The two main talking points at the dialogue were infrastructure in India and non-tariff barriers in Japan, indicating that the focus is now on addressing specific concerns on both sides.

Support in both India and Japan — one a rapidly emerging economy and the other a developed but currently struggling economy — for long-term, wide-ranging and mutually beneficial engagement is now widespread. Indeed, the relationship has gone from strength to strength in recent times: since the CEPA came into effect in August 2011, India–Japan merchandise trade has grown by 38 per cent, with total bilateral trade expected to reach US$24 billion by March 2013.

But from the perspective of Japanese investors, the ‘infrastructure deficit in India’ remains a serious issue. According to the Japan External Trade Organisation’s FY 2011 survey, the top business problems in India include power shortages or blackouts, and inadequate logistics infrastructure, affecting 71.6 per cent and 64.8 per cent of firms surveyed respectively. India itself has estimated that US$1 trillion of investment in infrastructure is required to achieve a 9 per cent growth rate.

It is in this context that India and Japan agreed to collaborate on the Delhi–Mumbai Industrial Corridor (DMIC) project in 2006. This mega infrastructure project, worth US$90 billion, will cover developments across the 1483 kilometres between New Delhi, India’s political capital, and Mumbai, its business capital. The DMIC project will include the development of nine industrial zones, a high-speed freight line, three ports, six airports, a six-lane intersection-free expressway and a 4000-megawatt power plant. This project is closely linked to India’s new national manufacturing policy, which aims to enhance the share of manufacturing in GDP to 25 per cent within a decade, potentially creating 100 million jobs.

The Japanese government has already announced that it will provide US$4.5 billion over the next five years for DMIC projects. Yet progress on the ground has been extremely slow. The Japanese agencies involved in this project cite several challenges. First, there is unclear decision making and ownership of operation due to a lack of consensus among many stakeholders, such as the DMIC Development Corporation, and central and state governments in India. Second, there are unsatisfactory business plans proposed by the Indian delegation to Japanese promoters. And third, there seems to be a perception gap between India and Japan with regard to the time schedule and the type of operations needed.

Accordingly, infrastructure formed an important part of the first India–Japan Ministerial-level Economic Dialogue’s agenda. A joint statement that came out of the dialogue stated that the two countries agreed to boost cooperation in infrastructure projects, such as the DMIC, infrastructure developments along the Chennai–Bengaluru Industrial Corridor and railways. Motivated by the desire to ensure greater involvement in the DMIC project, Japan has pushed for equity participation in the DMIC Development Corporation; India’s commerce minister, Anand Sharma, confirmed that the cabinet will soon allow for 26 per cent Japanese participation.

The DMIC Development Corporation is a special-purpose vehicle set up by the Indian government to help build several industrial enclaves along the Delhi–Mumbai rail corridor, spanning seven states. Japan showed its interest in the project after the government decided to replace the Infrastructure Development Finance Company and Infrastructure Leasing and Financial Services Ltd by the DMIC Development Corporation. The former two companies now hold a 51 per cent stake in the DMIC Development Corporation.

In addition, India’s commerce minister urged Japan to remove all non-tariff barriers, so that real benefits envisaged under the CEPA are realised, particularly benefits stemming from the Japanese pharmaceutical market. According to the minister, greater market access to Indian generic drugs would also reduce the overall cost of healthcare for the Japanese government.

Under the India–Japan CEPA, applications for the registration and release of generic medicines in the Japanese market will be treated no less favourably than the way in which Japan treats applications from its own pharmaceutical companies. On the ground, however, the complex regulations on company and product registration still act as non-tariff barriers for Indian pharmaceuticals. Indian companies also struggle with negative stereotypes. As such, one of the key objectives of the ‘Brand Pharma India’ campaign the Indian government recently launched in Japan is to ‘create awareness that Indian generics are bona fide medicines of standard quality and not counterfeits’.

Economic imperatives are leading India and Japan to engage substantially with one another. Both countries now see their bilateral economic relations as an important factor in their respective growth strategies. The first India–Japan Ministerial-level Economic Dialogue shows that the relationship is now more equal, and that both countries are allowing for mutual concessions and compromises to help realise the expected gains.

Sanjana Joshi is a senior consultant with the Japan Project at the Indian Council for Research on International Economic Relations, New Delhi.

Isha Dayal is a research assistant with the Japan Project at the Indian Council for Research on International Economic Relations, New Delhi.