Japan’s youngest ever prime minister wrote in his book Towards A Beautiful Society that he would not be surprised if in ten years’ time Japan-India relations overtake Japan-US and Japan-China relations.

At the 14th India-Japan Annual Summit, Prime Ministers Kishida Fumio and Narendra Modi decided to further promote the special strategic and global partnership between India and Japan. They shared a common vision that the economies of both countries would be powered by “robust bilateral investment and trade flows through diversified, resilient, transparent, open, secure and predictable global supply chains,” the joint statement said. The pinnacle of the bilateral relationship was undoubtedly during Abe Shinzo’s premiership, when Indo-Japanese ties entered a qualitatively new phase.

Japan’s youngest ever prime minister wrote in his book Towards A Beautiful Society that he would not be surprised if in ten years’ time Japan-India relations overtake Japan-US and Japan-China relations. The challenge for both countries is to translate this ambitious vision into reality. The model of economic cooperation in 2014 is also broadly similar to what was announced at the summit. Under Abe, 3.5 trillion yen ($33.8 billion) was promised by Japan for bullet trains, smart cities, rejuvenation of rivers like the Ganges and clean energy projects. This has now been increased to 5 trillion yen ($42 billion) in public and private investment and ODA over the next five years.

Despite progress in bilateral economic cooperation, the flagship bullet train project between Ahmedabad and Mumbai is still a work in progress with land acquisition still unfinished. The same goes for dedicated freight and industrial corridors and smart cities. Both leaders confirmed that this bullet train project was an important symbol of India-Japan cooperation; that they would cooperate before the start of the work at the earliest. Currently, there are 1,455 Japanese companies in India. Japan is the only country in the world to have 12 dedicated land-focused industrial townships in nine states across India.

There is a Japan Plus Desk, established in 2014 by an agreement between Abe and Modi, to facilitate and retain investors in India. This has improved the comfort level for Japan to become India’s fifth largest investor. However, this is not reflected in robust trade – the two-way flows are only $17.2 billion, despite a comprehensive Economic Partnership Agreement (CEPA) since 2011 that aimed to eliminate tariffs on most products; increasing the access of Indian professionals and contract service providers to the Japanese market. Japan has a $6.8 billion trade surplus this fiscal year (April-January). At the summit, both leaders recognized the need to strengthen bilateral trade and encouraged a further review of the implementation of CEPA through existing mechanisms.

While India has taken steps to improve the business environment for Japanese investors, this is an area where additional measures are needed to attract major investment. Despite all the positive research from the Japanese External Trade Organization that a majority of Japanese companies that have invested in India are positive about expanding their business, they are not making hasty decisions to invest. Their exposure to ASEAN is 11 times higher than in India. Net inflows of foreign direct investment from Japan to India declined sharply to $2.7 billion in 2021, from peak levels of $4.2 billion in 2016 as Japan seeks an alternative to investment in China, according to JETRO.

Japan’s major investments are plagued by concerns about its complicated legal and tax system, difficult labor issues, inadequate infrastructure, poor contract enforcement, etc. To exploit the unfulfilled promise of the relationship, both Japan and India must exploit their natural complementarities. Japan is a “hard” power with manufacturing capabilities. India is a ‘soft’ power in IT and services. Japan is short of natural resources that India has. Japan has capital. India has a skilled workforce. Japan is looking for markets. India has a thriving huge domestic market.


This post One yen for India: To advance bilateral relations, Japan and India must exploit complementarity was original published at “https://www.financialexpress.com/opinion/a-yen-for-india-to-take-bilateral-relations-forward-japan-and-india-must-exploit-complementarities/2467164/”

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