Though Japan had approved an estimated cumulative foreign direct investment of $3.1 billion for India from 1991 to August 2002, the actual inflow of investment was only about $1.2 billion, a Federation of Indian Chambers of Commerce and Industry report said.
The reason for this, according to the Ficci report, is that Japanese firms, unlike American and European Fortune 500 companies, are still apprehensive about doing business in India. For them, differences in business practices, environment and culture are major hindrances.
In terms of FDI, Japan was behind the US, Mauritius and the UK, the study said. Also, India received only 1.1 per cent of Japan's total investment in Southeast Asia.
However, investments by the Japanese could touch $6 billion in India in the next five years if India improved its perception, the report added.
According to the Ficci report, about 43 per cent of the companies surveyed are running profitable operations in India.
Also 66 per cent of the profit-making companies are interested in further expanding their businesses.
Most Japanese investors in India complained that government policies here lacked clarity.
They also felt that procedures concerning investment, import and taxation as well as the execution of laws and regulations were slow and inconsistent.
Of the respondents, 79 per cent rated the overall policy framework in India as 'average', while 14 per cent were satisfied. Nearly half the Japanese companies operating here said labour laws were restrictive and unclear.
Also, 64 per cent of the Japanese companies felt the legal framework and regulatory mechanism in India was 'average', while only 15 per cent felt it was 'good'.
An overwhelming 92 per cent of the respondents felt that ground-level obstacles like labour laws, taxes, and the legal and regulatory framework hindered FDI flow.
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