TOKYO - JAPANESE businesses have failed to tap into India as a market and a source of skilled labour, putting them at a competitive disadvantage with Western rivals, according to a policy group advising Japan's government.

In a report presented to Japanese Prime Minister Shinzo Abe and endorsed by some 100 business leaders, politicians and academics, the Japan Forum on International Relations urged the government to accelerate free trade talks and promote private sector exchanges between the two countries.

Japan has forged much broader links with China than with India, in spite of recurring rows over history and unease over China's military expansion.

The report dovetails with Mr Abe's goal of drawing Japan and India closer together to counter China's growing influence in the region.

According to Japan's Foreign Ministry, about 74,000 Chinese were studying in Japan last year compared with just 525 Indians. The ministry estimates the ratio of 'overall human exchanges' at 35:1 in favour of China.

From a business point of view, the Japan Forum said, US and European companies have enjoyed more gains from outsourcing clerical and information technology functions to low-cost Indian firms.

'Unless Japanese companies do likewise, they risk remaining the only ones not leveraging India's IT expertise, and could end up losing international competitiveness,' the group said.

Language barriers and the closed nature of many Japanese companies' computer systems - typically proprietary platforms built and maintained by Japanese technology giants such as NEC - were largely to blame, the report said.

It called on the government to invite more Indian students and trainees into the country and upbraided businesses for 'coddling their affiliated IT companies'.

An estimated 5 per cent of India's foreign direct investment comes from Japan, compared with about 12 per cent from the US and 8 per cent from Britain.

Japan's contribution is concentrated 'almost exclusively' in transport-related infrastructure projects, the report said.

Professor Eisuke Sakakibara at Waseda University, a former Finance Ministry official who led the report, said Japanese firms have also failed to appreciate the buying power of the rapidly emerging Indian middle class.

By way of example, he said South Korean electronics manufacturers such as Samsung, which pushed aggressively into India in the 1990s, had grabbed a 60 per cent market share in the country.

FINANCIAL TIMES