Further, it would bring Japanese investors and traders on an equal footing with South Koreans, who have already signed a comprehensive economic partnership with India which is operational from January this year. Infact, Japan and Korea are both fighting hard in many similar sectors such as automobiles and electronics to capture the rising middle class in India.

This is a much needed agreement which will boost bilateral trade and investment, which has been so far disappointing, given the market size and complementarity of the two giant economies in Asia. For example, China is the largest trading partner for both Japan and India where as India is the 25th export destination for Japan and Japan is 10th export destination for India. Japan’s trade with China is more than 20 times with India making it overly dependent on China. Apart from complementarity in trade and investment, the India-Japan EPA provides an opportunity of human resource exchanges given the opposite demographic trends in both the countries. Therefore, EPA is a welcome step by two biggest democratic and market economies in Asia which would serve as a catalyst for future understanding at multilateral organisations on important issues such as environment, climate change etc. As Indian prime minister rightly pointed out during the press conference, ‘Japanese technology and Indian market, if combined, can bring mutually beneficial growth for both the countries’.

The EPA is an important step for India-Japan when the western world is turning towards protectionism to protect domestic industries and employment and there no such progress on Doha round. When 80 per cent reduction in duties on Japan’s tariff lines come into effect after implementation of EPA, Indian exports will become more competitive than before. Further, Indian exports which were subject to rigid standards, technical regulations and conformity assessment procedures, particularly in drugs, food, cosmetics agricultural and fishery products etc. will find it easier to enter Japanese markets. For example, Japan is the second biggest market for pharmaceuticals and India is a emerging power in this. This is an opportunity for Indian companies to access Japanese market. However, they have to enter Japanese market through joint ventures with local companies to convince sensitive and quality conscious Japanese health professionals and customers in the short run. The sector where India would benefit the most include textile, pharmaceutical and agricultural products which would get substantial reduction of tariffs and non-tariff barriers. On the other hand, Japan is famous for exports of auto parts, high quality steel and home appliances (these are also major imports of India from Japan). Therefore reduction of tariffs on these items would help Japanese exports to exploit the growing Indian market and also use India as a production hub in future, particularly in automobile sector.

Coming to investment, it’s an opportunity for Japanese investors to look beyond China and Vietnam for new investment. While the former is not an easy destination anymore due to cost and tense relations, the later is limited in size. Therefore, India offers the best possible alternative in Asia, particularly in labour intensive manufacturing. Post EPA the major concerns of Japanese investors relating to transparency, delays, intellectual property rights and clearances would get addressed. The provisions in EPA for simplification and speeding up of procedures for applying various permissions related to construction would be a welcome step for Japanese investment. As JBIC surveys consistently show that India has become the most favored destination for long-term Japanese Investment, the further reduction of specific barriers to Japanese investment across sectors would see higher investment flows to India. Further, there are opportunities for Indian SMEs to synergise with strong Japanese SMEs in sectors such as food processing, textiles, garments, chemicals, metals and machinery due to a reduction in tariffs. The EPA would be beneficial to exchange human resources. Japanese workers are now entitled three years work permit which would beneficial for Japanese investors involved in automobiles and infrastructure sectors. Since the agreement also facilitates easy entry into Japan, it would be a good opportunity for Indian professionals in service sector such as IT workers, engineers, and teachers to visit Japan.

Overall, India-Japan CEPA is a major step for higher bilateral relations and also for harmonious economic rise of Asia. While in trade it would be beneficial to both the countries and particularly for India, Japan would find it easier to invest in India and cater to the huge domestic market as well as use it as a manufacturing hub using cheap labour. Further, mutual collaboration in many important sectors such as energy, research and development etc would be beneficial to both the economies. This signing of CEPA would bring both the countries closer and most likely help to conclude agreement on civil nuclear technology between two countries. India’s ambition to produce clean nuclear energy in future depends heavily on Japan as Japanese manufacturers provide essential parts of nuclear reactors to USA, France and other nuclear equipment suppliers group. The improved cooperation due to EPA would bring two countries closer and throw up new opportunities in every sphere which is essential for harmonious growth of Asia, which is the growth centre of the world in the coming century.

Pravakar Sahoo is an Associate Professor, Institute of Economic Growth, India and Visiting Researcher, Institute of Developing Economies, Japan.