The document marks the 60th anniversary of the establishment of diplomatic relations between India and Japan.
Documents like this are an indication of progress in bilateral relations. From a bilateral standpoint the most noteworthy and tangible improvement in India-Japan relations is in the economic sphere; with Japan’s domestic economy in distress, India’s economy has continued to grow, and this reality has provided the former with a strong imperative to engage with the latter in a substantial manner. Noda’s recent visit reaffirmed this view.
The key announcements during the visit included a revised bilateral currency swap arrangement from US$3 billion to US$15 billion, and Japan’s intention to make available funding for Delhi-Mumbai Industrial Corridor (DMIC) projects — a major initiative to enhance infrastructure and industry between the two cities. The Japanese government pledged public and private finance totalling US$4.5 billion over the next five years for this initiative. The DMIC project also forms an integral part of India’s recently announced National Manufacturing Policy, which aims to create 100 million jobs within a decade and increase the share of manufacturing in the country’s GDP to 25 per cent by 2022.
This development is especially important given that many Japanese companies have concerns about inadequate infrastructure in India. The joint statement on enhanced relations also singled out infrastructure development between Chennai and Bengaluru in India’s south, where an increasing number of Japanese companies have established their presence. Additionally, Prime Minister Noda conveyed Japan’s intention to extend financial and technical support to the preparation of India’s Comprehensive Integrated Master Plan. This support will allow for the expeditious development of infrastructure — such as ports, industrial parks and their surrounding facilities — in Ennore, Chennai and the adjoining areas.
Total trade between the two countries in 2010–11 amounted to US$13.8 billion, and cumulative FDI inflows from Japan between April 2000 and April 2011 totalled around US$5.5 billion — 4 per cent of total inflows to India. These figures are not very impressive when India’s share in Japan’s total global trade and investment is considered. Total trade between the two countries is only about 1 per cent of Japan’s global trade. In contrast, trade with China, Japan’s top partner, totalled US$163.2 billion in the first half of 2011, setting a new record on a first half-year basis. Also, Japanese FDI inflows to China in 2010 alone topped US$22 billion.
Still, total trade between India and Japan had already reached US$13.2 billion during the first nine months of 2011, indicating an increase of 23.9 per cent over the same period in 2010. Japan’s exports to India also witnessed an increase of 26.1 per cent between January and September 2010, reaching US$8.11 billion, while its imports from India rose by 20.6 per cent to US$5.09 billion.
Further, the number of Japanese companies with business operations in India has doubled in three years. As of October 2011, 812 Japanese companies were operating in India, with 1422 establishments across the country. The automobile and electrical equipment industries, trading, the services sector (financial and nonfinancial), and telecommunications are all attracting Japanese investment. India has also been the largest recipient of Japanese official development assistance loans for seven consecutive years since 2003.
Many factors have contributed to the changing Japanese perception of the Indian economy. These include India’s economic growth through the global downturn; the vast potential of domestic demand; the projected expansion of India’s working population over the long term; and India’s geographically strategic position, which should allow it to develop as a production and export base for growing markets in the Middle East and Africa — not to mention its growing ties with other East Asian economies.
The Comprehensive Economic Partnership Agreement, which came into effect in August 2011, also provides an institutional framework to further accelerate and consolidate business activities between India and Japan. As part of the agreement, India will eliminate tariffs on 90 per cent of its imports from Japan, and Japan will remove tariffs on 97 per cent of Indian imports on a trade-value basis within 10 years. With tariffs slashed on more than 8000 products — including generic drugs, apparel, agricultural products and machinery — bilateral trade between both countries is expected to reach US$25 billion by 2014.
What does not help is the slow pace of progress in high-visibility flagship projects like the DMIC. The 60th anniversary of the establishment of diplomatic relations between India and Japan would be an apt opportunity for the Indian policy establishment to visibly show its resolve to enlist Japan as an important partner in India’s long-term growth strategy.
Sanjana Joshi is a Consultant at the Japan Project, Indian Council for Research on International Economic Relations, New Delhi.