ANNEXURE

India Japan Business Leaders Forum (IJBLF)

Status update on Industry Issues highlighted at theForum meeting held on 1st September 2014 at Tokyo

Issues Faced by Indian Companies Operating in JapanIssues Partially Resolved•

Lift the ban on 17 food additives which are registered in India, reducing the cost ofcertification by Japanese agencies and relaxing the maximum residue levels ofEthoxyquin on various products.

[Maximum residue levels of Ethoxyquin Relaxed and received recognition from Indiangovernment.]

Pending Issues•Remove non-tariff barriers.

[Ongoing]•Develop mechanisms to streamline testing, inspection, and record-keeping
procedures for the export of food, especially seafood, from India to Japan.

[Ongoing]•

Mutual Recognition Agreement (MRA) in pharmaceutical sector should beconcluded.

This would enable both the countries to identify the testing procedures and standards
used in the other country for their goods.

Generic pharmaceuticals constitute 12 per cent of the total Japanese market. Japan offers
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national treatment to Indian generic pharmaceuticals under CEPA, so the substitution
potential is high. A Mutual Recognition Agreement (MRA) is needed, enabling bothcountries to identify the testing procedures and standards used in the other country for
their goods. The complex registration process and language barrier in the Japanesemarket also hamper Indian exports.

[Japan has shortened length of time required for screening and testing for all companies
across the world. It is suggested that PMDA (Pharmaceuticals and Medical Device
Agency) and DCGI (Drug Control General India) should collaborate more closely on
regulatory matters. Workshops on compliance expectations of PMDA would be useful toconduct for the Indian pharmaceutical sector.]•Facilitate improvement in movement of natural persons in such areas as relaxationof academic qualifications criteria in issuing visas for computer engineers.

Indian industry enjoys a vast pool of skilled service providers across a range of sectors
including IT, accounting, financial services, infrastructure-related services, legal, retail,telecommunications, tourism and health services. Japan may consider dismantlingbarriers such as economic needs tests and discipline domestic regulations, especiallywhere qualification requirements and procedures are concerned. Japan too has requested
easier access for its professionals in India. In addition, the need for an original invitation
letter to process a business visa for Japan should be relaxed for Tier 1 companies.

[This issue needs to be discussed at the IJCEPA Sub-committee on Improvement of theBusiness Environment and resolved appropriately.]•Realize market access in fields such as IT, IT Enabled Services, and professional
services.

India’s vibrant software services industry faces challenges while operating in Japan due tolack of outsourcing culture, complex procedures for contract qualifications for overseas
companies, and the time taken to close a deal. Japanese companies often do not follow
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standard Software Development Life-Cycle (SDLC) and require high level ofcustomization which involves high costs. There is a need to promote facilitative contract
procedures which could enable greater participation of Indian companies in the Japanesesoftware market.

[This issue needs to be discussed at the IJCEPA Sub-committee on Improvement of theBusiness Environment and resolved appropriately.]•Introduce mutual recognition agreement on services professionals such as lawyers
and accountants when called for by Japanese clients.

[This issue needs to be discussed at the IJCEPA Sub-committee on Improvement of theBusiness Environment and resolved appropriately.]•The Withholding Tax of 10% on dividend, royalty and technical service fees shouldbe eliminated.

As per domestic law in Japan, there is no with-holding tax on payments by Japanesecompanies to non–resident entities towards service fees. However, as per DTA between
Japan and India, 10% With-holding Tax applies on fees for technical services when Japanpays India.

As per normal convention, provisions of Treaty or Domestic Law whichever is beneficial isapplied. However in case of Japan, the position that the Japanese government has taken
is that the DTA treaty over-rides the domestic law. Thus the less beneficial option for thetax payer has been implemented. Hence it is recommended to abide by the domestic lawor alter the DTA.

[This issue needs to be discussed at the IJCEPA Sub-committee on Improvement of theBusiness Environment and resolved appropriately.]

Confederation of Indian Industry / Keidanren

Page 3Issues Faced by Japanese Companies Operating in IndiaIssues which have been resolved•

Raise ceiling of foreign investment in the insurance sector from 26% to 49% as discussed
in the Indian government.

[Resolved]•

Relax restrictions on financial and insurance including External Commercial Borrowing(ECB).

[Resolved]•

Relax restrictions on foreign capital investment in Indian banks (4.99 percent under newbank approval guidelines and 26 percent under the revised banking law) to allow theexchange of financial expertise between the two countries.

[The Government of India has brought in a composite cap by removing the sub-limits for
FDI and FII, thereby allowing FIIs/FPI/QFIs to invest up to the sector limit of 74% provided
there is no change of control and management of the investee company.]

Issues partially resolved•

Reduce the gap that exist between deemed profit and real profit in taxing on deemedprofit.

[Partly resolved through introduction of APA]
•Resolve problems in transfer pricing and PE taxation that are deemed unreal from theConfederation of Indian Industry / Keidanren

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business point of view.

[Partly resolved through introduction of APA]
•Allow inspection data on electrical and electronic appliances by method stipulated byInternational Electrotechnical Commission (IEC).

[Japanese companies are now complying with norms set by the Bureau of IndianStandards (BIS), Government of India]•Allow one-stop border services at the port of entry that should also suffice for all
succeeding inter-state border control. Allow attaching maximum retail price stickers aftercustoms clearance.

[Introduction of post-customs clearance attaching of maximum retail price stickers wasannounced but implementation is still awaited]•To nurture internationally competitive industries in India, especially in manufacturing, bysetting up rental factories and plug-and-play factories.

[An intent to develop 11 industrial parks for Japanese businesses were shared at thesummit meeting in September, 2014, as agreed between METI and Department ofCommerce and Industry. It was agreed in October, 2015, to add a new industrial park inthe state of Madhya Pradesh at a meeting between MP CM and METI. In addition, theKarnataka Industrial Area Development Board is in talks with JICA to develop a JapanesePark in an area of 1000 acres in Tumkur District of Karnataka. In addition, JICA should
talk to and engage more actively with potential public and private players who haveestablished industrial parks to promote Japanese investment in such parks.]•Request the two governments to further relax legal restrictions relating to infrastructuredevelopment.
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[Several steps have been taken by the Government of India to encourage infrastructuredevelopment in India, and Japanese businesses appreciates commitment of the Indiangovernment.]•Improve transparency and speed of processing of Infrastructure Projects by Central andState Governments.

[Being done on a case by case basis, and Japanese businesses would greatly appreciate
if the Indian government offer further support in this regard.]•Provide support for minimizing project risks.

[Plug and Play concept has been introduced in terms of infrastructure development.
Winners of the contract can start implementing the project immediately without worrying
about all the regulatory clearances and other necessary linkages. Japanese businesses
appreciate for the effort of Indian government and hope these measures would also apply
to problems existing today as well.]Pending Issues•

Thoroughly inform customs authorities as well as business sector of the two countries on
CEPA rules as well as merit of CEPA use.

•Periodical holding of Sub-Committee on Improvement of the Business Environment,
established under CEPA framework.

•Start inter-governmental discussions on domestic regulations over qualifications ofworkers and professionals.

Confederation of Indian Industry / Keidanren

Page 6•Further ease issuing multiple business visas including further simplification andrationalization of visa issuing process in the two countries including reduction ofdocuments required, etc.

•Early enactment of bilateral social security agreement.

•Early implementation of GST.

•Realization of smooth land acquisition.

•Resolve discrepancies on taxing businesses as well as taxation systems between thecentral and state governments.
[This will be resolved once GST comes into place]•Remove restrictions on foreign financial institutions to open offices in city centers.

[Ministry of Finance, Government of India has pointed out that 82% of all Japanese bankbranches have been opened in major cities, but restrictions are not removed yet.]•Operate intellectual property laws relating to such areas as patent and trademark rights
and secure their international conformity.

[Measures have been taken to streamline and strengthen IPR regime in India, butinternational conformity, especially in the case of compulsory licensing clauses as
observed as hindrance to high technology investment, is not yet achieved.]•Two governments should resolve issues through forums such as the Ministerial-Level
Public-Private Policy Dialogue, the DMIC Vice-Ministerial Taskforce, and sector-specificdiscussions on Japanese companies' projects on DMIC and CBIC.

[A Japan Plus Cell has been set up within the Department of Industrial Policy andConfederation of Indian Industry / Keidanren

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Promotion to resolve these and various other issues faced by Japanese companies, andJapanese businesses appreciates on what Japan Plus has achieved so far.]•Facilitate public-private partnerships through comprehensive de-risking and government
guarantees wherever necessary to mitigate risk on demand side.

[This has been a major policy thrust area of the government. The Kelkar Committee
report has just been submitted to the Government.

Further changes in PPPs are

expected with the implementation of this report. Japanese businesses appreciate effort ofthe Indian government and hope these efforts would bring about better businessenvironment in India]•Establish a forum for regular dialogue between the public and private sectors of bothcountries.

[A Japan Plus Cell has been set up within the Department of Industrial Policy andPromotion for this purpose. Japanese businesses appreciate effort of the Indiangovernment and hope these efforts would bring about better business environment inIndia.]•Enable smooth approval procedures for land acquisition, and environmental, and otherrequired permits.

[A Japan Plus Cell has been set up within the Department of Industrial Policy andPromotion to resolve these and various other issues faced by Japanese companies.
Japanese businesses appreciate effort of the Indian government and hope these efforts
would bring about better business environment in India.]•Secure ample and stable supply of key fuels such as natural gas and coal at appropriate
prices, transfer of fuel price rises to electricity users.

[Allocation of coal blocks to the private sector has been done. The gap between cost ofConfederation of Indian Industry / KeidanrenPage 8

supply and tariffs has been reduced. Japanese businesses appreciate efforts of Indiangovernment and hope these efforts would bring about better business environment inIndia]•

Further deregulate electricity generation, transmission, distribution, and sales, andconclusion of medium and long-term contracts for these services.

[In progress.

Reforms on retail competition side have been proposed and will beimplemented soon. Japanese businesses appreciate efforts of Indian government andhope these efforts would bring about better business environment in India.]•Boost bilateral government cooperation including the signing of a nuclear poweragreement.

•Expand cooperation in Indian Universal ID (UID) system.

•Introduce

state-of-the-art

technologies

infields

ofelectronic

hardware,telecommunications equipment, heavy industries, and rail transport management system.
•Promote technical cooperation and Japanese investment to India as regards toenvironmental management including agriculture, water treatment, hygiene, and recycling.

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