According to a survey conducted by the Japan Bank for International Cooperation (JBIC) covering 620 Japanese manufacturing companies for the year 2008, India remains the second favourite investment destination for Japanese companies after China. More Japanese companies are looking at India and other emerging countries favourably, according to Mr Susumu Ushida, Senior Economist with Tokyo-based JBIC Research Institute.

Japan ranked sixth in terms of cumulative foreign direct investment (FDI) in India worth US$ 3,481 million in the period from April 2000 to October 2009, of which US$ 950 million came in the period April-October 2009, according to the latest data released by the Department of Policy and Promotion (DIPP).

Japanese companies expect India to emerge as the third most important trading partner after the US and China, in the next three years. According to a survey by the Japanese External Trade Organisation (JETRO), the increasing interest in India is due to its large market and the macro-economic strength that have helped it minimise the impact of the financial crisis.

Although Japanese foreign institutional investors in India are still negligible, it is significant that eight of the 11 registered with the Securities and Exchange Board of India (SEBI) have entered in the past year and a half. According to investment bankers, India may witness US$ 20 billion worth of Japanese investment in the next three years.

India's exports to Japan in the period 2007-08 stood at US$ 3.86 billion while imports totalled US$ 6.33 billion.

Japanese investors are increasingly looking at India as an investment destination, for business partners and the momentum is set to grow, according to Mr Arjun G Asrani, former Ambassador of India to Japan. According to the ambassador, now investors were looking at pharmaceuticals and healthcare, telecommunications, steel, logistics and financial services apart from the usual automotive industries investments.

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.

With the Japanese government allowing prescription of generic drugs from April 2008, many Indian companies are eyeing the Japanese drugs market. Indian companies are the world's largest suppliers of generic drugs, which are low-cost versions of off-patent drugs. Currently, the generic drug penetration in Japan is about 5 per cent, equivalent to a US$ 3-billion market. The Japanese government is making regulatory changes to promote generic drugs to reduce health care costs and expects generic drug penetration to reach 30 per cent in volumes by 2012-13. Lupin, Dr Reddy's and Zydus Cadilla have wholly-owned units, Ranbaxy Laboratories, now owned by Japan's Daiichi Sankyo, has a 50:50 joint venture with another local player and a marketing subsidiary. Meanwhile, Japan-based drugmaker Takeda Pharmaceuticals is exploring the possibility of entering the Indian market.