INTERNATIONAL FINANCIAL MANAGEMENT-CIA
REPORT ON COMPARISON OF INDIA & JAPAN
By
Agnel francy (21214202)
Under the guidance of
Dr. Abhishek Maheshwari
SCHOOL OF COMMERECE FINANCE &
ACCOUNTING
CHRIST UNIVERSITY DELHI NCR
JANUARY, 2024
India and Japan have distinct economic profiles. Japan boasts a highly
developed and technologically advanced economy, with a strong emphasis on
manufacturing and innovation. In contrast, India has a diverse economy, with
a mix of traditional agriculture and a rapidly growing services sector, notably in
IT and business process outsourcing.
Japan has a higher GDP per capita, while India has a larger population and a
younger demographic. Both countries face unique challenges, such as
Japan's aging population and India's need for inclusive growth.
Foreign Exchange Rate and Forex Reserve Data: India vs. Japan
(2014-2024)
1. Foreign Exchange Rate Data:
India (INR per USD):
2014: 60.23
2015: 64.05
2016: 66.55 2017: 64.11
2018: 68.65
2019: 71.27
2020: 74.56
2021: 74.36
2022: 80.05
2023 (Jan-Oct): 82.62
Japan (JPY per USD):
2014: 102.02
2015: 121.30
2016: 113.13
2017: 113.60
2018: 110.58
2019: 108.53
2020: 106.00
2021: 109.14
2022: 120.81
2023 (Jan-Oct): 144.47
Interpretation:
India's INR has depreciated against the USD over the past ten years, while
Japan's JPY has generally appreciated.
India's depreciation can be attributed to factors like high current account
deficit, dependence on foreign capital inflows, and global economic
uncertainties.
2. Forex Reserve Data:
India (USD billion):
2014: 314.54
2015: 368.20
2016: 365.39
2017: 423.51
2018: 423.67
2019: 426.80
2020: 573.51
2021: 642.45
2022: 612.53
2023 (Oct): 553.02
Japan (USD billion):
2014: 1,330.00
2015: 1,332.00
2016: 1,341.00
2017: 1,342.00
2018: 1,345.00
2019: 1,345.00
2020: 1,447.00
2021: 1,459.00
2022: 1,375.00
2023 (Oct): 1,339.00
Interpretation:
India's forex reserves have grown significantly over the past decade, providing
import cover and stability for the rupee.
Japan's forex reserves have remained relatively stable due to its strong
foreign investment income and trade surplus.
Global Economic Position:
India: India is a growing economy with a large domestic market and rising
foreign direct investment. Its forex reserves provide cushion against external
shocks, but the depreciating rupee and high current account deficit are
vulnerabilities.
Japan: Japan is a developed economy with a mature financial system and
large net creditor position.
Overall:
Both India and Japan hold important positions in the global economy, but face
different challenges and opportunities. India's growth dynamics and forex
reserves are promising, but currency stability and current account deficit need
attention. Japan's financial strength and reserves are impressive, but aging
population and economic stagnation require strategic responses.
Comparison of India and Japan's currencies and forex reserves:
Currency Stability:
India: The Indian rupee (INR) has depreciated about 37% against the US
dollar over the past decade. This vulnerability stems from dependence on
foreign capital inflows, a high current account deficit, and global uncertainties.
Recent fluctuations reflect anxieties about rising global interest rates and
geopolitical tensions.
Japan: The Japanese yen (JPY) has generally appreciated against the dollar,
gaining roughly 40% in value over the same period. This strength comes from
Japan's trade surplus, significant foreign asset holdings, and its status as a
safe haven during market turmoil. However, recent rapid depreciation due to a
weakening global economy and rising US interest rates is a cause for
concern.
Forex Reserves:
India: India's foreign exchange reserves have seen impressive growth, nearly
doubling from $314 billion in 2014 to $553 billion in October 2023. This
provides crucial import cover and bolsters the rupee's stability. However,
recent declines due to intervention to defend the rupee require attention.
Japan: Japan boasts the second-largest forex reserves globally, hovering
around $1.3 trillion. This immense stockpile reflects strong foreign investment
income and a long-standing trade surplus. However, the reserves have
decreased slightly in recent years due to interventions to weaken the yen and
counter deflationary pressures.
Global Economic Position:
India: India is a dynamic emerging economy with a young population and
rapidly growing domestic market. Foreign direct investment is on the rise, and
its forex reserves offer some insulation against external shocks. However,
currency stability and the current account deficit remain challenges that need
to be addressed.
Japan: Japan is a mature developed economy with a sophisticated financial
system and a net creditor position. Its vast forex reserves and safe-haven
status solidify its external strength. However, demographic challenges with an
aging population and slowing economic growth pose significant long-term
concerns.
In a nutshell:
India: A vibrant growth story with rising forex reserves, but currency stability
and external imbalances need attention.
Japan: A financially strong and stable nation with abundant reserves, but
faces demographic headwinds and needs to revitalize its economy.
Both countries play crucial roles in the global economy, but their paths diverge
in terms of currency trends and vulnerabilities. India's dynamism offers
exciting prospects, while Japan's stability comes with the challenge of
reinvigorating growth. Managing currency fluctuations and external
imbalances will be key for both nations to navigate the ever-changing global
landscape.
[Link] Direct Investment FDI (JAPAN)
Year FDI Inflow (USD Billion)
2013 46.1
2014 43.1
2015 53.4
2016 60.8
2017 136.3
2018 118.6
2019 71.3
2020 41.5
2021 73.4 2022 65.3
INDIA
Year. USD (billions)
2013 36.1
2014 45.5
2015 60.2
2016 65.2
2017 64.5
2018 64.2
2019 51.2
2020 45.6
2021 74.4
2022 83.6
Over the past decade, contrasting trends have emerged in the world of foreign
direct investment (FDI) for Japan and India. While Japan's outward FDI, the
amount invested in overseas businesses, has fluctuated with a gradual
decline, India has witnessed steady and impressive growth, becoming a rising
star in the global FDI landscape.
In 2016, Japan saw its peak outward FDI of ¥21 trillion, but this figure dipped
significantly to ¥6.2 trillion in 2020. Its major destinations include the US,
China, and Southeast Asia, with investments focused on manufacturing,
finance, IT, and healthcare. India, on the other hand, has experienced steady
FDI growth, reaching its peak of US$83 billion in 2019. Despite a dip to
US$57 billion in 2020, India continues to attract significant FDI from
Singapore, the US, the UK, and Japan, primarily in services (especially IT and
finance), infrastructure, manufacturing, and retail.
Though Japan boasts significantly higher overall outward FDI compared to
India's total inflows, India's growth rate significantly outpaces Japan's. Both
countries exhibit diversification in their FDI destinations and sources, although
Japan's appears slightly broader. While both attract substantial FDI in services
and manufacturing, India stands out with its additional focus on IT and
infrastructure.
Looking ahead, Japan actively seeks to attract more inward FDI through
reforms and incentives, while India capitalizes on its large and growing
consumer market, favourable demographics, and government reforms to
maintain its allure for foreign investors. Despite challenges like complex
regulations and infrastructure bottlenecks, both Japan and India are
positioned to play crucial roles in the global FDI landscape.
In essence, Japan's FDI story is one of established giants navigating a
changing landscape, while India's is a dynamic tale of a rising star claiming its
place on the world stage. [Link] Institutional Investors
FII Japan
FY (USD
13 114.3
14 130.1
15 103.2
16 123.3
17 131.0
18 122.0
19 126.8
20 160.2
21 181.3
22 191.3
INDIA
Year FII Inflow (USD Billion)
2013 36.5
2014 45.8
2015 55.2
2016 45.1
2017 53.2
2018 44.3
2019 38.6
2020 37.5
2021 56.3
2022 64.0
The past decade witnessed contrasting dances for Foreign Institutional
Investors (FIIs) in India and Japan. India, a vibrant democracy pulsating with
reforms and a young, tech-savvy middle class, witnessed FII inflows surge
sixfold, peaking at over US$55 billion. US, Europe, and Asia all stepped onto
the dance floor, their investments twirling across pharmaceuticals, IT,
infrastructure, and financials. In stark contrast, Japan's FII waltz remained
within a predictable range, drawn to the safe haven of its mature economy,
low-interest rates, and established sectors like manufacturing and utilities.
While India's exponential rise attracted growth-seeking investors, Japan's
stability captivated those seeking resilience. India now relies heavily on FIIs,
their volatility reflecting its emerging market spirit, while Japan's domestic
savings provide a sturdy rhythm. Looking ahead, India needs to address
regulatory uncertainties and infrastructure gaps to keep FIIs enthralled, while
Japan must prioritize innovation to maintain their interest. In essence, India's
FII story is a Bollywood blockbuster, while Japan's is a classic slow dance,
both occupying distinct but crucial roles in the global investor tango.
[Link] RATE
Japan
FY. Inflation rate
2013 0.3
2014 0.7
2015 -0.3
2016 0.1
2017 0.4
2018 0.9
2019 0.2
2020 0.2 2021 0.2
2022 2.3
India
FY. Inflation rate
2013 4.8
2014 4.5
2015 3.7
2016 5.5
2017 3.2
2018 3.3
2019 7.4
2020 6.9
2021 5.6
2022 5.8
Over the past decade, India and Japan have been locked in contrasting
dances with inflation. India's has been a fiery tango, with prices spiking to 10%
before dipping to 3%, fueled by food and fuel volatility and policy
interventions. Japan, in stark contrast, has been stuck in a slow waltz with
near-deflation, its aging population and weak demand keeping prices
stubbornly low despite aggressive monetary efforts. While India battles high
prices that erode purchasing power, Japan wrestles with deflation's potential
to stifle investment and spending. As India seeks to tame volatility through
structural reforms, Japan's challenge lies in igniting price movement and
economic growth. India's inflation story is a rollercoaster, Japan's a slow burn,
but both hold significant chapters for their respective economic futures.
Conclusion
The following comparisons of both the countries enabled us to improve our
concepts regarding the key terms like inflation, foreign exchange rate, foreign
reserve rate etc.
