How Japan's disaster hits Indian economy

Bangalore: The jolt of fear and shock has not passed yet the people of Japan, but the world is hoping that the people show their same power of determination in overcoming the natural calamities as they always did. The world economy has been largely affected by the Tsunami that hit the world's third largest economy and the Indian industry was no exception.
How Japan's disaster hits Indian economy

Although the economic analysts have predicted that earthquake-triggered Tsunami would not create a recession, it will definitely have a long-term economic impact on the Indian economy. The government spending will obviously increase as it focuses more on disaster preparedness activities. The government has already given orders to recheck the power of all our nuclear plans to see if they can withstand a natural calamity. It will also spend significant amounts in reconstruction and strengthening of such plants. At the wake of such incidents, it's no surprise that the governments across the globe move more funds to the disaster management schemes.

Indian companies operating in Japan will incur major losses as they have to shutdown their processes their. In the tsunami excavated city of Yokohama, one of Japan's major IT centers, has many major as well as small Indian IT firms are located and they employ several hundred employees. A large number of Indian workforces are from the IT industry. Indian IT companies like Infosys, TCS, Wipro and many other small-time IT firms have their significant presence in Japan and have to recall their employees. Moreover, the Indian IT industry may also be affected by the recent natural calamity, although not severely, as IT export from India to Japan amounts to approximately $1 billion or 2 per cent of the country's total IT exports.

At the wake of the earthquake, international Oil prices fell to a two week low fearing that the fuel demand will come down. However, it was certain that it's not going to live as it is expected that the demand for alternate might increase as the nuclear power plants got destroyed in the region.

Although the Indian market has slumped a bit on the calamity news, it came back strongly to end in a positive note. Japanese stocks fell 7.5 percent on fears about the long-term impact on power supplies. It had a direct impact on the base metal pack prices as Nikkei fell 8 percent in five sessions. Aluminum, copper, lead, zinc were all severely affected in the market after the disaster.

As Japan will focus on rebuilding the country, its investments in emerging markets like India would decline in the coming days. Japan has shown remarkable investment interests in sectors such as infrastructure, IT, automobiles, steel, power and pharmaceuticals in India. Japan is in the seventh position in terms of cumulative foreign direct investment in India, amounting for $3,714 million during the period from April 2000 to March 2010.

It should be noted that The Japanese External Trade Organisation had reported that Japanese firms are increasingly preferring India as an investment destination over China. The number of Japanese companies in India has gone up from approximately 100 in 2006-07 to 300 companies in 2009-10. The analysts had predicted that Japanese investment would go up to $20 billion by 2012. But now with heavy internal pressure to gain back its lost glory, investment might be rescheduled and the financial impact of the disaster might be a long term one for the Indian economy.