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The 13th India-Japan annual summit commenced with Prime Minister Narendra Modi and his Japanese counterpart Shinzo Abe visiting a factory of FANUC Corporation, one of the largest makers of industrial robots in the world. The visit to the FANUC facility was important in the context of India’s move towards Industry 4.0 by leveraging developments in the fields such as AI, IoT, 3D printing and robotics.

The big announcement was the decision to conclude a bilateral currency swap agreement, which is expected to help stabilise fluctuations in the value of the rupee vis-a-vis the dollar, and bring down the cost of capital for Indian companies while accessing foreign capital markets.


India-Japan trade and investment

Japan and India constitute two of the oldest democracies in Asia and also stand among Asia’s three biggest economies. The Japan-India Association was set up in 1903, and is one of the oldest international friendship bodies in Japan. As the 13th India-Japan annual summit got under way, Japan had pledged Rs 33,800 crore in government and private sector investments following the first Modi-Abe meeting in 2014.

While Japan has been one of the biggest sources of investment flows into India, accounting for $28.16 billion in FDI between April 2000 and June 2018, trade engagements have been below potential. On the list of countries that India exports to, Japan is a lowly 18th; on the list of countries importing into India, Japan ranks 12th.

This is despite the two countries having signed a Comprehensive Economic Partnership Agreement (CEPA) in 2011 to facilitate growth in bilateral trade. This was described as the most comprehensive of all such agreements concluded by India — covering trade in goods and services, movement of persons, investments, intellectual property rights, Customs procedures and other trade related issues. The CEPA envisages abolition of tariffs on over 94% of items traded between India and Japan over a period of 10 years.

India’s exports to Japan in FY18 were lower than in FY15 in value terms. Primary exports have been petroleum products, chemicals, elements, compounds, non-metallic mineral ware, fish & fish preparations, metalliferous ores and scrap, clothing and accessories, iron and steel products, textile yarn, fabrics and machinery.

India’s primary imports from Japan — which too, are sluggish — are machinery, transport equipment, iron and steel, electronic goods, organic chemicals, machine tools, etc.

Much of the Japanese FDI inflows have been concentrated in the automobile, electrical equipment, telecommunications, chemical, and pharma sectors. As of October 2016, there were 1,305 Japanese companies registered in India, an increase of 76 companies (6% growth) as compared to 1,229 in October 2015, DIPP data show. In the words of Japan’s ambassador to India, Kenji Hiramatsu, “A strong India is in Japan’s best interest and for that, we must provide even more support.”


Big-ticket investments by Japan in India

  • Japan has been extending bilateral loan and grant assistanceto India since 1958, and is its largest bilateral donor.
  • In the last five years, $90 billionhas gone into the Delhi-Mumbai Industrial Corridor, which will see new towns, industrial parks, ports and airports alongside the 1,483-km high-speed rail and road line being developed between two of India’s top cities.
  • Japan is also backing the Mumbai-Ahmedabad High Speed Rail (bullet train)service, and has released the first tranche of Rs 5,500 crore. A pact for the second tranche was inked Monday.
  • Approximately 81% of the costof the project is to be funded through a soft loan from Japan’s government.
  • Discussions have also taken place on the Dedicated Freight Corridor, a project of close to Rs 50,000 crore of which Japanese assistance has been of about Rs 38,000 crore.
  • The first section of 190 km, from New Ateli to New Phulera stations, has been opened on the Western Dedicated Freight Corridor while the next segment of 492 km between Rewari and Marwaris likely to open early next year. Final completion is targeted for March 2020.
  • Progress on some of the Metro projects being funded by the Japanese across Indian cities was taken stock of, including the Delhi Mass Rapid Transit System and Chennai Metro.

The big announcement was the decision to conclude a $75 billion bilateral currency swap agreement, which is expected to help stabilise fluctuations in the value of the rupee vis-a-vis the dollar, and bring down the cost of capital for Indian companies while accessing foreign capital markets.

It involves the exchange of interest and sometimes principal in one currency, for the same in another currency. This facility will enable the agreed amount of foreign capital being available to India for use as and when the need arises. The facility will serve as a second line of defence for the rupee after the $ 393.5 billion of foreign exchange reserves. It would not only enable the agreed amount of capital being available to India, it will also bring down the cost of capital for Indian entities, while accessing the foreign capital market.


New areas of engagement between India, Japan

Japanese ODA supports India’s development in sectors such as power, transportation, environmental projects and projects related to basic human needs.

In March this year, a ‘Cool EMS Service’ was started, under which Japanese food items permissible under Indian regulations are transported in cool boxes from Japan to India through postal channels. While at present this service is available in only in Delhi and works one way (Japan to India), it is among the new areas of engagement driven by requests from industry representatives — in this case, the large Japanese diaspora in and around Delhi, Gurgaon and Neemrana.

Both sides are striving to push a digital partnership, with the NITI Aayog being the nodal point on the Indian side, and the Ministry of Economy, Trade and Industry on the Japanese side. Areas of potential collaboration include AI, IoT, and big data. Another new area where India is likely to make a pitch is for greater synergy or integration between the Ayushman Bharat project and the Japanese programme called Asia Health and Wellbeing Initiative, including how to leverage Japan’s strengths in areas such as medical equipment and hospitals.


An Old Connection

The friendship between India and Japan has a long history rooted in spiritual affinity and strong cultural and civilizational ties. India’s earliest documented direct contact with Japan was with the Todaiji Temple in Nara, where the consecration or eye-opening of the towering statue of Lord Buddha was performed by an Indian monk, Bodhisena, in 752 AD.

The modern nation States have carried on the positive legacy of the old association which has been strengthened by shared values of belief in democracy, individual freedom and the rule of law. Over the years, the two countries have built upon these values and created a partnership based on both principle and pragmatism. Today, India is the largest democracy in Asia and Japan the most prosperous.


India-Japan and the China Factor

India and Japan are natural allies in the Asia-Pacific region, sharing common democratic values, complementary economic interests and possibilities of cooperation in the so-called non-traditional areas of security, including science and technology. India is the largest democracy in Asia and Japan the most prosperous. Both are functioning and vibrant democracies, with a social matrix which emphasizes harmony and consensus, rather than confrontation. Both economies are market-oriented and largely complementary. They share a common desire for peace and stability and believe that the UN should be strengthened and its decision-making apparatus made more representative – both are aspirants for “permanent seats” in the UN Security Council and working in tandem( along with Germany, Brazil and South Africa) towards that goal. Both support a cooperative and comprehensive approach to combating international terrorism and sea-piracy.

India and Japan are naturally worried over China’s strategic nexus with North Korea (which is problematic for Japan) and Pakistan (problematic for India). By themselves neither North Korea nor Pakistan had the technological capability or financial resources to afford nuclear weapons and long range missiles. These missiles in the case of North Korea cover the Japanese heartland and Okinawa and in the case of Pakistan cover the Indian heartland. It is legitimate to question as to why China provided these deadly arsenals to failing states likes North Korea and Pakistan, who are heading for ‘rogue nation’ status. The answer is obvious. It can be safely argued that China’s intentions were to develop strategic pressure points by proxy in South Asia against India and in North East Asia against Japan. All the more reason, therefore, that India and Japan should have strategic congruence, with US support. This, perhaps, explains why of late the officials of Japan, India and the Unites States have been organising structured parleys and why Japan has agreed to join the hitherto bilateral Indo-US military exercises like “Exercise Malabar”. In fact, much to the Chinese unhappiness, the Modi-Abe summit statement expressed concerns over the “unrest” in South China Sea. According to one Japanese scholar, “There are good reasons to set in place a security framework that could contain any future Chinese adventurism. Within such an understanding a triangulation with India in the West and Japan in the East could form the basis to keep any Chinese belligerence in check and the region in peace.”

So far so good. But all this does not suggest that India and Japan, or for that matter the United states, have decided to form a formal alliance against China or to “contain” China. Far from it. What they all want is “peaceful and harmonious rise” of China, which is a “responsible stakeholder” in global peace and stability. None of them is prepared to treat China as an enemy. What they are trying at is some sort of “soft balancing” against the potentially precipitous fallout of Beijing’s rise in case it gets threatening. The idea is that should China turn aggressive, it will find that Asia contains others such as India and Japan (Australia and South Korea, in addition) who would contain its power.

The corollary of this approach is to encourage China towards being a “responsible stakeholder” through “engagements” with Beijing. These engagements include, among others, functional cooperation as well as economic interactions. That explains why both India and Japan have heavy economic stakes in China, be it mutual trade and investments. And that explains why even after losing to Japan in bagging the Mumbai-Ahmedabad bullet-train links, China is very much there as a serious possible partner of India in developing similar but bigger speed-railway link between Delhi and Mumbai, India’s political and business capitals respectively.

The functional cooperations between India and China are not insignificant either. Both do take common positions in international parleys on trade, climate, agriculture, industrial tariffs and non-tariff barriers and services. In the negotiations over agricultural trade liberalisation, China and India, which form part of the G-20 group of developing nations, demand subsidies and tariff reduction from developed countries. Besides, both are leading members of the regional organisations such as BRICS (Brazil, Russia, India, China and South Africa) and Shanghai Cooperation Organisation (SCO). In fact, as the leading members of the BRICS, India and China have played the most important role in founding what is called the New development Bank (NDB) that will lend money to developing countries to help finance infrastructure projects. The bank is seen as an alternative to the World Bank and the International Monetary Fund, although the group says it is not a rival.

In sum, even though the need to hedge against Beijing underscoring Indo-Japanese ties, by indubitably practicing balance of power techniques — “internal balancing” — and building their own capabilities, remains vital, neither India nor Japan is playing any “China-card” as such. The Indo-Japanese relations are growing and will grow independent of the China factor. All told, a recent Japanese survey has revealed India as the most favoured destination for long-term Japanese investment. India is regarded by 70 per cent of Japanese manufacturers as the most attractive country to do business with followed by China (67 per cent), Russia (37 per cent) and Vietnam (28 per cent). Not long ago, the Japanese foreign ministry had conducted an opinion survey in India on the image of Japan. Its results were quite interesting. 76 per cent of the respondents perceived the current state of Japan-India relations either as being very friendly or friendly, showing that a positive image of Japan has been established. 92 per cent of Indians surveyed were positive when asked if Japan is a reliable friend of India. So, Indo-Japanese ties have their own momentum; they need not be pushed by a third party.



Despite the visible signs of Chinese factor behind the deepening friendship between India and Japan, Indian leadership has been restraint enough and matured. In sum, India is playing a balancing card to maintain the healthy relationship with its allies while it is Japan or China. India’s one step ahead on Doklam issue and its interests to resolve the issue with bilateral dialogues shows that India is not playing anything card while to maintain the healthy relation with Japan. According to the Japanese survey that India is the most favoured destination for long-term Japanese investment. So, it will too not be justified to say that Japan is playing any China card while maintaining its long-term relationship with India.

Over the past few years, consistent engagement between India and Japan has transformed the bilateral relationship into a significant, broad-based and strategically oriented one. Both the countries have been intent on strengthening ties in both economic and defence domain and work towards influencing the future Asia-Pacific landscape. India and Japan also look to complement each other economically with Japan providing India with capital and technology and finding new markets in the process. More importantly, Japan’s initiatives such as its keenness to invest heavily in India, amending of constitution to allow defence relations with India, playing a role in India’s high-end infrastructural development and making drastic exemption to enter into an extremely crucial and significant civil nuclear deal with India are all signs of a much stronger India-Japan relationship in the future.





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