Shinzo Abe, India’s closest friend in Japan, was assassinated a few months back. His importance for India and for India-Japan relations is reflected in the nation’s mourning, Prime Minister Narendra Modi’s blog post on his passing, and his visit to Japan to attend Abe’s funeral.
Abe was instrumental in energising like-minded powerful democratic countries for a free and open Indo-Pacific. He could clearly see the changing geopolitical and economic situation and tried his best to collaborate with India on multiple dimensions to counter China, a hostile neighbour to both India and Japan. India-Japan relations reached new heights on economic, security and strategic issues during Abe’s official tenure. After Abe demitted office, the relations have continued to be on the upswing with Japan being led by Prime Minister Fumio Kishida who leads Abe’s party, the Liberal Democratic Party. In fact, PM Kishida has assured to follow Abe’s policy on economic, strategic and security issues. The India-Japan ministerial meeting (2+2) on defense and security cooperation and joint maritime exercises reflect continuity in India-Japan cooperation.
During his political career, Abe pushed for stability, security and a rules-based international order in the Indo-Pacific. Japan under his leadership took initiatives for mini-lateral institutional collaboration like the QUAD for international public goods like the rule of law, freedom of navigation and free trade. To complement this, Japan undertook bilateral initiatives with India including the Joint Declaration on Security Cooperation in 2008 and the Acquisition and Cross-Servicing Agreement in 2020.
India and Japan share democratic values and understand the emerging geopolitical and economic developments. Therefore, it is hoped that Modi and Kishida would take these initiatives to further bilateral and regional infrastructure development and ensure resilient security and strategic alliance to stop a highly powerful and aggressive neighbour.
India-Japan economic relations have also been going from strength to strength. The economic relations took off from the Special Economic Partnership Initiative (SEPI) in 2006 which mainly focused on Japanese collaboration in developing the Delhi-Mumbai Industrial Corridor (DMIC), special economic zones, warehousing zones etc. SEPI accelerated after the ministerial-level economic dialogue in 2012.
India is the largest recipient of Japanese Official Development Assistance (ODA). Japanese ODA, through the Japan International Cooperation Agency (JICA) and the Japan Bank for International Cooperation (JBIC) at a very nominal interest rate, is going to economic infrastructure projects such as transport, telecommunication, power, the Yamuna Action Plan and infrastructure development in the North East. The assistance accelerated following Japan’s announcement in 2016 to help India build critical infrastructure and address social and environmental issues caused by rapid growth. The ODA has been directed towards brownfield toll road projects and integrated gas procurement, storage, transportation and supply business.
India is an infrastructure deficit country and programmes like Make in India and Atmanirbhar Bharat, which lead to overall productivity-led growth, are extremely important. Japan has huge resources (pension and provident funds etc) which earns little return domestically. It has already invested approximately 3.5 trillion yen in India during the last five years. PM Kishida has recently announced investments of another 5 trillion yen over the next five years. Some of the important projects supported by Japan include the Delhi metro, the dedicated freight corridor Western project-II, the Chennai metro rail. The MoU between Japanese Suzuki Motor Corporation and Gujarat for investing around Rs 10,000 crore (Rs 3,100 crore for electric vehicle manufacturing and Rs 7,300 crore for the battery manufacturing plant) is a welcome step for India to move towards carbon neutrality. Some of the projects which have wider implications for the environment are the seawater desalination project in Gujarat, solar projects in Rajasthan and the gas-fired power project in Maharashtra.
Japan is the fifth-largest source of foreign direct investment (6.58 per cent of total FDI inflows) into India, accounting for $40 billion between 2000 and 2021. Though FDI from Japan is substantial, it is much less compared to Japanese FDI to China and it mostly flows into the automobile sector. Japanese firms are yet to diversify their manufacturing base and supply chains away from China and South East Asia to include India. Japanese investment in India is primarily in automobile, telecommunications, electrical equipment, insurance, chemical and pharmaceutical sectors.
However, there are ample opportunities for Japanese investments. India has opened up the defence industry and is looking for cooperation and investment in space, cyber technologies and artificial intelligence (AI). India has a highly skilled manpower and Japan has the resources and the technology. Towards this end, the India-Japan Cooperation on Digital Partnership which focuses on collaboration in next-generation technologies such as the Internet of Things (IoT) and artificial intelligence (AI) is a welcome step. There are also huge opportunities in areas such as autonomous military systems, cloud computing, quantum information etc. AI is crucial for countries to lead and dominate across sectors, more so in security and military space. China has been very aggressive in this area. Therefore, it is time for India-Japan to further collaborate on AI.
However, India-Japan economic relations, particularly in trade are below their potential. Though India signed the CEPA with Japan in 2011, Japan is the 13th largest trading partner with a total trade of around $20 billion. However, the trade balance has always been in favour of Japan. India offers a large market and a stable workforce for Japanese firms. Considering the centrality of China in global value chains India offers the best alternative to diversify risk. Indian resources and low-cost labour make it advantageous for Japan to invest in India.
Abe laid the foundation for India-Japan relations. It’s time to take his legacy forward.
The writer is professor, Institute of Economic Growth