Rishi Kant and Dr. Santosh Kumar 4 October 2022
Year 2022 can be considered as a watershed in the India and Japan relation, besides marking 70 years of diplomatic relation the year also saw significant developments all aimed towards further strengthening of the relationship between the two democracies.
PM Modi and late PM Shinzo Abe were instrumental in strengthening the relation between these two likeminded democracies, as their collective foresight correctly assessed the changing geo-political and economic situation. Both therefore put in determined efforts towards collaboration between the two countries across various fields. Though PM Abe’s untimely and unfortunate demise came as a shock and set back. Recent developments clearly highlight the continues determination to carry forward the legacy of PM Abe.
India and Japan are collaborating closely in the field of health, infrastructure, security, climate, critical and emerging technologies, cyber security and space under the ongoing Quad framework, along with US and Australia. Besides, both the countries are also working closely to further cement the relationship bilaterally and there are enough factors to justify such bilateral collaborations. The aggressive Chinese activities across the borders of both the countries, complementing economic relationship with India offering a big market and Japan offering huge source of investment, make India and Japan natural partners.
The second 2+2 dialogue between Japan and India that took place last month evidently reflected the mutual desire to continue such cooperation at the same time emphasized extending cooperation in various fields including security and defense.
Economic cooperation between India and Japan
The economic ties between New Delhi and Tokyo have gradually expanded and deepened over the years. The volume of bilateral trade between the two countries has increased and diversified. India was 18th largest trading partner of Japan, and Japan was the 12th largest trading partner of India in the year 2020. Japanese industries has shown increased inclination towards India, in light of the increasing business opportunities available in India and constant push on the part of Government of India towards attracting Japanese investments in India, through improving ease of doing business. Currently, approximately 1,455 Japanese companies have business presence in various parts of India. India was the first recipient of Japanese Official Development Assistance (ODA). At present India is the largest recipient ODA that is used for financing various mega infrastructure projects like the Delhi-Mumbai Freight Corridor, Delhi-Mumbai Industrial Corridor, etc.
Japan has been a leading source of FDI to India, investing heavily the sector including automobile, transportation and Infrastructure. In the 14th annual summit held earlier this year after a gap of more 3 years, PM of Japan Mr. Kishida Fumio announced investment of 5 trillion yen in India in next coming 5 years. This was significant announcement, given the fact that, investment from Japan has been witnessing some moderation off late, as can be seen from the figure below.
Source: https://www.mofa.go.jp/region/asia
Off late there has been a realization on both sides, about the vast untapped potential for the two countries to expand bilateral collaboration in the area of defense equipment, energy and technology. The cooperation thereby, will not only enhance mutually beneficial growth, but at the same time will also help reducing dependence on China.
For instance, the India- Japan bilateral trade in the year 2021 stood at US $ 20.6 billon, which is less that one fourth when compared with bilateral trade between India and China at US $ 116 billion and is miniscule compared to the bilateral trade between China and Japan at whooping US $ 372 billion. Thus, trade between two countries is certainly below its potential and there is a huge scope for improvement.
Evolving geo-political situation and opportunity for enhanced cooperation between India and Japan
In response to the rapidly changing geo-political scenarios, Japan is undergoing an important transition, which has important repercussion on the policy front. At the same time the incumbent Japanese government is faced with challenges on various fronts. On the one hand it has to keep the economic recovery going, which earlier received a setback due to covid-19 and on the other hand it is facing increasing aggression from China. Besides, nuclear equipped North Korea and ongoing war in Ukraine has increased the concerns of Japan.
In response to these geo-political turbulences, Japan is all set to enhance its spending on defense form the 1% of GDP, as informally established in 1976 to 2% of GDP (Thereby, it will become the world’s third largest defense spender after US and China) to address the current underinvestment in defense preparedness and enhance the level of deterrence. India can become significant partner in meeting this goal.
Japan largely depends on US, for its defense needs and usually faces high price, thereby making funding a challenge. India can become an alternative source of meeting Japan’s requirement at fraction of the cost. With FDI limit raised from 49 per cent to 74 percent under the automatic route and up to 100 per cent through the government route in the defense sector in India. There exists substantial scope for Japanese investment. Such a move will help both countries facing increasingly aggressive China at the same time saving precious forex and add another dimension of the existing defense cooperation.
Emerging areas of Co-operation
Geo-political conflicts and emerging climate events, has sufficiently necessitated the need for both the countries to work in cooperation especially in the field on energy. India has much to gain from the Japan on the same, especially in terms of technology. At the same time Japanese companies can gain in terms of huge market and skilled labor that India has to offer. Many Japanese companies have shown their interest in the investment in Renewable Energy especially solar. The recently launched PLI scheme for manufacturing of solar PV modules, by Government of India, is an attractive avenue for Japanese firm to mark their presence in the booming Indian solar industry, at the same time reducing reliance on China, which is in the mutual interest of both the countries. Besides, given the fact that both countries rely on thermal (coal based) power generation to meet energy demand domestically (India about 70 percent of the electricity demand is met through coal-based power plant, while in Japan about 50 percent). In this regard, both countries can further accentuate their partnership in transiting towards low carbon economy by working on areas of sustainable, reliable and low carbon thermal power development and other low carbon emerging technologies. This complements the objective of meeting the target of net zero by India in the year 2070 and by Japan by the year 2050.
Similarly, there is huge scope for cooperation in the field of 5G technology, Artificial Intelligence (AI) and Machine learning in the background of rising unwillingness by a large number of countries internationally to permit Chinese telecommunication company Huawei to roll out 5G services in their territory. Indian skilled labor coupled with Japanese investment and technology has the potential to serve as a viable and cost effective alternative for the world in this area, which at present dominated by costly European and US firms.
Semiconductors is another important field where cooperation is much desirable, in terms of meeting the existing shortages, at the same time ensuring a secured and reliable supply chain for the same, especially in view of the recent escalation of tension in Taiwan. Japan in the past has been a major manufacturer of semiconductor, meeting over half the world’s semiconductors demand, but now Japan only manufactured 10 percent global supply. Japan, however, still hold dominant position in the global market as a manufacturer of certain machineries that are essential for manufacturing of semiconductor, including special chemicals and silicon wafers etc. Besides, Japan holds a monopoly position in manufacturing of some of the highly specialized tools used in the production process.
The relationship between New Delhi and Tokyo contains not only broad convergence of their political, economic and defence and security cooperation but also, aspirations, objectives and concerns for the betterment of Regional and global prosperity. Today, ties between India and Japan are more stable and multifaceted and multidimensional. Both countries are cooperating with each other to protect the democratic values and are strong advocates for peaceful and rule-based order in India Pacific region. The governments of both the countries are well aware of the changing geopolitics of Asia Pacific caused by the Aggressive Rise of China. The Aggressive Rise of China makes it imperative for both countries to come forward and cooperate.
In conclusion we can say that India and Japan have the potential to translate their raise as global powers, and walk towards an open, free and secure Indo-Pacific by redesigning the political and diplomatic equations of Asia Pacific region. In this regard it is essential to take forward the legacy of late PM Abe and continue to strive for enhanced mutually beneficial cooperation in the collective interest of the world.