Building On Trust

The India-Japan economic partnership is going way beyond select sectors. The growing trade and industry linkages are making Japan an integral part of India's development journey

The Modi-Abe relationship has helped foster greater trade between India and Japan The Modi-Abe relationship has helped foster greater trade between India and Japan

Prime Minister Narendra Modi, on a visit to Japan for the 13th annual bilateral summit in October 2018, was hosted by his Japanese counterpart Shinzo Abe for a private dinner at Abe's ancestral home in Yamanashi. It was the first such reception for a foreign leader in Japan. The summit saw 32 bilateral agreements, including on Japan joining the International Solar Alliance, assistance for India's first bullet train project, India-Japan digital partnership and deeper cooperation between Japan Maritime Self-Defence Force and Indian Navy.

A year before, Abe had visited Ahmedabad for the 12th edition of the summit. During the visit, the two prime ministers had overseen the groundbreaking ceremony for the Mumbai-Ahmedabad bullet train project. India and Japan had also concluded 15 agreements in areas ranging from connectivity, investments, civil aviation, disaster management, science & technology and sports.

India-Japan relationship has been steady for a long time. The vigour has heightened in recent times. Japan has been extending bilateral loan and grant assistance to India since 1958. It is India's largest bilateral donor. Japanese overseas development assistance (ODA) supports India's efforts towards development in areas such as power, transportation, environment and projects related to basic human needs. India's Ministry of External Affairs says some of these mega projects - Ahmedabad-Mumbai High Speed Rail, Western Dedicated Freight Corridor, Delhi-Mumbai Industrial Corridor with 12 industrial townships, Chennai-Bengaluru Industrial Corridor - will transform India in the next decade. The India Japan Comprehensive Economic Partnership Agreement (CEPA) that came into force in August 2011 is the guiding force on bilateral trade. It is the most comprehensive of all such agreements signed by India and covers not only trade in goods but also services, movement of people, investments, intellectual property rights, Customs procedures and other trade issues. It envisages abolition of tariffs on 94 per cent of items traded between India and Japan by 2021.

Kenji Hiramatsu, the Ambassador of Japan to India, shares this optimism. Speaking on 'Japanese Imperial Succession and India-Japan Relations in the New Reiwa Era' at a function organised by FICCI and the India Japan Friendship Forum in New Delhi on June 7, he noted that the next five years are crucial. "We hope India, under the strong leadership of Prime Minister Narendra Modi, will take more proactive measures to improve its infrastructure and (address) social equity and social justice issues for its people, and also take the India-Japan relationship to an even higher level," he said. Hiramatsu added that "Japan will focus more on collaboration in artificial intelligence, Internet of Things and 5G as that is the future of the relationship".

Charandeep Kaur, Partner, Trilegal, a legal expert who has been closely tracking the business activity between Japan and India, says the previous five years have seen heightened activity going beyond the traditional sectors of infrastructure and auto and covering newer areas such as e-commerce, fintech, artificial intelligence, healthtech and agritech. "Japanese companies and investors have been cautiously optimistic about opportunities in India, preferring to begin with minority (stakes) and raising significantly once they have understood the company and its governance standards. There are plenty of investments in hitherto untapped sectors such as logistics and real estate," she says.

The trade relationship is going strong. India-bound investments in key areas are big, and Indian software firms, IT start-ups and healthcare players are attempting to gain foothold in the Japanese market. There is further room for improvement.

Official data shows that in 2018/19, India-Japan bilateral merchandise trade was $17.6 billion. While India exported goods worth $4.74 billion, it imported products worth $12.8 billion from Japan. The key export items were petroleum products, chemicals, fish and fish preparations, clothing and accessories and textile yarn.

Imports from Japan were dominated by machinery, transport equipment, electronic goods, organic chemicals and machine tools. India was ranked as one of the most attractive investment destinations in the latest survey (2018) of Japanese manufacturing companies conducted by the Japan Bank for International Cooperation. From 2015/16 to 2016/17, Japanese FDI into India increased from $2.61 billion to$4.7 billion. In 2017/18, it was $1.6 billion. Cumulatively, since 2000, Japanese investments in India have been $27.28 billion (Japan ranks third among major investors).

Japanese FDI into India has been mainly in automobile, electrical equipment, telecommunication, chemical and pharmaceutical sectors. The number of Japanese-affiliated companies in India has grown significantly in recent years. As of October 2017, 1,369 Japanese companies were registered in India, an increase of 64 companies (5 per cent) from 2016. The number of Indian companies working in Japan has crossed 100.

Friendly Base

As Hiramatsu points out, Japan's commitment goes beyond economic cooperation. The development projects the country supports include Ganga rejuvenation, women's empowerment, Swachh Bharat, forest and disaster management, among others. The cooperation on regional security and diplomatic issues is also noteworthy. The two countries are also partners in development projects in friendly countries in the Asian neighbourhood and Africa.

Japan also gives priority to people exchange programmes. "We want more exchange programmes for youth and politicians. Tourism must be encouraged. We now have direct flights from Narita, Tokyo, to Chennai and Bengaluru," says Hiramatsu.

The highlight of Prime Minister Modi's Japan visit was not just the private dinner at Abe's ancestral home or the bilateral agreements. It was the India-Japan Vision statement. The vision outlines the future course of bilateral relations and rests on three pillars - Partnership for Prosperity, Partnership for Peace and Partnership for Global Action.

The ongoing collaborative projects between India and Japan in the Indo-Pacific region, including in Sri Lanka, Myanmar and Bangladesh, as well as in Africa are in the spirit of the Partnership in Prosperity. There are plans to establish a Platform for Japan-India Business Cooperation in Asia-Africa Region by developing industrial corridors and networks in the region. The start of research in Unmanned Ground Vehicle and Robotics embodies the spirit of Partnership for Peace while Partnership for Global Action is defined by the vision of taking forward regional collaborations on issues such as economic and climate change.

"Economic cooperation between India and Japan has stood the test of time and changes in government and leaders. That said, the mutual respect and admiration between Prime Minister Shinzo Abe and Prime Minister Narendra Modi has certainly elevated the confidence and trust levels among the investor community. There seems to be a lot of purpose and commitment in the relationship as both the leaders have phenomenal standing in their respective countries," says Trilegal's Kaur.

A Twitter response to a congratulatory call made to India's new External Affairs Minister S. Jaishankar by Japan's Foreign Minister Taro Kono immediately after he assumed charge in June summed it up. "Had a good talk with Japanese foreign minister @konotaromp. We agreed to be in regular contact and take the Modi-Abe vision forward".