Shokai, Takei Kogyosho,
Kokura Cement)

Aurangabad

Vaccines and other medical supply chain support Mumbai
Vijayanagar(Export-Import Bank of India)
Automobile supply chain support (State Bank of India)
Sri City
Construction equipment manufacturers
supply chain support (IndusInd Bank)
Bengaluru
Tire manufacturing and sales (Yokohama Rubber)
ChennaiEngineering services (Toyo Engineering)

Where toset upbusiness

Medical and Healthcare Industry
Industrial Park Development

trade deficit it was considered problematic,” explains KURIHARA. Adding
to this was the sudden spark of the
India-China border clashes in 2020, whichshifted public opinion against improving
relations with China. Against such a backdrop came the “Self-reliant India” policy.
KURIHARA believes that from ageopolitical perspective as well, it
was inevitable for India to reduce its
economic dependence on China andstrongly encourage a broad range of sectors to set up manufacturing centers in
the country. “India is showing its strong

ambitions to replace China as the factoryof the world. There is also an emerging
trend among Western countries to shift
their global supply chains to India, andso to seize this opportunity as well, India
thought it best to distance itself from
China. Working to attract foreign investment from countries other than China isbeing consistently promoted under theModi government.”
Japan-India relations have also
grown stronger. Amid the growing strategic importance of India, the results of a2022 JBIC survey conducted of Japanesecompanies showed India topping Chinaas the most promising country forbusiness development over the next
three years. Momentum is building forJapanese companies to set up business in India. “The Japan Chamber ofCommerce and Industry in India has
about 500 member companies, but wecan sense this momentum with newmembership increasing at an unprecedented speed—as many as five to ten
companies a month.”

Develop strategy for investment in India
by understanding regional
characteristics

Disclaimer: This map is for illustrative purposes only and does not indicate the view of JBIC on the legal status, borders or demarcation of any country or territory or the geographic names.

So, what points should Japanese companies pay particular attention to when
considering business expansion to
India? “India is a huge country, so it will
be easier if we divide the country into
the four regions of north, south, east,
and west, and look at their regional characteristics,” explains KURIHARA. “There
are about 10000 Japanese people inIndia, with about half of them living in
the capital Delhi, and its surroundings.
Naturally, this is the top location forJapanese companies entering the Indian
market. It is the political center andalso functions as a hub connecting to
all areas of the country, so the conventional way to enter the Indian market
is from northern India.” Then, looking
south, there are the IT city of Bengaluru,
and Chennai, center of the automobile
industry. Southern India is an area that
focuses on manufacturing in addition to
IT. “The level of education is high here,
so it has the advantage of allowing companies to hire excellent talent at a lower
cost than in the north. If another locationis needed, southern India is a good candidate.”
Western India has Mumbai, India’s
financial and economic center, home
to numerous conglomerates. The stateof Maharashtra alone, where Mumbai
is located, has a population of over 120
million, but there are only 500 Japanese
residents. “Eastern India, which is relatively underdeveloped, has even fewer
Japanese. The only notable movement
has been recent plans by Nippon Steel toenter the region.” However, KURIHARA
believes that from the Japaneseperspective, eastern India and the northeastern states might also have great
potential for growth. “Only about 4% of
the population lives in northeast India,
but the government has positioned it
as a priority area, investing 10% of thenational budget there. Japan is expected
to be a partner in development projects, and since neither the West nor theconglomerates of India have focused on
this region, I see potential here for firstmover advantage.”
The next key point KURIHARA raises
is the existence of a federal structure ofgovernment. India is a union of states,with 28 states and 8 union territories.
“India’s state governments have moreauthority than prefectures in Japan.
Because of this, although the central
government may approve a project, it
could meet setbacks due to oppositionby the state government. This actuallyoccurred when a bullet train project promoted by Japan was almost stalled bya state government in western India (theproblem was resolved due to a change
in the ruling coalition).” It is important tokeep in mind that there are areas where
the central government cannot force
state governments to act.
According to KURIHARA, another key
point is the importance of managementthat respects the “Indian way.” “Studies
have shown that imposing Japaneseor Western management styles is often
not successful. Past experiences havealso led in recent years to a majority ofWestern companies entrusting management to Indians with local experience,and this is also increasing among
Japanese companies. A top-down management culture is mainstream in India,
and personal relations with business
partners are surprisingly essential. A
great deal of importance is placed on how
much the other party can be trusted.” To
that end, KURIHARA explains that rather
than sending personnel from the head
office to fill the top position, it is certainly
worth considering the appointment of ahighly capable local individual who has
deep knowledge of the local landscape,and also understands Japanese andWestern management styles.

its efforts in recent years to promotecollaboration between Japanese andIndian companies, protection of India’s
environment, and economic growthutilizing its various investment andloan programs. The support provided
to date has been across a diverse rangeof sectors and areas. This has included
manufacturingindustries
includingautomotive, construction machinery,and steel, to the development of several
industrial parks, including the Dholera
Industrial Area in the state of Gujarat
in western India, through investmentin the National Industrial Corridor
Development Corporation (NICDC).
There have also been investments ingreen energy such as solar and waste
to energy, and projects supporting local
companies that manufacture vaccines
and therapeutic drugs. The role of JBIC is
expected to expand further as Japanesecompanies are now moving into newfields including supply chains for agricultural equipment and agrochemicals.
India’s rural areas are, after all, true treasure troves of potential.
“India is a country that will continue
to develop. As the ambitions of Japanesecompanies increase, JBIC also needs totake various initiatives to respond totheir needs. In that sense, we realize that
we are still in the learning stage. Whileconstantly learning about the ‘Indianway,’ we wish to give our full attention tothis country which has so much potential
for growth.”

Growing expectations for JBIC, whichis still currently in the learning stage
JBIC has also been rapidly expanding
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RISING INDIAI N T E R V I E W S

India’s place in Asia and its future in the world

The outlook for India’s economy shines brightAnanta Aspen Centre, established in 2004 in partnership with the American Aspen Institute,facilitates open dialogue on India’s role in the world.
Its CEO, and veteran diplomatic analyst, Indrani Bagchi shared her insights on the geopolitical landscapesurrounding India, the true objectives of the Quad, and the upcoming economic reforms.

The Centre for Social and Economic Progress (CSEP) is a public policy think tank that
conducts research on issues facing India and the world.
CSEP Associate Fellow Riya Sinha talks about India’s connectivity with neighboring countries,
liberalization of the economy, and strategies to attract foreign direct investment.

decided not to turn it down. The country’s
energy inflation would have been economically and politically unbearable, and India’s
oil purchases from Russia actually helped tostabilize global energy prices.
Q How does India's border dispute with
China impact economic relations?
A

Q Can you talk about the diplomatic
strategy of India under the Modi administration, which is currently enjoying a highprofile as G20 chair and de facto leader of
the Global South?
A The core of the Indian government’s
foreign policy remains the transformationof India’s economy and society. As for the
rest, our history, which is often forgotten
by the rest of the world, informs many ofthe decisions we take today. A civilizational
state with thousands of years of history,
modern India is one of the most heterogeneous, multi-ethnic, multi-religious groupsof people governed by one constitution.
That all goes toward making India the fairly
complex country that it is.
India’s greatest current geopoliticalchallenge is an aggressive and expansionist China. Traditionally, India has preferred
to cleave the middle path, but the worldis multipolar, and India can be one of the“poles.”Q Why has India not joined other countries in imposing economic sanctions
against Russia?
A After India held its first nuclear weapons tests in 1974, it came under Westernsanctions on technology for decades.
During that time, the USSR, and thenRussia, was helpful in the development ofIndia’s technology sector—nuclear power,
defense, etc. India has reduced its defense
dependency on Russia from around 70 to 50
percent, but it’s still huge.
For the last 70 years we’ve had a continuous conflict situation with Pakistan, and aborder dispute with China, which has intensified recently. Although it doesn’t take fromthe fact that India has been very disturbed
by Russia’s actions in Ukraine, the narrativeof the war is a little more complex than it ismade out to be, and India has to consider its
defense interests.
After war broke out, India was offered
Russian crude oil at discounted prices and
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For a long time, India and China
operated on the understanding that theirlarger relationship could be insulated fromthe border dispute. Not anymore. India
doesn’t allow China to be an investor in
any of its critical sectors, and came to theconclusion that China was using its apps
and technologies to mine critical data about
India’s citizens. During the pandemic, we
realized how dependent we were on China
for some pharmaceutical ingredients. So,
we have been diversifying our value chains,and Japan has been a key partner in thatprocess.
Q

In terms of the Quad, India seems todiffer from the other three countries in its
thinking on cooperation. What is the Modi
administration's view of the "Free andOpen Indo-Pacific"?
A I think there is some misperception
there. Firstly, India has never been part ofany military alliances, believing them to be
Cold War constructs. Secondly, we believe
the Quad is the most consequential grouping for the future of the world because
these are four countries that can sit together
across a table and make decisions on what I
call the ‘rules of the road.’
The future of international relations will
be determined by technology, access totechnology, and the rules that govern technology. That is the core of what the Quadis doing together, not what kind of militaryCEO,
Ananta Aspen Centre

Indrani
Bagchiexercises we are going to have.
Then Japanese Prime Minister ABE
Shinzo spoke of “the Confluence of the Two
Seas” during his first visit to the Indian par2007,, and that became the Free
liament in 2007
and Open Indo-Pacific, which India has beena believer in forever.
Q What are India’s economic security
policy priorities and how will they affectforeign investment?

Associate Fellow,
the Centre for Social andEconomic ProgressA

We have not been too much of amanufacturing power, historically. But
in the last five years, we have changed
considerably. Laws have become simpler
and infrastructure is almost transformed.
We have tried to position ourselves as oneof the destinations for a China+1 strategy.
The government has rolled out a production-linked incentive strategy to cover 14
manufacturing sectors to which India wants
to attract investment to protect its economic
security. Apple, for example, is now making
many of its iPhones in India. Diversifying
value chains and building resilient supply
chains is extremely important to India andto the Quad.
Q What is the outlook for India-Japan
diplomatic relations?
A

I think that the India-Japan relationshipstands for something much, much bigger
than just a shared geopolitical challenge. We
are two Asian powers at two different stages;
Japan’s demographics are in many ways achallenge, while we have a young population,
which is an advantage. We are both technologically advanced countries. Indians havea view of Japan that is nearly 100 percent
positive. I see us as civilizational cousins. I
think the India-Japan relationship has still
only partly fulfilled half of its potential.

Riya Sinha

Q

The image of India’s economy fromoverseas used to be ICT offshore and callcenters. What are its major industries today
and the prospects for future growth?
A It has been a service-oriented economy dominated by the IT sector and BPO(business process outsourcing) to a point
where India was known as the back officeof the world. It was realized about a decadeago that while services constituted about 57
percent of the economy, they contributed
about 28 percent to employment. Therefore,
the government realized a need tostrengthen manufacturing, and introduced
schemes including ‘Make in India,’ with anemphasis on skill development. Anotherinitiative is ‘Atmanirbhar Bharat Abhiyaan,’which translates to ‘Self-reliant India.’
Manufacturing in India has traditionallynot been strong, but certain sectors havedeveloped in recent years, including ironand steel, pharmaceuticals, and textiles.
Q Could you delve into India’s economic
liberalization and the impact that is having?
A It’s a process that started in the 1990s,
when due to the balance of payments crisis,
the government decided it had to end themonopolies of many public sector enterprises in manufacturing sectors.
Recent schemes like ‘Make in India’ haveidentified 25 sectors, including automobiles, aviation, space, biotechnology, ports
and shipping, and roads and highways. It’sa very comprehensive list of sectors where
India seeks foreign investment. Thirty
years ago, or even 20 years ago, this was
unimaginable. Then there are supporting
schemes such as ‘Skill India,’ which is
focused on youth, and ‘Digital India,’ that
focuses on improving the public digital andfinancial infrastructure.
Q In terms of India’s domestic market
and supply chain, what areas do you see as
most promising for foreign investment inIndia in the future?
A Infrastructure development is one of
the focus areas, as well as developing different industrial corridors and end-to-end
supply chains. The government is very
welcoming towards inviting best practices
from partner countries.
Q India is of great interest to JapaneseSMEs (small and medium-sized enterprises), what would you say to those
thinking about investing in India?
A India has been making procedural andregulatory improvements to attract investments in the country. A recent development
is the National Single Window System(NSWS) platform, through which licenses
and clearances that used to take six to eightmonths can now be done in 30 days or less.
That is a significant development when it
comes to welcoming SMEs to India.
Q What are some of the biggest countries
in terms of FDI (foreign direct investment)?

But things have changed in the last ten
years. India has a goal to become a USD 5
trillion economy by 2025, and it realizes thatit cannot become that size of an economy
by itself, it needs external investment. The
number of overseas visits and delegations
by the prime minister and the commerce
minister is at its highest level in 30 years, anindication that India is now open to bilateral
FTAs and economic partnerships. It did
opt out of the Regional Comprehensive
Economic Partnership (RCEP) but it isfocusing on bilateral FTAs. Ten years ago,
FTA was not a word you would utter in thecorridors of the Ministry of Commerce andIndustry.
Q What do you see as the future prospects for Japan-India economic relations?
A There are opportunities in states acrossthe country. Efforts towards increasing
investments in different areas have madethe life of businesses which want to invest
in India much easier.
Japan is a regional player in South Asia.
Apart from India, it also has a presence in
Bangladesh and is in a good position to
help develop a regional connectivity plan.
Trade with Bangladesh has been growing
along with infrastructure linking the twocountries in recent years. At one point,
it used to take only one day for goods tomove from India to Singapore, but up to
five days to Bangladesh, which is next door.
Defense manufacturing is another area I
see potential for collaboration, especiallyin unmanned aerial vehicles and robotics,
where Japan has expertise.
There is also scope for investments inskill development and capacity building.
This is already happening through theJapan-India Institute for Manufacturing,but I think more could be done, particularly
through leveraging India’s youthful demographics and Japan’s strengths.

A Japan is one of the biggest investors
in India in terms of the diversity of sectors.
In geopolitical terms, Japan is seen as atrusted partner of India so all the more welcome when it comes to investment. We’realso negotiating a Free Trade Agreement(FTA) with Europe and engaged in talks
about increasing FDI.
Q What could India do to make itself evenmore attractive to FDI?
A India was seen as a reluctant partner fora very long time and for justifiable reasons.
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Our People and Their WorkJBIC engages in various projects around the world.
Senior JBIC staff on the front line share their thoughts
and stories behind their projects.

Project Financing for a Subway Project in Toronto, Canada

Helping Japan’s rail industry
enter the Canadian subway sector
and learning lessons from the pandemic
While Japan’s railway industry boasts advanced technology,
it faces fierce competition in winning orders overseas, especially in developed countries with mature markets.
FURUYA Toshihiro and NIWA Hayato share the backstory of support for a Canadian subway project.

First loan to the railway industry
in nearly a decade contributes topublic transport and the environment
Japan’s Hitachi Rail is part of a consortium
constructing a new subway line inToronto,
Ontario, the largest city in Canada, to meetgrowing transportation demand. JBIC
co-financed this project with Japanese
private financial institutions and others,
supporting the deployment of Japan’s
superb railway infrastructure technology
across the world.
“The local government is totallycommitted to this project, and it seemed
like it was on an accelerated time schedule,” says NIWA Hayato of the Social
Infrastructure
Finance
Department,
Infrastructure and Environment FinanceGroup, who was in charge of this project.
“But thanks to this, in a short period of
about a year, I was able to experience
the entire process, from the initial talks
between JBIC and the project stakeholders, to finalizing the loan agreement.”
Since structuring project finance (PF) for
transportation infrastructure is usuallya long-term undertaking, NIWA saysthat he was very fortunate to have been
involved in the entire process in just his
second year at the bank. The experience
was all the more memorable because his
research at graduate school concernedtransportation infrastructure in developing countries.
This is JBIC’s first PF for a railway
project since Hitachi’s U.K. rail projectin 2014. Market conditions and financing
methods have changed considerably
since then, so it could be said that thisproject has no precedent. In addition, railroad projects are complex, ranging fromconstruction to operation, and collaboration with numerous stakeholders is also
crucial (see the figure below). Reflecting
on the process, FURUYA Toshihiro,Deputy Director of Division 1, Social
Infrastructure Finance Department, says,“I believe we were awarded the project
thanks to the collective strengths of all
the stakeholders, including the sponsors
and other lenders.”
Population growth stemming fromfactors such as immigration has led totraffic congestion not only in central
Toronto, but also on arterial roads
connecting the city center and suburbs. According to estimates by theGovernment of Ontario, this project is
expected to reduce traffic by 28,000
vehicles per day and fuel consumption

by 7.2 million liters per year, cutting
both congestion and greenhouse gas
emissions. “From JBIC’s perspective, thisproject will leverage advanced technologies to deliver significant environmental
benefits, and so we are providing support
as part of our operations to preserve theglobal environment, known as GREEN. We
also scrutinized the whole project using ourguidelines for confirmation of environmental and social considerations,” says NIWA.

Online discussions during
the pandemic led to greater solidarity
after meeting face-to-face
The initiator of this public-private partnership (PPP) project is Metrolinx, anagency of the Government of Ontario;
the project was awarded to Connect 6ix
General Partnership, a Canadian consortium including Hitachi Rail STS S.p.A.
of Italy, which is a wholly owned subsidiary of Hitachi, Ltd. Connect 6ix will
supply rolling stock and systems for the
15.6-kilometer-long subway line, as wellas handle its operation and maintenancefor 30 years from completion.
However, the public bidding process

Sponsors
4 companies
including Hitachi Rail STS

Equity Investment

Project Initiator

Procurement

Metrolinx

Project Company
Connect 6ix

Procurement

Design/Construction
Contractors

Deputy Director
Division 1
Social Infrastructure Finance Department
Infrastructure and Environment Finance Group

Division 1
Social Infrastructure Finance Department
Infrastructure and Environment Finance GroupFURUYA Toshihiro

NIWA Hayato

Joined the bank in 2008. Afterassignments such as representativein Mexico City, and in departments
including the Oil and Gas Finance
Department, he is currently involved
in social infrastructure projects centering on rail and urban transit, as well
as operations in the U.S., Canada, andother countries. Graduated from Keio
University, Faculty of Economics.

for this project started in 2020, the same
year as the COVID-19 pandemic, withtalks with the project stakeholders beginning in 2021. JBIC was forced to workout the details through online meetings
alone, with no face-to-face discussions.
According to FURUYA, “Because of thelarge number of participants, we were
holding these meetings with cameras
turned off. But I think such circumstances also had a part in enabling morethorough and frank communications
among us.”In September 2022, after Connect 6ix
was selected as the “Preferred Proponent,”
the two went to Canada, and were finallyable to meet the other stakeholders inperson. This was the first time that they
were able to match faces to the names ofmany of the individuals involved in the
project. NIWA recalls, “It was also myfirst business trip. By personally meeting the many stakeholders, I felt that oursolidarity for the success of the project
was strengthened even more.”

Leading technology and JBIC:
spreading Japan’s strengths to theworld’s rail networks
This subway project will adopt the

Joined the bank in 2021. Is involved
in social infrastructure projects suchas rail and urban transportation,
MaaS, water supply facilities, andwaste treatment. Graduated fromthe University of Tokyo, Graduate
School of Engineering. Was amember of the volleyball club
during his university years.

Hitachi Group’s world-leading digitaltrain control system—technology thatenables advanced transportation services with trains running as frequently
as every 90 seconds. The project is also
in the limelight for being in line with theJapanese government’s “Core Japan”
initiative, which promotes the use ofleading Japanese technology to contribute to global decarbonization.
Participation in highly public railway
infrastructure projects is not easy evenfor Japanese companies with theiradvanced technologies, unless they arecomprehensively appraised for othermerits including their experience, trackrecord, financial strength, and reliability.
It is also a fact that Japanese companies
do not have a particularly large shareof the global railway market. On theother hand, reflecting the shift toward
decarbonization, railways are becoming
valued again for their high environmental performance. Expectations are rising
for the Japanese railway industry, with
its advanced technological capabilities,
to further expand business overseas.
According to FURUYA, “There isfierce competition among lenders forinfrastructure projects in developed

Including SHIMMEI Shiori, who provided clericalsupport such as system registration, the threeworked as a team on the project. FURUYA’s commitment to giving young staff members more
responsibility in work was evident here.

countries. Through this project, we wereable to raise JBIC’s profile and let theworld know of our position as a Japanesepolicy-based financial institution. Thatis a very promising development for
the future.” NIWA also says firmly, “Wewant to also raise Japan’s presence inthe railway industry in countries that are
projected to develop.” In order to deliver
Japan’s strengths to the world’s railway
networks, these young leaders are now
moving on to their next challenge.

Investment
Loan

Toronto’s new subway featuring thelatest technologies of Japanese companies (CG rendering of completed line)

8

JBIC TODAY

AUGUST 2023

Bond Holders

Lenders
JB I C , private financial
institutions, etc.

Operation/MaintenanceContractors

Project Summary

In November 2022, a loan agreement was signed for a maximum of CAD 450 million (JBIC portion) with anaffiliate of Hitachi, Ltd. for a subway project in Toronto, Canada. This loan is co-financed, bringing the total
amount to CAD 1.1 billion.

Press release on this project
AUGUST 2023

JBIC TODAY

9

Chairman
HIROYUKI Co., Ltd.

NAKATA Hiroyuki
Born in Yangon, Myanmar. Came
to Japan in 1991 and later obtained
Japanese citizenship. Established
Hiroyuki Industries (M) Sdn Bhd
in Malaysia in 2001. Became thepresident of HIROYUKI throughacquisition of shares in 2006 andhas been chairman since 2012.
Still travels around the world to
expand the business.

HIROYUKI Co., Ltd.

Southeast Asia’s first food grade PET bottle manufacturer
to bottle recycler, also focuses on raising local awarenessWith its production base located in Malaysia,
the company manufactures and markets packaging materials and plastic resins.
While continuously developing eco-friendly products and expanding its business in Southeast Asia,
the company also strives to promote local awareness of recycling.

Focusing on the recycling of
PET bottles with the aim to be aplanet- and people-friendly company“Plastic is a very eco-friendly material
if it is properly reused,” says NAKATA
Hiroyuki, Chairman of HIROYUKI Co., Ltd.
Paper products have come to be widelyused in recent years as substitutes forplastic products. However, he questions

this, “A lot of trees are cut down to makepaper, and in the end, paper is incinerated as trash without being recycled. Is
that really good for the environment?”
With a production base in Malaysia,
HIROYUKI manufactures and markets
packaging materials and plastic resins
both domestically and abroad. Under
its corporate philosophy of “Always
providing products that take the global
environment and costs into consideration,” the company is the first inSoutheast Asia to manufacture foodgrade—safe enough for packaging
foodstuffs—recycled PET (polyethylene
terephthalate) resin from used plastic
bottles alone.

A Myanmar native who becamea naturalized Japanese citizen started
a business in Malaysia
Key product PP (polypropylene) strapping band isused in a wide variety of applications.

10

JBIC TODAY

AUGUST 2023

HIROYUKI took a unique path to where
it is now. The current chairman, NAKATA

Hiroyuki, was born in Myanmar. When
his university was shut down in thecrackdown on the pro-democracy movement, he came to study in Japan in 1991.
Acquiring Japanese citizenship after
graduating, he began working at a company that handled packaging materials.
During his work there, he became awarethat packaging materials of the quality
found in Japan were not manufactured
in Southeast Asia. And so local subsidiaries of Japanese companies were
importing them from Japan.
“There is demand for products madelocally if we can provide the same quality
as Japan,” he thought. With that in mind,
in 2001, NAKATA himself established
Hiroyuki Industries in Malaysia, where
it was easy to procure the raw materials
required.
From the start, the company has
focused on the development of productswith a low environmental impact. For

cast stretch film, a packaging wrap used
to secure materials and packages, thecompany reduced the thickness of thewrap’s paper core to around one-tenththat of conventional products, resulting
in reduced use of paper. This revolutionary product was the first of its kind inSoutheast Asia.
Sales, including exports to Japan,
were growing steadily when the company was approached by a business
partner, a Japanese packaging materials
company, which was interested in being
acquired. NAKATA became president,
and later chairman, of this company andmade the Malaysian operations, Hiroyuki
Industries, its production base. Aiming
for further expansion, the company
name was changed to HIROYUKI in 2009,
followed in 2012 by the establishmentof local subsidiaries in Myanmar andVietnam, and sales offices in Vietnam
and Thailand.
In 2018, a facility was built in Malaysia
to collect post-consumer PET bottles andproduce food grade recycled PET resin
from them. Used bottles were thus able
to be recycled into materials for new PET
bottles. The first business of its kind inSoutheast Asia, it was also boosted by
the fact that China restricted imports ofwaste plastic in the previous year andwas no longer accepting recyclable
waste from overseas. HIROYUKI alsoutilizes recycled bottles to manufacture
PET strapping bands for packing lumber
and other materials.

Malaysia’s low recycling rates
and raising awarenessat elementary schools
HIROYUKI’s environmentally friendly
products have a good reputation and are
now widely exported to countries suchas Canada and Australia, in addition to
Japan and Southeast Asia.
Meanwhile, according to NAKATA,“The recycling rate of PET bottles in
Malaysia is only 16 percent. Used PET
bottles are still not sufficiently circulating
in society.” Anticipating further growthof the recycling business in Malaysia,
HIROYUKI plans to expand its production facilities for recycled PET resin. A
JBIC loan will support this effort.
At the root of Malaysia’s low recycling
rate is a lack of awareness. As a result,used plastic bottles are not properly
collected and are often simply treatedas garbage. “Firstly, I would like toteach children about the importance ofrecycling,” says NAKATA. So, HIROYUKI
launched “The Rescue PET Bottles School
Project” recycling project at about 60
public elementary schools in the state ofJohor, where its manufacturing plant forrecycled PET resin is located. Throughthis project, children brought as manyas 500,000 used plastic bottles to school
between April 2021 and November 2022.
The same program has been expanded
to middle schools from April 2023.
“I would be happy if in five- or tenyears’ time, they realize that they arecontributing to society,” says NAKATA
with a smile. His eyes are set on the
future as he aspires to engage in therecycling business and to raise environmental awareness not only in Malaysia,
but also in Vietnam and his home country of Myanmar.

HIROYUKI Co., Ltd.
1938

Predecessor company founded2001

Launched the manufacture ofhigh-quality PP and PET bands

2005

Business partnership with
Hiroyuki Industries

2009

Changed name to HIROYUKI,
current company name2012

Established Hiroyuki Myanmarand Hiroyuki Vietnam

2014

Launched the manufacture of
stretch film and PE tying twine

2018

Established Plant 2 in Malaysia
Launched the Bottle-to-Bottle
recycle business2019

Established Plant 3 in Malaysia

Plant 3 in Malaysia
completed in 2019.
Its main operation is
the manufacture offood grade recycled
PET resin (left) fromused PET bottles.

Loan Summary

In July 2022, a loan agreement was signed with HIROYUKI’s Malaysian subsidiary, Hiroyuki Industries, for a loan up to EUR
2.56 million (JBIC portion). This loan is provided for the overseas business development of this Japanese company in growing
markets such as Southeast Asia.

AUGUST 2023

JBIC TODAY

11

JBIC History

1973

vol.3

Skyrocketing inflation andJapan’s economic slowdown
The global oil crisis and JEXIM’s efforts
The first oil crisis of 1973 prompted Japan to change its energy policy. JBIC’s predecessor,
the Export-Import Bank of Japan (JEXIM), helped bring the financial side of the situation under control.

The oil crisis caused public
panic, with consumers
rushing to hoard goods(November 1973). The
following year, Japan
experienced its first economic contraction since
the end of World War II.
©The Asahi Shimbun / amanaimages

Surging oil prices and an abrupt shift
in the booming economy
Japan’s economy also saw“soaring prices”
The 1970s saw the world economy facing
stagflation—simultaneous inflation andweak economic growth. This was triggered by the first oil crisis in 1973 when
the Organization of Arab Petroleum
Exporting Countries (OAPEC) decided
to drastically raise the price of oil andrestrict its supply in support of the Arabside in the fourth Arab-Israeli War, whichbroke out in October. The official price ofoil quadrupled in less than three months,
sending shock waves across the world.
The impact on the Japanese economy in particular was enormous due tothe country’s heavy reliance on resource
imports. The boom that had delivered
Japan’s rapid growth and transformed it
into an economic powerhouse abruptly
ended. Fear spread among the public,
leading to panic buying of goods including petroleum products, toilet paper,and detergents. In 1974, the economy
contracted for the first time since the endof World War II, ushering in an era of low
growth for the Japanese economy.
To facilitate cooperation between
industrialized countries, they held thefirst G6 summit in Rambouillet, France,
in November 1975. Following this, thefirst oil crisis appeared to be resolved,
with the Middle East oil-producing

countries easing production cuts andlifting the embargo against the U.S.
However, crude oil prices stayed high,and rises spread to coal, natural gas,uranium, and other energy sources. The
second oil crisis, when the price of oil
increased 2.7-fold in about three years,
was triggered by the Iranian Revolution
of February 1979 combined with the IranIraq War that broke out in September
1980. Prices rose again in Japan, but
major disruption was avoided due tothe energy conservation, economic, andfinancial measures implemented after
the first oil crisis.

The first oil crisis drove change
JEXIM law amendment contributed tocontrolling the situation
In light of the impact of the first oil crisis,
the government compiled the “Basic
Direction for the Comprehensive Energy
Policy” in December 1975. Energy
policy was further strengthened as
Japan sought to reduce dependence on
imported oil and to diversify its alternative energy sources. To that end, JEXIM
expanded loans related to resources
such as petroleum, liquefied naturalgas (LNG), and coal. JEXIM funds werealso used for oil diplomacy: securing oil
supplies through economic cooperation
with petrostates.
There were also major changes inJapan’s industrial structure. Energy
conservation pressure led to some

August 2023 Edition
Published by Press and External Affairs Division, Corporate Planning Department,
Corporate Planning Group, Japan Bank for International Cooperation
4-1, Ohtemachi 1- chome, Chiyoda-ku, Tokyo 100-8144, Japan Tel : +81-3-5218-3100*Any unauthorized reproduction or publication of the images or text in this paper is prohibited.

JBIC Website

Facebookindustries suffering sharp drops in
profitability and structural decline, alongwith the emergence of SMEs eager toembark on overseas trade and investment to tap into international markets.
In response, the government bolstered
the financial support system by JEXIM.
In 1976, the Export-Import Bank of Japan
Act was amended, raising the borrowing
cap, allowing foreign currency bonds tobe issued for raising capital, establishinga system for SMEs to more smoothly
utilize JEXIM funds.
Energy supply stability is a vital
determiner of a country’s future. The
challenges that Japan faced due tothe oil crisis prompted a major energy
policy shift, and provided an opportunity
to strengthen the presence of JEXIM’sdomestic financing.

The oil crisis and responseby the Japanese government and JEXIM
1973 October

Outbreak of the fourthArab-Israeli War (1st Oil Crisis)
November Panic buying in Japan
December Drastic rise in the official priceof oil1975 November 1st G6 Summit
1976 June

Partial amendment of the ExportImport Bank of Japan Act

1979 February

Iranian Revolution (2nd Oil
Crisis)1980 September Iran-Iraq War

InstagramThis printed material uses
vegetable oil ink, which
includes soybean oil ink.

Cover Photograph by
Getty Images