Nippon impact – Japan’s crisis spells risk for world economy

The Tsunami and nuclear fall-out in Japan are expected to upset the Japanese economy. To avoid any downturn in global economy, countries need to keep a close eye on Japan’s recovery and assist in its infrastructure building
 
Japan, the world’s third-largest economy, already saddled with public debt double the size of its USD 5 trillion output, has just started coming-out of global ‘recession blue’. The latest Tsunami and nuclear fall-out aftermath have once again strike the country’s economy. The Indian government has immediately declared its diplomatic measures that may strengthen the relationship between two countries. Now the onus is on Indian industry that needs to extend hands to Japanese counterpart and participate in rebuilding Japan’s infrastructure.
 
Though the policy makers in India think that there will be not be much impact of Japan disaster over our economy; it’ll be too early to jump to conclusions. A few probable impacts have been discussed here.
 
Japanese investment in India to shrink
Japan is the third largest economy in the World. Any large shifts on its part is bound to impact the global economy. However economists think that the crisis in Japan will not have any major or direct impact on the Indian economy. India has very limited trade relation with Japan which accounts for only 2.2 per cent of India’s total trade. Thus, the real economic impact is likely to be muted. Also, long-term foreign direct investments (FDI) from Japan are a marginal 4 per cent of overall FDIs into India. However, a fall in Japanese investment in India cannot be ruled-out. After the crisis the companies would certainly increase their business activities within the country to meet domestic demand, which may upset the foreign investment in India. For Japanese companies, India is one of the favourite investment destinations especially in sectors such as automobiles, IT, infrastructure, steel, power and pharmaceuticals.
 
Shipping industry shaken
The shocking earthquake followed by nuclear fall-out in Japan is expected to hit the shipping industry in India. As far as India is concerned, Japan is the largest importers of various essential commodities including crude oil and iron ore, which are very vital for the shipping industry.
 
Auto firms may get hit
As of now, the automobile and auto parts makers in India have largely denied the impact of Japanese disaster. But if the manufacturing disruptions in Japan continue for a prolonged duration, their business could be affected. Japan based automobile majors such as Toyota, Honda, Suzuki and Nissan have halted production at their factories in Japan for an indefinite period. It may take weeks to restore the facilities to manage with planned power outages and adjust to logistical challenges.
 
Tough time for nuclear sector
The nuclear crisis in Japan has raised fears about the future of the nuclear industry across the globe.  The governments are taking necessary steps to ensure safety of the existing nuclear reactors. Though the Government has assured that all the reactors in India are designed to withstand the effects of earthquake and tsunami of specific magnitudes, an order has been issued to review the same. Any indiscrepancy, may jeopardise the country’s ambitious nuclear power target.
 
Cement & Steel to become dearer
Once the process of rebuilding starts in Japan, the demand for construction related steel and cement is bound to go up. Thus, there are possibilities of a hike in price of steel and cement. In 2010, Japan had produced about 110 million tonnes of crude steel which is 8 per cent of the global output. In general, the country consumes nearly 60 per cent of its output and exports the rest. Sluggishness in the production of steel due to natural havoc together with higher demand in rebuilding infrastructure is expected to push the pricing of steel and cement.
 
Rubber pricing on slide
The’ tsunami’ impact in Japan is posing a grave threat to the rubber industry in India. The pricing of export-grade rubber has declined terribly. Moreover, the sudden decline in quality rubber pricing brought some relief to the tyre companies and boosts them to produce more. But, as the few automotive majors forced to halt their business, further reduction in the demand for tyre is anticipated. This is a matter of concern for the rubber and tyre industry.
 
Project developers to assist in rebuilding
In the aftermath of the disaster in Japan, the country needs to rebuild its infrastructure – from roads and rail to power and ports. It has been reported that the country will take at least five years to reconstruct its earthquake and tsunami affected regions. Though Japan has the history of excellence in construction business, major project developers from India will certainly have an opportunity to venture into rebuilding Japan.
 
Component manufacturers to create new opening
In Tsunami hit Japan, as the construction activities is expected to get a major thrust, the demand for construction equipment and bulk material handling equipment is bound to grow manifold. Presently, there are not many component manufacturers from India who supply precision components to the construction equipment and bulk material handling equipment manufacturers. This will result in creating new opportunities.

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