News Indo - Japan Relations


Team StratFront
Feb 16, 2019
Tripura, NE, India
Japan-India Economic Ties: Current Trends and Future Prospects

May 20, 2020
By Kojima Makoto

Japan is fulfilling an important role in India’s infrastructure development, such as in the building of new industrial cities through the construction of subways, dedicated freight railways, and high-speed railways using Shinkansen technology.

Japan and India are Asia’s two major democracies. They are natural partners, with an economic complementarity that is potentially quite high. Being burdened with a mature economy, an aging population, and a low birthrate, Japan is in need of a growth scenario. In developing such a scenario, it will be important for Japan to expand its relationship with India, which is continuing to grow rapidly. However, as highlighted by sluggish bilateral trade and foreign direct investments in India driven by expectations, this economic relationship falls far short of its potential. What is most noteworthy at the moment is Japan’s investment in Indian infrastructure through official development assistance. India has high expectations of Japan as a development partner. This article discusses the latest trends in the multifaceted Japan-India economic relationship and examines its future prospects and issues.

Sluggish Japan-India Trade

Prior to World War II, Japan imported large quantities of cotton and pig iron from India, and India accounted for 10% to 15% of Japan’s total trade. Currently, both countries have diversified their trading partners, and the share of bilateral trade has declined. As of 2018, India had a 1.1% share of Japan’s total trade, and Japan’s share of India’s trade was 2.1%. Despite the Japan-India Economic Partnership Agreement, which took effect in August 2011, bilateral trade has not increased by any great degree. Japan-India trade totaled about $17.6 billion in 2018—less than the trade between India and South Korea, and only a fifth of India’s trade with China.

Japan has had a recurring trade surplus with India. Leading products imported from India are petroleum products (naphtha), organic chemicals, gemstones, and fish and shellfish. Horizontal trade has not developed between Japan and India as seen in the trade of industrial products and parts between Japan and East Asian nations. While India has a comparative advantage in generic drugs, exports of pharmaceuticals to Japan remain stagnant, even though the Japan-India EPA gave India national treatment for the registration of generics and related applications. While India exported $5.4 billion in pharmaceuticals to the United States in fiscal 2018, corresponding exports were only $58.2 million to Japan.

Active Direct Investment from Japan

In contrast to the situation for trade, foreign direct investment is experiencing a more dynamic trend. Japan is a major investor in India exceeded only by Mauritius and Singapore. Japan’s FDI in India grew sharply in the years since 2007. The purchase of Ranbaxy Laboratories, India’s largest drugmaker, by Daiichi Sankyō, and NTT Docomo’s equity participation in Tata Teleservices caused Japan’s FDI in India to surge to $5,551 million in 2008 on a net flow basis, followed by FDI of $3,664 million in 2009. Subsequently, with the two companies above withdrawing from the Indian market, Japan’s FDI in India has slowed, but the number of companies entering the Indian market has grown steadily from 550 in 2008 to 1,441 in 2018.



As indicated by Suzuki’s success in India, Japanese automakers’ advance into the market has contributed greatly to raising Indian manufacturing industry standards, such as by increasing workers’ skills and by improving quality control. These changes had the effect of encouraging the advance of Japanese companies into India in such areas as steel, machinery, power generation equipment, and logistics. In the air conditioner sector, Daikin has maintained its position as the top brand. The advance of Japanese companies into India is increasing in a wide range of areas, such as foods, stationery, cosmetics, pharmaceuticals, sanitary goods, and toilet facilities. In the retail sector, Muji of Ryōhin Keikaku opened its first Indian outlet in Mumbai in August 2016, and Fast Retailing opened its first Uniqlo store in New Delhi in October 2019.

A 2019 Japan Bank for International Cooperation (JBIC) survey of Japanese manufacturers with overseas subsidiaries revealed that India ranked first as a desirable place to do business in the long term (the next 10 years) and in the medium term (the next 3 years). The most frequently given reason for India’s attractiveness was the future prospects of the domestic market. Expectations toward India stood out compared to other geographic regions. On the other hand, India ranked lower than many geographic regions in the degree of satisfaction with sales and earnings, a measure of business performance, a metric in which it placed at the same level as Brazil and Russia. Some of the reasons given as issues hindering investments in India were a lack of infrastructure, severe competition with other companies, and a lack of transparency in the application of laws.

Infrastructure Development through Japanese ODA

A point worth noting in the Japan-India economic relationship is the significant role Japan has played in the development of India’s infrastructure. India was the first recipient of international yen loans that Japan began to provide in 1958. In successive years since fiscal 2004, India has been the largest recipient of Japan’s ODA. A large share of yen loans went for the construction of subway systems. The Delhi Metro that began operating in 2002 is a successful example of the transfer to India of Japan’s operation systems, construction culture, and safety technology. Japan’s support of subway systems has spread from New Delhi to Ahmedabad, Mumbai, Kolkata, and Chennai.

The Delhi Mumbai Industrial Corridor

India is developing plans for five industrial corridors. Of these projects, it is the Delhi Mumbai Industrial Corridor (DMIC), a joint Japan-India project with estimated investment between $90 billion and $100 billion, that is drawing attention as the flagship project. With the Western Dedicated Freight Corridor (DFC), a dedicated freight railway, serving as the backbone, the construction of eight Investment Nodes is planned in a belt zone stretching through six states. Currently 18 projects are under way as part of the DMIC. Japan has taken a 26% equity interest in the Delhi Mumbai Industrial Corridor Development Corp., whose board includes two officers sent from the JBIC. Japan initially proposed 19 candidate projects valued at $4.5 billion. Of these projects, a successful case supported by NEC is the Logistics Data Bank, an IT-driven logistics visualization services project.


Western Dedicated Freight Corridor

Prime Minister Asō Tarō promised ODA loans for the construction of the Western DFC at the 2008 Japan-India summit meeting. The Western DFC will extend 1,504 km from Dadri (in the Delhi National Capital Region) to the Jawaharlal Nehru Port (JNPT) on the opposite bank of the Mumbai Port. Electric locomotives will transport double-stack containers on a double-track railroad. Freight that took three to four days to travel from Delhi to Mumbai on conventional railways will be able to complete the trip in a single day, and freight capacity will increase 3.6 times per train. The Western DFC project was provided with a ¥731.5 billion loan through the Japan International Cooperation Agency. Based on the Special Terms for Economic Partnership (STEP) loan, more than 30% of the materials used is to be supplied from Japan, and Japanese companies are required to be the main contractors for each railway construction package. India’s Ministry of Railways, however, will handle the electric locomotive project since cost factors made Japanese companies reluctant to participate. As of October 2019, construction is 63% complete for the phase 1 section (Rewari to Vadodara) and 31% complete for the phase 2 section (Dadri to Rewari and Vadodara to JNPT). Although rail service is scheduled to begin by the end of 2021, there is the possibility that it will be delayed.

Mumbai-Ahmedabad High-Speed Railway

The construction of the Mumbai-Ahmedabad High-Speed Railway is attracting considerable interest as the new symbol of joint Japan-India projects. The final decision to introduce Shinkansen technology for the above project was made at the Japan-India summit meeting held in December 2015. Japan agreed to cover 80.9% of the total construction cost (¥1.8 trillion) through ODA with the very concessional terms of a repayment period of 50 years (including 15 years of grace period) and an interest rate of 0.1%.

The high-speed railway will be elevated for the entire 508-kilometer distance, as is the case in Japan, and travel time will be reduced from eight to two hours. East Japan Railway will be responsible for the transfer of Shinkansen technology in such areas as rolling stock, operations, and the training of Indian personnel. The planned production of 240 units of shinkansen rolling stock will basically take place in Japan, excepting the case of such rolling stock being widely used on other railway lines.

While construction is to take place from 2018 to the end of 2023, there is still much uncertainty about costs and the expropriation of land. Indian Railways had already acquired 47% of the land needed for the construction of the high-speed railway as of February 2020. However, in the October 2019 election of the Maharashtra Legislative Assembly, the ruling Bharatiya Janata Party (BJP) did not win a majority, and a coalition government led by the regional party of Shiv Sena —which is skeptical about the high-speed railway project—took power. Since regional governments have strong authority over land expropriation, there will be a need to monitor future developments.

Expansion of Human Exchange

What has enabled the start of the large infrastructure projects described above is an institutional framework taking the form of annual summit meetings between Japan and India based on a Strategic and Global Partnership. Whether these projects can be brought to completion will put to the test the value of this bilateral partnership. Finally, the development of mutual understanding through active human exchanges will be extremely important in establishing a foundation for the expansion of bilateral ties. This will be indispensable in increasing Japan’s investment in India and for partnership in information technology. How to strengthen human exchanges is an important issue that should be broadly addressed by industry, government, and academia involved in Japan-India relations so that the lack of such exchanges does not become an obstacle to the enhancement of ties between our countries.

(Originally published in Japanese. Banner photo: Prime Minister Abe Shinzō shaking hands with Prime Minister Narendra Modi of India on the shinkansen platform at Tokyo Station on November 12, 2016. © Jiji.)



Team StratFront
Feb 16, 2019
Tripura, NE, India
Bit old but still posting it as no Japanese POV political article gets posted here :

“Modi Diplomacy” and the Future of Japan-India Relations

May 18, 2020
By Horimoto Takenori

Under Prime Minister Narendra Modi, India has been walking a tightrope between the United States and China even as it nurses its own ambitions for global leadership. Horimoto Takenori assesses the role of the Japan-India relationship in this dynamic context.

India's ruling Bharatiya Janata Party scored another resounding victory in the May 2019 general election, ushering in a second term for Prime Minister Narendra Modi and "Modi diplomacy." With a nationalistic swagger reminiscent of such leaders as US President Donald Trump and Russian President Vladimir Putin, Modi is just the third Indian prime minister to leave such an indelible stamp on the country's foreign policy (after Nehru, who championed the policy of nonalignment, and Indira Gandhi, who forged India's partnership with the Soviet Union).

Under the diplomatic leadership of Modi and Japanese Prime Minister Abe Shinzō, Japan and India have continued to strengthen ties, cognizant of their growing importance to one another in the context of international power politics. In the following, I attempt to analyze and forecast the trajectory of Japan-India relations under Modi diplomacy.

Announcing India's Global Ambitions

Perhaps the most salient aspect of India's foreign policy during Modi's first term was its explicit reorientation toward a vision of India as a major world power. This reorientation has all but negated the meaning of "nonalignment" as a pillar of Indian diplomacy.

Narendra Modi came to power following the BJP's historic victory in the general election of 2014. In February 2015, in keeping with his party's "India first" manifesto, Prime Minister Modi called on top Indian diplomats worldwide "to help India position itself in a leading role, rather than just a balancing force, globally." The following May, in a speech to the International Institute for Strategic Studies in Singapore, Foreign Secretary Subrahmanyam Jaishankar took the idea a step further, stating that India's new aspiration was "to be a leading power, rather than just a balancing power."(*1) By substituting "power" for "role," Jaishankar articulated a new vision of India as a major world power, signaling a decisive shift in the country's foreign policy.

Supporting that vision is the hard reality of India's rapidly growing economic and military might. According to the World Bank, India's gross domestic product for 2014, the year Modi took office, was US $2.04 trillion, making it the world's ninth largest economy. In 2018, it ranked seventh, with a GDP of $2.73 trillion. During the same time, its defense spending rose from $46.1 billion to $66.5 billion, propelling it from eighth to fourth in the world, according to the Stockholm International Peace Research Institute. (Japan ranks ninth.)

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But while Modi's basic long-term goal may be clear, his actual foreign policy can be mystifying. Over the past five years, India has strengthened its strategic partnerships with the United States and Japan while at the same time taking significant steps to bolster relations with both China and Russia. Calling this multidirectional diplomacy provides a superficial description but sheds little light on the strategic thinking behind India's foreign policy. What are the driving forces behind Modi diplomacy, and what role can we expect Japan to play in it henceforth ?

Charting a Course Between China and the US

The term "leading power" implies global leadership. But for now, India's main concern is the Indo-Pacific region, where China and the United States are locked in a battle for hegemony. From India's standpoint, Japan has a critical role to play in terms of protecting and advancing India's interests amid this unfolding drama. The converse is also true.

After taking office in 2017, US President Donald Trump removed the pillars of the Obama administration's East Asia policy—the Trans-Pacific Partnership and the strategic rebalance to Asia and the Pacific—without bothering to replace them. In November 2017, when Trump toured Asia for the first time, his administration still had no coherent Asia-Pacific strategy. This explains why it was so quick to embrace Abe's Free and Open Indo-Pacific (FOIP) concept.(*2)

The December 2017 National Security Strategy, issued by the White House, identifies China and Russia as key threats to America's interests and criticizes China for attempting to "displace the United States in the Indo-Pacific region, expand the reaches of its state-driven economic model, and reorder the region in its favor."(*3) It further states, "We welcome India’s emergence as a leading global power and stronger strategic and defense partner. We will seek increased quadrilateral cooperation with Japan, Australia, and India."(*4) The last sentence is a reference to the informal quadrilateral security dialogue (or "Quad"), originally initiated by Abe in 2007. It was in fact revived in 2017 and upgraded to a ministerial-level forum in September 2019.

When Trump visited India in February 2020, the Modi government pulled out all the stops, staging a massive rally to welcome the president. Trump gushed over a deal to sell US military helicopters to India at a price of about $3 billion (a step toward reducing India's massive trade surplus with the United States) and spoke of further revitalizing the "Quad initiative."

Despite these signs of strategic cooperation with the United States, New Delhi's attitude toward China is far more ambivalent and nuanced than Washington's. To be sure, longstanding border disputes remain a major source of bilateral tension. In addition, New Delhi looks askance at the China-Pakistan Economic Corridor—part of Beijing's ambitious Belt and Road Initiative—claiming that the infrastructure projects are part of a strategy to encircle India. That said, the Indian government is intent on staying engaged with China, particularly on an economic level, and it would love to put the relationship on a more stable footing. Aware of Beijing's hostility toward any regional framework that threatens to exclude or contain China, Modi has deliberately rephrased Abe's FOIP concept as a "free, open, and inclusive Indo-Pacific" (FOIIP). This is typical of New Delhi's China strategy of engaging while hedging.(*5)

RCEP Shock and Abe’s Called off India Visit

In November 2019, Modi's government abruptly announced its withdrawal from negotiations for the Regional Comprehensive Economic Partnership, a proposed free trade agreement embracing the Association of Southeast Asian Nations and six ASEAN partners, including Japan and China.

New Delhi had been strengthening ties with ASEAN since the 1990s, when it adopted its Look East policy (which Modi expanded and renamed Act East). In 1995, India became an ASEAN dialogue partner, and in 2012 it concluded a strategic partnership with ASEAN. In 2012, India entered into negotiations for the RCEP, hoping to further strengthen economic ties with ASEAN. Tokyo had welcomed India's involvement in the initiative as a useful counterweight to China's influence.

India's November announcement came as a shock to the Japanese. The Indian government explained its decision by citing the country's large trade deficit with China and opposition from business and agriculture interests concerned about an influx of cheap imports. Still, the decision could have the effect of negating the hard-won gains of India's Look East policy. Today ASEAN, as a whole, accounts for 10% of India's exports, making it India's fourth largest export market. Indian affairs expert Kishore Mabhubani compared the last-minute announcement to Britain's Brexit decision and predicted that "India will come to realize that its ‘Look East’ and ‘Act East’ policies will mean absolutely nothing if it does not join RCEP."(*6)

India's withdrawal from the RCEP represented yet another setback for Japan's Indo-Pacific policy, which was still reeling from Trump's decision to pull the United States out of the TPP. Without India, Japan's influence in the RCEP would be significantly reduced. Although Beijing has publicly called on New Delhi to reconsider, one can easily imagine that the Chinese are privately pleased with the latest turn of events.

RCEP issue has been followed by Abe’s called off visit to India. In terms of ties between New Delhi and Tokyo, Modi's second term began on a promising note. In November 2019, Japan and India held their first "2 plus 2" meeting of foreign and defense ministers and expressed their intent to conclude an acquisition and cross-servicing agreement (ACSA) between Japan's Self-Defense Forces and the Indian military. The agreement would set the stage for the kind of security cooperation, including joint exercises, that Abe is eager to pursue as a deterrent to Chinese aggression. The ACSA was to be signed at the fourteenth Japan-India summit, scheduled to be held in Assam in December 2019, but Abe's visit was canceled amid violent anti-government protests in the region.

Significance and Future of the Japan-India Relationship

India's emergence as a major power could have a profound impact on the shape of the regional and global order. Much will depend on New Delhi's relationship and interaction with Beijing. Given the stark contrast between Indian democracy and Chinese totalitarianism, the rivalry could have major ideological as well as geopolitical implications. Unfortunately, the anti-Muslim Hindu nationalist policies of the Modi government, which have triggered a backlash from Islamic nations as well as protests at home, have tarnished India's image as a champion of liberal democratic principles.

Beijing's ambition is clear: to displace the United States as the dominant power in the Indo-Pacific. There is no question, moreover, that America's influence in the region is weakening relative to China's. There are growing concerns that the coronavirus pandemic has handed Beijing an opportunity to seize the mantle of leadership from the United States, providing medical supplies to Spain, Italy, and other countries in need and ramping up its public diplomacy, while the White House does little except blame the Chinese for the epidemic.(*7)

In such an uncertain and dynamic environment, India is understandably hedging its bets. While signing on to FOIP and the Quad, it is also engaging actively with China through participation in the Shanghai Cooperation Organization, the BRICS summit, and the Russia-India-China (RIC) trilateral summit. For a country that (whatever its ambitions) still lacks major-power clout, such a balance will be difficult to maintain. A stable, reliable relationship with Japan is very much in India's interests.

Japan and India are alike in that neither has ever amassed the hard power needed to "go it alone" in the world. Since the early twentieth century, Tokyo has built its foreign policy around alliances with major Western powers: first the Anglo-Japanese alliance, then the Tripartite Pact (with Germany and Italy), and finally the Japan-US alliance after World War II. India took a different path with its Cold War strategy of nonalignment, but that policy depended on a partnership of nonaligned nations. In the 1970s and 1980s, faced with the US-China rapprochement, it shifted to a de facto alliance with the Soviet Union.

While a great deal has changed since then, Japan and India remain essentially in the same boat; both must still assiduously cultivate and maintain relationships with other countries to support their own position in the global community. In today's perilous world, the two countries are bound to one another by common interests, at least insofar as foreign policy is concerned. While keeping a close eye on developments at the local, regional, and global level, they will have no choice but to proceed with diplomacy that emphasizes bilateral relations tor the time being.

(Originally Published in Japanese. Banner photo: Indian Prime Minister Narendra Modi, right, with US President Donald Trump and Prime Minister Abe Shinzō on the sidelines of the G20 Summit in Osaka, June 28, 2019. © Jiji.)