Yuan concerns and anti-Japan sentiment have prompted Japan Inc to look more closely at India as an alternative.

India's strengths include its billion-plus population, rapidly emerging rich middle class, well-skilled but still relatively cheap labor and political neutrality with Japan, all of which could offset a shaky infrastructure.

China remains by far Japan's most heavily invested region in Asia. Of some 4,100 Japanese firms operating around the world, more than half do business in China, compared with just 150 in India, according to a 2004 survey by business publisher, Toyo Keizai.

China is also well ahead of India in offering benefits to lure investment, such as special economic zones and good roads and ports.

``There are as many markets that could grow as there are diversified needs in India,'' said Hiroki Fujimori, researcher at Mitsui Global Strategic Studies Institute.

Prospective areas include the car market, with both production and sales topping one million units last year, and mobile phones with 48 million users.

Analysts said IT is another area where firms can tap Indian expertise and skilled workers for outsourcing such services as call centers to cut costs. Statistics show corporate interest in India is growing. In a March survey by the Japan External Trade Organization of manufacturers operating in Asian countries other than China, 91 percent said they planned to beef up operations in India over the next two years. Inquiries about investment in India rose 27.5 percent from a year ago.

India's ranking rose to third from fifth the year before among countries seen as prospective targets for investment, according to a fiscal 2004/05 survey by the Japanese Bank for International Cooperation.

Toyota Motor, which built a record 48,000 cars last year in India, eyes a 10 percent market share by 2010.

The Nihon Keizai newspaper said Toyota plans to invest more than 10 billion yen (HK$690 million) with minivehicle unit Daihatsu Motor on a factory in India to produce 100,000 small cars a year from as early as 2007.

HCL Technologies, India's fifth-largest software services exporter, last month formed a joint venture with a unit of NEC to boost its presence in Japan. NEC will be able to tap India's technology in mobile embedded software.

Bank of Tokyo-Mitsubishi, one of corporate Japan's very few early entrants to India when it opened its first branch in 1953, has since expanded to three branches.

India still keeps certain industries such as retail closed. Analysts say it is embedded with bureaucracy that slows the process for opening offices, its culture is very different and living conditions can be difficult for foreigners.

Mitsubishi Securities economist Shuji Tonouchi said firms may be better off outsourcing rather than physically going there to expand businesses.

But an official at Toyo Engineering, which has a 30-year-old joint venture in India, said patience pays off.

Toyo India, whose 800 workers are all locals except for its president, now handles 70 percent of the group's global engineering business. ``Indians value human networks, and once you earn their trust, their connections will bring new opportunities,'' he said.REUTERS