Effect of Destructive Earthquake in Japan in Indian Economy

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Japan, the World's 3rd largest economy had been jolted by the strong earthquake on 11th March 2011. The resultant Tsunami and Nuclear Power Plant disasters have caused destructions North East Japan.

Stock Markets

Stock markets across the globe felt the jitters after the worst earthquake of 8.9 magnitude triggered Tsunami that hit the worlds third largest economy. According to experts the loss in production from the Tohoku region where the earthquake struck will not create recession. Economists feel that in long term the economic impact will be modest.

The earth quake is expected to trigger government spending and also increase reconstruction activities. Insurance companies and banks will feel the heat in the short term.

The initial reaction in the Indian stock market has been as expected very negative. But after taking stock, the market has improved.

Japanese Investment in India

In short term the investment of Japan in emerging and fast growing economies like India will decline as there will be internal pressure to invest in own country to build lost plants and infrastructure.

Oil Prices

International Oil prices fell to a two week low after the earthquake on the speculation that the fuel demand will come down. But this is not going to live for long as few of the Nuclear power plants in the region got destroyed, demand for alternate fuel is expected to increase.

Indo-Japanese Trade

Lets look at the trade between the two countries.

Year2005-20062006-20072007-20082008-20092009-2010
EXPORT2,4812,8683,8583,0263,630
%Growth 15.5934.53-21.5819.96
India's Total Export 103,091126,414163,132185,295178,751
%Growth 22.6229.0513.59-3.53
%Share 2.412.272.371.632.03
IMPORT 4,0614,6006,3267,8866,734
%Growth 13.2637.5324.67-14.61
India's Total Import 149,166185,735251,654303,696288,373
%Growth 24.5235.4920.68-5.05
%Share 2.722.482.512.62.34
TOTAL TRADE 6,5427,46810,18410,91210,364
%Growth 14.1436.387.14-5.02
India's Total Trade 252,256312,149414,786488,992467,124
%Growth 23.7432.8817.89-4.47
%Share 2.592.392.462.232.22
TRADE BALANCE
India's Trade Balance-46,075-59,321-88,522-118,401-109,621

India Import to Japan
India export to Japan


Lets look at the investment by Japan in India

India remains the second favorite investment destination for Japanese companies after China. Sectors such as automobiles, IT, infrastructure, steel, power and pharmaceuticals are area of interest to Japnese.

Japan ranked seventh in terms of cumulative foreign direct investment (FDI) in India, accounting for US$ 3,714 million in the period from April 2000 to March 2010, of which US$ 1,183 million came in the period April 2009-March 2010, according to the latest data released by the Department of Policy and Promotion (DIPP).

According to the Japanese External Trade Organisation, (JETRO), Japanese firms are increasingly preferring India as an investment destination over China. The number of Japanese companies in India has grown three fold over the last three years from approximately 100 companies in 2006-07 to 300 in 2009-10.

According to investment bankers, India may witness US$ 20 billion worth of Japanese investment by 2012. This investment is expected to be affected by the earthquake as domestic pressures in Japan can force investment to be rescheduled.

India's exports to Japan in the period 2008-09 stood at US$ 3025.70 million while imports totaled US$ 7886.27 million for the period. During April to December 2009, India exported goods worth US$ 2,479.38 million to Japan. India imported merchandise worth US$4823.66 million from Japan during April-December 2009-10.

Major Japanese funds have been coming into India by way of offshore funds, with many Indian houses such as SBI Capital, UTI and DSP Blackrock raising money from the Japanese markets to invest in India.

Last Updated on 05/07/2011