By Ritika Chauhan
The recent India-Japan Summit in Gujarat, between Prime Minister Narendra Modi and the Japanese Prime Minister Shinzo Abe, is in the news for various reasons. Some report on the inauguration of the countrys first bullet train while some talk of the Gujarati thali enjoyed by the Japanese guests. As far as economics is concerned, South Asia is talking about the changing dynamics of the relationship between India and Japan.
The two-day India-Japan Summit on 13th and 14th September was the tenth such convention during the tenure of Prime Minister Modi. According to a joint statement by the two leaders, this event marked the beginning of a new era of friendship. The countries have expressed their desire to establish a deep, yet, stable partnership with strategic backing.
History of India-Japan relations
The relationship between India and Japan first gathered heat in the 1990s when Maruti Suzuki ventured into the Indian market to address the demand for a family car. The FDI from Japan amounted to $150 million in the 2000s. This was further fuelled in 2007 when a Japanese company acquired Ranbaxy Laboratories. The FDI amounted to $5.5 billion.
However, these investments started to decelerate and hit a low of $1.7 billion in 2013-14. Shortly after the Modi government took charge, there was an exceptional surge in investments by 80%. Last fiscal year, the FDI amounted to $4.7 billion. As per data provided by the Confederation of Indian Industry, 48% of this amount was invested in the automobile sector whereas the rest went to sectors such as IT and finance, among others.
Catching up in 2017
The Indian PM has invited fresh investment from Japan in hopes to double the FDI from Japan by 2019. Fifteen agreements have been signed between the two countries in sectors such as research, academic, sports, language and disaster risk management.
The economic engagement between India and Japan has transitioned over a period of time. Initially, there was substantive government intervention. However, the Japanese private sector has now taken interest in developing economies like that of India. Japanese companies are considering investment in auto and auto ancillaries, manufacturing, defence, electronics, IT and food. They are particularly interested in the state of Gujarat because of its simple procedures, lack of delays in clearances and low costs.
Additionally, projects under Make in India were also discussed. Officials recognised that there is potential for collaboration under PM Modis various schemes like ‘Digital India’, ‘Skill India’, ‘Start-Up India’ and ‘Smart City’. To facilitate the same, an ‘India-Japan Roadmap for Investment Promotion’ is to be prepared. This will aim at expanding the functionality of professional services and assistance provided by JETRO to the Japanese establishments in India. Other facilities such as review mechanisms, single window clearance procedures and industrial townships are also expected to take form.
Anticipating a mutually beneficial future
Additional measures can be taken to improve the quality of exports and further the momentum of India’s friendship with Japan. This is expected to be included under the ‘Manufacturing Skill Transfer Promotion Program’. This program hopes to introduce Japanese manufacturing techniques and provide the required training and skills through Japan-India Institutes for Manufacturing (JIMs). The two Prime Ministers expressed confidence that Japans advanced technology and Indias rich human resources can transform both countries into new centres of production in the global industrial network.
Currently, common exports to Japan include petroleum products, soymeal and shrimps. Export of petroleum products such as liquid paraffin and mineral oils hit rock-bottom in recent years due to hike in international prices as well as a reduction in demand by advanced economies like Japan. Similarly, export of soymeal has also declined due to poor quality and high costs. Due to poor capacity addition to domestic production in the last fifteen years, Indias reliance on imports, especially Japanese imports, has increased.
The Confederation of Indian Industry (CII) has appraised the strategies formulated in these two days. The CII contends that the two countries balance each other and are perfect strategic and economic partners. The Prime Ministers of both countries have welcomed the new era with confidence and hope. They are determined to contribute to the global industrial scenario.
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