India and Japan have enjoyed the best of relations over the
decades. Yet, their trade and economic partnership has, strangely, been
under-performing, belying the promise and potential. Bilateral trade at $16.29
billion in 2013-14 accounted for just 2.13 per cent of India’s total trade and
barely 1 per cent of Japan’s. The low-profile trade relationship is especially
disappointing considering how much Japan has to offer in terms of investment
and technology, and how much India needs both. India may be one of the largest
recipients of Japanese ODA (Official Development Assistance), but when it comes
to foreign direct investment (FDI), it ranks low, well behind China. Between
April 2000 and February 2014, Japanese companies cumulatively invested $15.97
billion in India, accounting for just 7.46 per cent of total FDI inflows into
India, which in a way epitomises the state of the economic relationship between
the second and third largest economies of Asia. All this could change for the
better, post-Prime Minister Narendra Modi’s visit to Japan, which seems to have
breathed new life into economic
relations. Japan has said it would invest 3.5 trillion yen ($33.5 billion)
in India in the next five years in the sectors of infrastructure, manufacturing,
transport and clean energy, and on smart cities, all thrust areas for
development for the Modi government.
To be sure, this is not the first time we have seen positive
intent in the leadership of the two
Asian giants to improve trade and investment. Ever since India liberalised
in the early 1990s, there has been steady interest among Japanese companies and
investors — but they have often been frustrated by complicated procedures and
cumbersome processes. Actually, Japanese companies willingly ceded market space
in India to competitors from South Korea and China rather than deal with the red
tape. It is in this context that Mr. Modi’s promises of “red carpet, not red
tape”, and a special track in the Prime Minister’s Office to facilitate Japanese
investments, have to be seen. Mr. Modi harped on all the right themes including
the three Ds that India can boast of, namely democracy, demography and demand,
while making his pitch to Japanese business. With manufacturing costs increasing
in China and given the political issues between the two countries, Japanese
businesses are looking to diversify, and India presents a good choice with its
huge market. New projects such as those for super-fast trains and smart cities
are ideal destinations for Japanese investments. The Modi government has to now
move quickly to fulfil its promises of easing procedures and facilitating
investment to capitalise on the optimism and goodwill generated from what has
clearly been a successful visit in economic
terms.
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