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6. India's Neemrana Industrial Park for Japanese Firms

6.1 Introduction

India is second only to China in terms of population. India's economic growth since the mid-2000s has risen to around 8 %, and is now considered as having a promising future market. However, the driving force behind this economic growth is the country's service industry, particularly its IT service industry. As compared to China, India trails in its growth in the manufacturing industry. One reason for this gap is the lack of infrastructure in India. For a manufacturing industry to grow, basic infrastructure, such as power and water, and logistics facilities, such as roads, railways, and ports for imports and exports, are required. However, infrastructure development in India has not progressed as planned. Half of India's population is under the age of 25, resulting in a relatively low average age. Therefore, creation of employment opportunities for this younger generation is important. For this reason, it is necessary to promote the manufacturing industry having a high employment absorption capacity. Infrastructure creation is thus an important policy issue for the Indian government.

The Neemrana Industrial Park for Japanese firms was created with the cooperation of the Japanese government and the state government of Rajasthan, situated to the southwest of Delhi. This project has become a highly anticipated one even within the Indian government. Industries in Rajasthan have focused on agriculture and mining such as for marble and cement. The relative lag in industrialization has motivated the Rajasthan state government to provide incentives to factories to set up operations such as automotive industries having high employment absorption capacity. On the other hand, India carries a relatively higher investment risk for Japanese companies for a variety of reasons than do other nearby Asian countries, such as China. These companies find themselves forced to make investment decisions based on insufficient decision-making information, for example, the accessibility of infrastructure such as power and water necessary to operate factories, availability of efficient and appropriate workers, or the ability to adequately respond to various central or local government regulations and directives. Maruti Suzuki and Honda, which together comprise more than 40 % of India's passenger cars, operate factories near Delhi and have strong incentives to attract parts and materials manufacturers to India to strengthen cost competitiveness. Against this backdrop, Japan's External Trade Organization (JETRO) has taken the lead in outfitting the industrial parks to lure, primarily, Japanese auto-related companies to India, thereby reducing risks that individual companies otherwise could not handle.

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