Trade and Investment relations with Japan-Signaling an Upturn

The invitation extended to Mr Shinzo Abe, Prime Minister of Japan, as State Guest at India’s 64th Republic Day function is an affirmation of the need of both the countries to take economic and strategic ties at a new level. Coming close on the heels of the visit of Emperor Akhihito to the country and preceded by Prime Minister Dr Manmohan Singh’s visit to Japan in May last year, it marks a culmination of the strategic shift in bilateral relationship from a narrow domain of trade, investment and economic assistance to a partnership covering diversified areas such as maritime security, counter-terrorism as well as energy and climate change. This sets the stage for an enduring relationship which would provide strategic depth to bilateral ties impacting both countries.
The ties between India and Japan are of historic significance. This has also been well acknowledged by the Japanese dignitaries visiting India who consider the country as their spiritual homeland. The economic and political engagement between the two countries that existed since the World War II years is also well known and our historic legacy is largely positive.  The last decade and more has been marked by regular dialogue at the political and economic domain on issues of common interest. 
The Look East Policy of India, initiated in 1991, has given a further fillip to the economic, political and strategic ties between our two countries. The tectonic shift in India’s diplomatic initiative and economic policy from its excessive dependence on the West towards countries of East Asia with Japan being an influential player has enhanced the scope of bilateral cooperation in economic, political and policy coordination and is an important facet in India’s foreign policy.
The relationship between India and Japan is based mainly on the complementarity of interests that exists between the two nations. Japan brings the enormous advantage of capital and technology while the India’s demographic advantage, its burgeoning youth population, rich repository of human capital, abundance of raw materials & minerals and a large consumer base are of immense interest to Japan.  Hence, there is a significant potential to deepen our commercial engagement in the economic arena especially since the Japanese economy is affecting a turnaround under the dynamic and enlightened leadership of Prime Minister Abe and there is a revival of business confidence within the country. Although commercial ties between the two countries are much below potential, it is hoped that the revival of the Japanese economy would provide an impetus to trade and commerce. 
Over the last decade, bilateral trade between India and Japan has gone up by more than four times from US$3.7 billion in 2002-03 to US$18.5 in 2012-13 with exports to Japan contributing US$6.1 billion while imports comprising US$12.4 billion. However, Japan does not come within the top trading partners for doing business. While Japan ranks 10th among India’s export markets, India stands 26th among Japan’s export destinations. The inadequacy of requisite logistic and supply chain linkages could be partly responsible for such a situation. India’s exports to Japan include mainly raw materials and minerals, iron and steel, marine products, agricultural items, handicrafts, carpets, leather products, among others while its imports comprise sophisticated technology and knowledge intensive products like electronic goods, non-electrical machinery¸ transport equipment etc. With Japanese imports comprising high value added items, the terms of trade are in favour of Japan.  
Both India and Japan have committed to boost investment ties between the two countries. Japan presently is the fourth largest investor in India with investments in automobiles, petrochemical, electronics etc. There is significant scope for augmenting Japanese investment in India in the manufacturing sector in areas such as automobiles, chemicals, pharmaceuticals, electronic hardware, electrical equipment, telecommunications, biotechnology, renewable energy and energy conservation technology, cutting edge technologies etc. Many Japanese SMEs have evinced interest in investing in India in areas of strategic interest.
Besides, Japanese companies are looking to reduce their reliance on China for manufacturing and diversifying their investments to new frontiers like India which offers an attractive alternative destination. Similarly Indian companies, especially in the IT sector, have made investments in Japan. Yet despite the advantages, actual investments are much below potential. Japanese companies in India are a tenth of that existing in China. The reasons are many. The high cost of doing business, unfriendly taxation systems, rigid labour laws, procedural hassles in customs clearance and bureaucratic delays act as a major deterrent to investment.
It is anticipated that the Comprehensive Economic Partnership Agreement (CEPA) between India and Japansigned in 2011 would provide an impetus to trade and economic engagement between the two countries, going forward.  The agreement covers much more than a free trade agreement as it also includes trade in goods, services and investment within its ambit. Our traditional items of exports such as agro products, textiles, leather, pharmaceuticals etc would also benefit from increased access to the Japanese markets and bilateral investments are also anticipated to get a boost.
India is keen for Japanese assistance towards infrastructure development, especially roads and rail, which in turn enables the country to achieve double digit level of growth. Already, Japan is helping India to fund its infrastructure projects through Japan’s Official Developmental Assistance (ODI). The Delhi metro and the Delhi Mumbai Industrial Corridor (DMIC), which is being built on the lines of the Tokyo-Osaka belt in Japan, are the major recipients of ODI assistance. And the latest news is that the Japanese government has agreed to further liberalise the loans under Special Terms for Economic Partnership (STEP) for various projects including DMIC. It would be important to assess the progress of other projects such as the Bangalore-Chennai corridor which is being funded by Japanese support.
Among the other prominent Japanese assistance projects include the development of Indian Institute of Technology, Hyderabad. And Japan has also evinced interest in providing bullet trains to India for projects such as DMIC, metro rail projects at Bengaluru, Chennai and Mumbai, high speed rail link between Mumbai and Ahmedabad as well as the technology and investment for the Western dedicated freight corridor. 
To conclude, the visit of Prime Minister Abe provides a renewed impetus to India Japan relations. It is now over to business sectors of both the countries to carry the mantle forward.