The first exchanges between India and Japan were cultural, due to indirect spread of Buddhism from India to Japan via China & Korean peninsula, gradually culminating into trade and economic ties, a classic example of how soft-power can be a crucial pivot in international relations. However, direct exchanges, began only during the Meiji Revolution (1868-1912) when Japan started its modernisation. From then on, bilateral relations developed around Japanese purchase of the Indian cotton and after the World War II on import of iron ore. Trade helped in solidifying relations which were once initiated by a great religion.
Since 1952, Japan and India have maintained diplomatic relations and enjoyed cordial relations based on trade, economic and technical cooperation. Relations developed steadily as Japan's imports of ore and exports of manufactured products increased. Following Japanese Prime Minister Nobusuke Kishi's visit to India in 1957, yen loans to India began in 1958, as the first loan aid extended by Japan. In 1958 Japan participated in the Consortium Meeting of India's creditor countries hosted by the World Bank and embarked on the full-scale assistance to India that has continued to the present. Since fiscal 1986 Japan has been India's largest aid donor.
Till 2010, cumulatively, Japan had given India 3,600 billion yen in ODA, 89.56 billion yen in Grant Aid and 29.35 billion yen in Technical Cooperation. Japanese cooperation has focused on upgrading of economic infrastructure, alleviation of poverty through public health and medical care, agricultural and rural development and population and AIDS countermeasures support for small business, environmental conservation and technical up gradation.
In 2010-11 bilateral trade between Japan and India, hovered around 13 billion USD. Principal commodities of exports from India to Japan are garments, iron ore and chemicals, while imports include machinery, mechanical parts, auto components and chemicals. A recent CII study on Indo-Japanese economic relation concluded that, “The trade between the two countries is expanding rapidly. India and Japan are expected to achieve the trade target of $25 billion by 2014”. The potential areas for economic cooperation include capital goods, auto parts, iron, steel and chemicals, it added.
India has actively pursued economic reforms and market oriented economy since 1991 and Japan is an integral part of India’s growth story. India providing high profitability has become a lucrative destination for Japanese investment. Japanese giants like Sony, Nissan and Suzuki already have manufacturing facilities in India and Maruti-Suzuki is a household automobile brand in India. High domestic demand, availability of skilled manpower and healthy markets are the major drivers of Japanese investment in India. Major chunk of these investments are focused in transportation, telecommunications, fuel, chemicals and trading sector. Many Japanese investors feel that India still has ground level hassles like labour laws, overall infrastructure, and taxes, legal and regulatory framework. Japan proves to be an alluring destination for Indian investors due to its skilled human resources, cutting edge technological innovations and excellent infrastructure.
India wants the focus of Indo-Japan bilateral trade to be on FDI rather than ODA. In a recent development, Japan has planned to explore natural gas jointly with India; the joint exploration will be led by the private sector. Japan wants to diversify its sources of natural gas as it currently relies on imports for 97% of its needs with Indonesia, Malaysia and Australia being the major suppliers.
India and Japan’s bilateral ties have strategic implications. Japan’s strengthened ties with India can be viewed as an effort to contain the increasing (often aggressive) presence of China in western Asia. Moreover, both India and Japan are legitimate contenders for a permanent seat of United Nations Security Council (UNSC) and prospective tie-up between the two on this issue can increase their collective bargaining power for the same.
While Japan is implementing structural economic reforms, India is in the process basic economic reforms. The Japan-India Joint Declaration of December 10, 2001 has set the ball rolling for things to shape up in Indo-Japanese relationship in the 21st century. To raise the bilateral relationship to a “qualitatively new level" is the ultimate of the Joint Declaration. Broader and deeper economic relations between the countries would form the cornerstone of this bilateral relationship.
Both the countries are strongly committed to an "open and non-discriminatory rule-based multilateral trading system". Indo-Japanese trade relations and economic cooperation is going stronger by the years, though, if compared with neighbouring China's trade with Japan, India's share in Japan's total trade does not give any impressive look. So also in the field of foreign direct investment. Japan, which is the fourth largest investor in India itself, is not happy with this rate. India has to do a lot to create an investor-friendly environment through speedier economic reforms and freeing the country from clutches of deregulation at the earliest.
The paragons of Indo-Japanese relations are transcending the realm of economy and trade. Japan is considered as a key partner in India’s “look east” policy. These close relations have culminated into the Delhi Metro Project, Yamuna River project, Joint Defence & Naval exercises, Agreements on Civil Nuclear Energy and most recently Japan has also supported the reconstruction of Nalanda University, an ancient Buddhist centre of learning and has agreed to provide financial assistance for the same. Not only are Indo-Japanese bilateral relations mutually beneficial and integral to growth of both nations, but also are crucial for prosperity and balance of power in Asia.
- Sudhanshu Sharma
@SSharma2217 on Twitter
The Writer is currently working at Standard and Poor's and is pursuing his Masters course in International Business.