Strong India-Japan Ties: Crucial For Developing Asia-Pacific Region – Analysis

By Sanjay Kumar Kar*

Prime Minister Narendra Modi, with serious intentions of strengthening special strategic and global partnership, is proactively engaging with regional and global partners. With his agile administration and forward-looking foreign policy, he has been able to improve relations with many East Asian countries. To my mind, his relationship with Japan has been the most rewarding one.

Considering the strength of Japan in capital, innovation, and technologies and India’s human capital and economic opportunities, the areas identified for intensifying cooperation are high technology, space, clean energy and energy sector development, infrastructure and smart cities, bio-technology, pharmaceuticals, ICT, education and skills development.

New Delhi’s immediate interests include cooperation in defence, technology, space, and clean energy, urban development, and modernisation of infrastructure, including railways.

In the modern globalisation scenario, trade remains at the centre of any relationship. Trade plays a crucial role in shaping relationship with trading partners.

In this context, review of India-Japan trade throws some interesting insights. India’s total trade value with Japan has fallen from $18.3 billion in 2011-12 to $14.5 billion in 2015-16. During the same period, India’s export value to Japan fell from $6.3 billion to $4.7 billion. Even, India’s import from Japan declined from about 12 billion to $9.9 billion.

Both the countries need to emphasise upon improving bilateral trade. On the contrary, India-China bilateral trade reached $70.7 billion in 2015-16, which is almost five times higher than India-Japan bilateral trade. Therefore, it is an opportune time to expand India-Japan bilateral trade and create opportunity for each other.

From Japan’s stand point, there is a significant scope in tapping the Indian market with quality products and services. On the other hand, India should make efforts to increase access to superior Japanese high technology. This could offer a host of opportunities for Japanese companies to capitalise on human capital in India. Japan could use other factors endowment in India to exploit the unleashed potential. In turn, this could serve as an ideal foil for the ‘Make in India’ initiative by the Modi Government.

In the context of boosting investment, manufacturing, and infrastructure development; foreign direct investment (FDI) draws a lot of attention. During April 2000-February 2014, cumulative foreign direct investment (FDI) inflows into India from Japan stood at $11.46 billion. The top five sectors in India attracting FDI inflows from Japan include drugs & pharmaceuticals, automobile, services, metallurgical, and electrical equipment.

At the end of September 2016, with a cumulative value of $23.76 billion, Japan was the fourth largest source of FDI inflows into India. Japan was just behind the United Kingdom but way behind Mauritius — with close to $102 billion FDI investment in India.

Japan’s capability to innovate and commercialise technologies coupled with negative interest rates could push Japanese investors to invest in India. In the near future, FDI inflows from Japan to India may increase as Japan has already committed $25 billion additional investment.

In May 2016, Takuma Hatano — CEO of Japan Overseas Infrastructure Investment Corporation — indicated investment through Public Private Partnership to develop modern infrastructure in India. The Delhi Mumbai Industrial Corridor (DMIC) project is one such joint initiative aimed at creating a new era of industrial infrastructure development with the creation of new generation smart cities in India.

Japan is considered as the Land of the Rising Sun and India is becoming the land of opportunities. As a result, as of March 2016, Japanese-affiliated companies registered in India numbered 1,209 compared to 1072 in 2013 — a growth of about 13 per cent. During the same period, the number of operating business establishments reached 3,961 from 2,542 — a very strong increment of 56 per cent.

The Modi government’s focus on ease-of-doing-business in India was very much appreciated by none other than Prime Minister Shinzo Abe. Key reforms undertaken by the Modi government, including liberalising investment policies, introduction of Goods & Services Tax Bill, and enactment of Insolvency and Bankruptcy Code 2016, are intended to further improve ease of doing business in India, which would be of great help to Japanese companies too. Further, ‘Japan Plus’ facilities extended to Japanese companies would facilitate their doing business in India.

It is to be noted that Japan has been extending bilateral loan and grant assistance to India since 1958. Japanese commitment for loan and assistance reached ¥400 billion ($3.6 billion) in 2015-16 compared to ¥150 billion ($1.4 billion) in 2002-03. It is important to mention that the Japanese Official Development Assistance (ODA) disbursement reached a record high of ¥390 billion ($3.5 billion) in 2015-16, which is an indication that the bilateral relationship has been improving.

Japan’s support and cooperation for building civil nuclear capacity in India is very important to improve energy supply security and reducing carbon footprint in the country. Cooperation in energy would be helpful to promote adoption of clean coal technologies and eco-friendly vehicles like electric and hybrid vehicle.

Cooperation and collaboration between Japan Space Exploration Agency (JAXA) and Indian Space Research Organisation (ISRO) dates back to the 1960s. The time has come to strengthen the partnership and capitalise on joint resources for lunar exploration, satellite navigation, and X-ray astronomy. Further, collaborative research and development in the field of Remote Sensing could be useful for disaster management in the Asia-Pacific countries.

Prime Minister Abe’s unique initiative of establishment of Japan Industrial Townships (JITs) could enhance technology infusion, innovation and best practices in manufacturing sector in India. Such an initiative would certainly boost the “Make in India” programme of Prime Minister Modi and increase global competitiveness of Indian companies.

Cooperation in the field of healthcare, including anti-microbial resistance, stem cell research, pharmaceuticals and medical devices, demands greater attention. Japan has one of the most efficient public healthcare systems in the world. Cooperation in the field of healthcare would certainly be helpful to improve modern healthcare system in India.

Needless to mention, India’s improved ties with Japan would serve economic prosperity of both countries. Japan is expected to gain in terms of increased export, which means India’s import dependence on China is likely to come down.

Access to Japanese technology could improve global competitiveness of Indian companies; thereby improving global trade of ‘Made in India” products. Better India-Japan relationship is bound to strengthen the Indian economy, thereby improving regional prosperity.

Last but not the least, improved Indo-Japan defence cooperation is going to strengthen internal security of India; thereby signalling for peace and stability in the region.

Overall, strong India-Japan relationship is much needed in the context of regional trade, security, and prosperity.

*Sanjay Kumar Kar is Head, Department of Management Studies, Rajiv Gandhi Institute of Petroleum Technology, at Rae Bareli, Uttar Pradesh. Comments and suggestions on this article can be sent to [email protected]