India Japan Trade and Investment Bulletin September 2013

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Indo-Japan Trade and Investment Highlights:
India and Japan to work IT together
Japanese firm Looking to Strengthen Aviation Defence Presence in India
Omori to Acquire Majority Stake in Multi Pack Systems
Return of Mazda in India
Currency Swap to Control Falling Rupee and Improving Financial Ties with Japan
Suzuki to make India Hub for Export of Left Wheel Drive Swift Models to other Emerging Markets
India and Japan Launch Joint Research Programs in Applied Science
The Anime Bond
Knowledge Center: Overview of Indian Labour Law

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India Japan Trade and Investment Bulletin September 2013

  1. 1. 2013 Indo-Japan Trade & Investment Bulletin September Issue Japan Desk, Corporate Professionals
  2. 2. Indo-Japan Trade & Investment Highlights India and Japan to work IT together Japanese firm Looking to Strengthen Aviation Defence Presence in India Omori to Acquire Majority Stake in Multi Pack Systems Return of Mazda in India Currency Swap to Control Falling Rupee and Improving Financial Ties with Japan Suzuki to make India Hub for Export of Left Wheel Drive Swift Models to other Emerging Markets India and Japan Launch Joint Research Programs in Applied Science The Anime Bond Indian and Japanese Companies Join Hands for Bio-Polyol Production and Supply NEC Exploring Opportunities to Expand R&D Efforts in India India-Japan to Work together to Stabilise LNG Prices Toshiba to Expand T&D Business in India through Acquisition India and Japan may Partner in Setting up an Electronics Township in India Nissin has Appetite for Acquisitions in India Bharti SoftBank to Exploit Opportunities in Mobile Gaming Market Suntory may again get to raise the Toast in India Knowledge Centre Overview of Indian Labour Laws: INDEX
  3. 3. India and Japan to work IT together Fujitsu Research Institute and India‟s Nasscom, an IT representative body, have signed a pact to promote cooperation in the information technology-business process management sector. Where on one hand this pact would enable the Japanese businesses to access vital information about India and its IT - BPM Industry, on the other it will provide Indian vendors an opportunity to exhibit their service capabilities. Japanese firm Looking to Strengthen Aviation Defence Presence in India ShinMaywa Industries Limited is looking to identify an Indian partner who would collaborate for maintenance, repair and overhaul of the ShinMaywa US-2 amphibious aircraft which is to be made available to the Indian Navy. Consultations have been held with several companies but nothing has been finalized as yet. The Company has had a 20 year long limited presence in the Indian aviation sector and is looking to make the most of strong Indo-Japan relations. Omori to Acquire Majority Stake in Multi Pack Systems Mumbai based Multi Pack Systems will soon have a holding company; Japan‟s Omori Machinery Co. which is looking forward to purchase a 51% stake in the Company for Rs. 200 Crores1 . Omori, which has previously entered China, Europe and North America, will help the Company in expanding its product and market base. As the name suggests, both the companies operate in the packaging industry with Omori manufacturing packaging machines and Multi Pack Systems providing packaging solutions. Return of Mazda in India After conducting a comprehensive research on Indian automobile market and its various parameters, Japanese auto maker Mazda Motor Corp. is looking to re-enter India after it has 1 1 Crore = 10 Million Indo-Japan Trade & Investment Highlights
  4. 4. stayed away for 4 years. This time over, the company may see the country as a production and an export hub. The company has been facing an increased demand from various international markets and is eager to hit its global sales target of 1.7 million vehicles. Once Mazda has completed its 3 year business plan, it will consider the prospect of entering India very seriously and plans to offer wider range of vehicles this time. Currency Swap to Control Falling Rupee and Improving Financial Ties with Japan The Indo-Japan financial ties are expected to strengthen further after the currency swap arrangement was signed between India and Japan in Russia recently. The agreement raises the currency swap arrangement between the countries from USD 15 Billion to USD 50 Billion. This move is going to be favourable to the Indian Rupee which recently tested its lowest ever against the US Dollar. It is being said that the arrangement will not only be beneficial to both these countries but also to other economies in the Asian region. Suzuki to make India Hub for Export of Left Wheel Drive Swift Models to other Emerging Markets Considering that the manufacturing capacity at its Indian arm is currently underutilized, Japanese automaker Suzuki Motor Corporation is planning to shift the export base of its famous Swift model, a hatchback, to India. Maruti Suzuki has so far not have the capability to manufacture cars meant for left-wheel drive traffic and hence cars for West Asian, African and Latin American markets were being manufactured in Japan only. In Japan, Suzuki now would produce Swift only for the home market or for developed markets that require a bigger 1.4 litre petrol engine. India and Japan Launch Joint Research Programs in Applied Science India‟s Ministry of Science and Technology and Japan‟s largest research organization RIKEN have signed a Memorandum of Understanding (MoU) on 14th September 2013. The MoU has been signed for launching joint research programs in the field of biology and related applied sciences. It is expected that such cooperation will not only boost exchange of information in the concerned field but would also strengthened collaboration between the countries.
  5. 5. The Anime Bond One of the most loved cartoon series in Japan, Anpanman has found a huge acceptance in India. Japan‟s trade and industry minister Toshimitsu Motegi visited Delhi recently and signed an agreement to promote cooperation between the animation industries of India and Japan. It is hoped that in furtherance of this agreement, a TV animation serial would soon be launched. India, which is known for the abundance of hands willing to work, is the perfect hub for animation, an industry which still continues to be labour intensive. Indian and Japanese Companies Join Hands for Bio-Polyol Production and Supply Japanese chemical companies Mitsui Chemicals Inc. and Itoh Oil Chemical Co. Ltd have announced a joint venture with India‟s Jayant Agro-Organics Ltd, a leading producer of castor oil, for production of “bio-polyol” which is made from non edible plant derived fatty acid. The partnership of the three companies is expected to establish a stable supply base for overwhelmingly cost competitive bio-polyol. Jayant Agro will hold 50% in the JV company whereas Mitsui and Itoh will have stake of 40% and 10% respectively. NEC Exploring Opportunities to Expand R&D Efforts in India Japan‟s electrical giant NEC is looking forward to expand its research on Indian energy market through collaboration with the Indian Institute of Technology, Delhi and the Energy Resources Institute. The collaboration is expected to yield a better understanding of the Indian scenarios to the Company. The research is expected to involve micro-grids for new townships, energy management systems for commercial buildings, photovoltaic (PV) energy integration into the main grid, and study of energy market, including tariff structures. NEC previously partnered with SRM University in Chennai through which it is working on managing energy operating expenses across its campus. India-Japan to Work together to Stabilise LNG Prices India's Petroleum Minister M. Veerappa Moily discussed the LNG pricing and procurement issue with Japan's minister of economy and trade Toshimitsu Motegi during a meeting in Tokyo. It was discussed that Japan and India, as major LNG consuming countries in Asia, will work together towards developing a market environment which would help in effective, stable
  6. 6. and globally competitive LNG procurement. The counties have also decided to set up a multilateral joint study group on LNG. Toshiba to Expand T&D Business in India through Acquisition Japanese Company Toshiba Corp has acquired a major part of India‟s Hyderabad based Vijai Electricals Limited‟s transmission and distribution (T&D) business for around USD 200 million. The acquisition is expected to be completed in November and a new company will be established to absorb the acquired business and integrate its design and manufacturing technologies for T&D systems. This company it is being said will serve as the core production base for Toshiba in expanding its T&D business in India. India and Japan may Partner in Setting up an Electronics Township in India India and Japan are considering the possibility of setting up a Japanese Electronics Manufacturing Township. It is expected that such a township will help India reduce imports of electronic goods and contain trade deficit. The decision will be taken up in the ensuing meeting of the Joint Working Group of India and Japan which will be formed for increased cooperation in the IT and Electronics Sector. In the meanwhile, a Japan Help Desk has been set up in the Department of Electronics and Information Technology to help Japanese companies investing in electronics sector in India. Nissin has Appetite for Acquisitions in India The Japanese popular instant noodles maker, Nissin Foods is in talks to buy Capital Foods, an Indian processed foods and ingredients company. Capital Foods which is the maker of instant Chinese noodles, soups, condiments and curry pastes among various other things, is expecting an enterprise valuation of INR 5-6 Billion and hence the transaction may require a considerable time to execute. What is interesting to note is that the 40% owner of Capital Foods has denied having engaged in discussions for exiting the business and hence the picture is currently unclear. Bharti SoftBank to Exploit Opportunities in Mobile Gaming Market Bharti SoftBank (BSB), a joint venture between India‟s Bharti Enterprises and Japan-based SoftBank, is betting on the mobile gaming market through launch of Tiny Mogul Games. BSB
  7. 7. has set itself ambitious target of capturing 10% of the Smartphone users in India by this year- end. The company is planning to tie up with mobile service providers for better exposure to the users and claims to have already tied up with Airtel, Vodafone and Idea Cellular. Suntory may again get to raise the Toast in India Japan‟s Suntory is said to be in talks with Indian liquor maker Radico Khaitan for purchase of a minority stake of 26% stake in the company for a consideration of INR 870 Crore. It is said that the terms of the proposed share purchase deal may further allow Suntory to pick up an additional stake of 23% in the future. It is noteworthy that Radico Khaitan already markets Suntory‟s premium whisky brands Yamazaki single malt and Hibiki in India. From unsuccessful attempt, in 2009, to acquire stake in Indage Vinters to the recent stake acquisition in Tilaknagar industries along with Pernod Ricard, Suntory has been very keen to make an active presence in India.
  8. 8. Overview of Indian Labour Laws Labour laws in India form a part of the concurrent list of the Constitution of India, 1950 (the “Constitution”) and therefore both the central government (“CG”) as well as the state governments (“SGs”) have the power to enact laws to regulate labour matters in India. Under the Constitution, the need for protecting and safeguarding the interest of labour as human beings has been enshrined in Chapter-III2 and Chapter IV3 . The Ministry of Labour and Employment, a branch of the Government of India, is the apex body for formulation and administration of the rules and regulations and laws relating to labour and employment in India.4 The Indian labour laws have been designed to address various issues such as resolution of industrial disputes, working conditions, labour compensation, insurance, child labour, equal remuneration etc. and are in compliance with International Labour Organisation standards. The employees can be classified into two broad categories namely „management personnel‟ and „workmen‟. Managerial, administrative or supervisory employees drawing a salary of Rs.10,000/- or more per month are considered management staff/ personnel5 . Typically, managerial personnel are governed by the terms and conditions of their contracts of employment, service rules and agreements negotiated with the employer, if any, and do not enjoy any additional protection of law or security of service. Workmen, on the other hand, have been defined as the class of workers performing non-supervisory work including any manual, unskilled, skilled, technical operation or clerical work for hire or reward. Workmen enjoy several protections, (majority of which deal with social security measures) benefits and amenities including terminal benefits. 2 Fundamental Rights, Articles 16, 19, 23 & 24 3 Directive Principles of State Policy, Articles 39, 41, 42, 43, 43A & 54 4 Note: The website of this Ministry can be found at: http://labour.nic.in/; similarly, ministries of labour at state level are responsible for administration and formulation of rules and regulations relating to the labour laws for the respective states. 5 Section 2(s), The Industrial Disputes Act, 1947 Knowledge Center
  9. 9. In view of the sheer volume of labour laws that are in force in India, their applicability to a particular organization is determined and affected by a variety of factors such as sector, place, and number of employees and can be discussed by grouping broadly under the following heads: 1. Wages and Bonus: The labour laws regulating the wages of the workers in India include „The Payment of Wages Act, 1936, which aims to facilitate the payment of wages to workers in a timely manner, „The Minimum Wages Act, 1948‟, a law that seeks to fix the minimum rate of wages in certain employments6 , and Payment of Bonus Act, 19657 , wherein the employer is required to pay bonus to persons on the basis of profits or on the basis of production or productivity. 2. Health and Safety: Workmen‟s Compensation Act, 1923 compensates a workman for any injury suffered during the course of his employment or to his dependents in the case of his death. It provides for the rate at which compensation shall be paid to an employee. It is pertinent to mention that this is one of many social security laws in India. Another example is the Employees‟ State Insurance Act, 1948 (ESI), which is applicable in case of sickness, maternity and employment injury, and other related matters. Under ESI, the employees are entitled to receive medical relief, cash benefits, maternity benefits, pension to dependents of deceased workers and compensation for fatal or other injuries and diseases. The Factories Act, 1948 (FA) is another milestone in the CG formulated labour laws8 . The FA lays emphasis on the cleanliness and comfort of the labour inside the factories. Moreover, health and safety measures, to be adhered inside the factories, have been laid down to ensure a healthy and safe work environment for the labour. Also, the state specific shops & establishment acts play an important role in regulating the working conditions of workers covered under such laws. 3. Social Security: India does not have a comprehensive social security law. However, various laws relating to social security and insurance adopted by the CG and the SGs regulate social 6Note: minimum rates of wages are revised on a regular basis by keeping account of the inflation and cost of living. Minimum wages under the act may be classified by nature of work, location and numerous other factors at the discretion of the government. Most importantly the wages are fixed in a way to curb exploitation of the labour, vulnerable to exploitation. 7 Payment of Bonus Act, 1965 is applicable to the enterprises employing 20 or more persons. 8 Note: The FA covers all manufacturing processes and establishments falling within the definition of „factory‟. Applicable to all factories using power and employing 10 or more workers, and if not using power, employing 20 or more workers on any day of the preceding 12 months. Certain specific facilities have been made mandatory for large factories; ambulance room, if 500 or more workers are employed, canteen for a factory having 250 or more workers, rest rooms / shelters with drinking water where 150 or more workmen are employed, crèches if 30 or more women workers are employed at a factory, full time welfare officer for factories having 500 or more workers, and requirement of safety officer if 1,000 or more workmen are employed, are some of the key highlights of the act.
  10. 10. security collectively. One of the important social security measures comes in the form of Employees Provident Fund and Miscellaneous Provisions Act, 1952 (EPF), which ensures the financial security of the employees in an establishment by providing for a system of compulsory savings by way of establishing a contributory provident fund9 . Similarly, Payment of Gratuity Act, 1972, (PGA) ensures that gratuity is payable to the employee if he or she resigns or retires after rendering continuous services for five (5) years or more and is linked to the number of years in service.10 4. Leave and Benefit: Laws made by the CG are the principal regulators of leaves in India. The Maternity Benefit Act, 1961 (MBA)regulates the employment of women and maternity benefits for workers having worked in the establishment for six weeks immediately following the day of her delivery, miscarriage or medical termination of pregnancy11 . Leaves for the factory workers covered under FA are also regulated thereunder. The FA also lays down standards for working hours, minimum overtime wages, annual leaves and employment of workers under certain age to ensure social and economic justice to the labour. Apart from the CG laws, laws formulated by SGs such as state specific Shops and Establishment Acts, also provide specifications for working hours, leaves, holidays and overtime. 5. Industrial Relation And Dispute Resolution: It is important to discuss that the Indian labour laws are not much supportive of „at-will‟ employment, a concept pioneered in the US. The retrenchment of workers in some cases is governed through government authorities that need to be consulted and taken prior permission from before a worker may be retrenched or laid-off12 .The Industrial Dispute Act, 1947 (IDA) specifically governs the retrenchment of workmen at a workplace having workmen above a certain limit13 and provides for procedure to be followed at the time of lay-off and retrenchment14 . Apart from the retrenchments, the IDA is an important legislative tool to secure industrial peace and harmony; it provides 9 Note: EPF requires that employees‟ contribution shall be at least equal to the contribution payable by the employer. Minimum contribution by the employees shall be 10-12% of the wages. However this amount shall be payable to the employee after their retirement and could also be withdrawn partly for certain specified purposes. It is important to highlight that EPF shall be applicable to industries employing 20 or more persons and any other class of establishments employing 20 or more persons notified by the Government. 10 Note: PGA is applicable to all establishments employing 10 or more workers. Section 4(3) Payment of Gratuity Act, 1972 mandates that gratuity be payable at the rate of 15 days salary of the employee for each completed year of service subject to a maximum of 1,000,000. 11 Note: Under MBA, every female employee who has worked for a minimum of 80 days in an organisation is entitled to paid maternity leave of 12 weeks. 12 Note: Termination of workers in India is governed by The Industrial Dispute Act, 1947, specific Shops & Establishment laws at state level and employers‟ standing orders [governed through „The Industrial Employment (Standing Orders) Act, 1946‟] 13 Section 25A of the IDA 14 Chapter VA and VB of the IDA
  11. 11. machinery and procedure for the investigation and settlement of industrial disputes through negotiations and arbitration15 and has also provided for prevention of illegal strikes and lock- outs16 . The IDA provides for the power of the government to refer any industrial disputes to the labour boards, courts or industrial tribunals through the department of labour under the respective SGs.17 From the Perspective of a Foreign Investor: The Indian labour laws are often viewed as draconian and arbitrary by the foreign investors. However, for the large part, such view may be termed as overly pessimistic if not a misconception due to lack of information and inability to fully understand the labour laws in India and their applicability. There is no denying the fact that the labour laws in India tend to be inflexible and vague at times but a better understanding of the law and its implementation may resolve a few issues. From the point of view of a foreign investor in India, it is important to understand the applicable labour laws and the effects of non-compliance. The subsidiaries of foreign companies in India are treated at par with other Indian companies so far as the applicability of labour laws is concerned and no special labour laws govern such subsidiaries. Following are example of some of the known best practices adopted by Indian companies to avoid labour disputes: 1. Identify the long term requirement of employees at an early stage. 2. Identify the class of workmen and employees who are not covered under definition of workmen. 3. Appointment letters of the workers must be prepared very carefully in order to clearly define the employment terms and conditions including clauses for wages, benefits, non- compete, confidentiality, term, termination etc. 4. Depending on the requirement, use of fixed term contracts for workmen is also one of the measures to minimize any future disputes. 5. Regard to local laws of the State while drawing up the contracts. 15 Chapter III (Sections 10 and 10A) of the IDA 16 Chapter V (Section 22 to Section 25) of the IDA 17 The process for resolution of labour disputes starts with filing of a petition before Labour Conciliation Officer and in case no compromise is possible, the said officer sends a failure report to the Government. After consideration of the said report, the Government may send a reference to the Labour Court/ Industrial Tribunal. In certain matters, the labour dispute can be directly filed in the court concerned.
  12. 12. To Conclude… The labour laws in India are mainly focused on protecting and safeguarding the interests of workers in general and those who constitute the poor, deprived and disadvantage sections of the society, in particular, with due regard to creating a healthy work environment for higher production and productivity and to develop and coordinate vocational skill training and employment services. Government is also focused on promotion of welfare and providing social security to the labour force both in organized and unorganized sectors, in tandem with the process of liberalization. These objectives are achieved through enactment and implementation of various labour laws, which regulate the terms and conditions of service and employment of workers. Although there are said to be too many laws in India governing the labour affairs in the country that tend to give a negative impression about the whole labour regime, there is yet a hope that with better understanding and planning a manageable and business friendly labour structure can be created. DISCLAIMER: The document has been prepared and produced only for the information purpose only and is not to be construed as an advertisement, solicitation, invitation, personal communication or inducement of any kind by the Firm, the author or any of its Partner or associates. The entire content of this document has been developed on the basis of relevant statutory provisions and as per the information available at the time of the preparation. Though the author has made utmost efforts to provide authentic information, however, the material contained in this document does not constitute/substitute professional advice that may be required before acting on any matter. The author and the firm expressly disclaim all and any liability to any person who has read this document, or otherwise, in respect of anything, and of consequences of anything done, or omitted to be done by any such person in reliance upon the contents of this document.
  13. 13. CONTACT US PANKAJ SINGLA Japan Desk, Corporate Professionals NEW DELHI (Head Office) D-28, South Extension Part - I, New Delhi – 110049 Tel: +91-11-40622200 Dir: +91-11-40622293 Fax: +91-11-40622201 Mob:+91-99715-08320 Email: pankaj@indiacp.com MUMBAI Mastermind- I, Royal Palms Estate, Aarey Colony, Goregaon (East), Mumbai -400065 Tel: +91 9820079664 Fax: +91 9810037390 FARIDABAD (DELHI NCR) 565, Sector-7B, Faridabad, Haryana-121006 Tel: +91 129 4061130 Fax: +91 129 2241017 BEDFORD (United Kingdom) 2-4 Mill Street, Bedford MK40 3HD U.K. Tel: +44 (0) 2030063240 Fax: +44 (0) 2030063241

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