India and Japan- Recent Economic Trends

On April 26, 2021, Prime Minister Modi spoke to Prime Minister Yoshihide Suga and exchanged views on bilateral and regional issues and global challenges in the backdrop of the Covid 19 pandemic. The following article is a commentary on the recent economic trends between Japan and India and addresses other facets of both countries ever-growing relationship.

India and Japan- Recent Economic Trends
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Commentary 

By Ambassador Anil Trigunayat 

On April 26, 2021, Prime Minister Modi spoke to Prime Minister Yoshihide Suga and exchanged views on bilateral and regional issues and global challenges in the backdrop of the Covid 19 pandemic. Japan has extended significant assistance to India, which has also been one of the biggest Japanese Official Development Assistance beneficiaries in the past. Today, India is a great and strategic opportunity for Japan, and historical ties have been converted into mutually beneficial economic opportunities. The two leaders also highlighted the importance of close India-Japan cooperation to overcome the ensuing challenges by creating resilient, diversified and trustworthy supply chains, ensuring a reliable supply of critical materials and technologies, and developing new manufacturing and skill development partnerships. In addition, they emphasized the need for early operationalization of the Specified Skilled workers (SSW) agreement to synergize their strengths and achieve mutually beneficial outcomes.  Mumbai-Ahmedabad High-Speed Rail (MAHSR) project is a shining example of our cooperation. Japan has also emerged as one of the few countries to invite highly skilled Indians as preferred stakeholders.  

Leadership exchanges and mutual trust and bonhomie with Japan have always been at the core of intensifying and diversifying bilateral ties and cooperation in trilateral, plurilateral and multilateral formats. In addition, the two countries enjoy a ‘Special Strategic and Global Partnership’. Japan is also the first country to institute an annual level summit mechanism apart from Russia. Therefore, it was not surprising that since 2014 PM Modi met his friend PM Shinzo Abe more than a dozen times, including at G20 Summit in Osaka.  In fact, his very first visit outside South Asia was to Japan in August 2014, and since then, it has only deepened and broadened across the spectrum, opening a “New Chapter” in our relations.

13th Annual Summit in  Japan on 28-29 October 2018 provided the impetus to bilateral ties, building upon the momentum created by PM Modi’s visits to Japan in 2014 and 2016 and the visits of PM Abe to India in 2015 and 2017. During the Summit, both PMs outlined the shared vision for the future India-Japan relations. In a special gesture, Indian  PM was hosted by PM Abe for a private dinner at his ancestral home in Yamanashi, the first such reception to be extended to a foreign leader. Japan’s announcement of joining the International Solar Alliance (ISA), Exchange of Notes concerning the provision of seven Yen loan projects including the Project for the Construction of MAHSR (total loan provision of up to 316.458 billion yen), Currency Swap Agreement of US$ 75 billion, India-Japan Digital Partnership and Implementing Arrangement for deeper cooperation between Japan Maritime Self-Defence Force and Indian Navy, MOC on Healthcare, Food Processing Sector were among the 32 MoUs/Agreements signed during the Annual Summit. During the visit, 57 Japanese companies announced to make investments in India worth US$ 2.5 billion, and 15 Indian companies announced to make investments in Japan. During later meetings, they agreed on expanding the cooperation on a broad range of topics of mutual interest, such as Japan’s assistance to India for the coalition on disaster resilience infrastructure, fugitive economic offenders and anti-corruption measures, and infrastructure works of Japanese companies in the North East of India. Defence, high technology, cyber and maritime security have emerged as new dimensions of engagement and have become an integral pillar of collaboration, especially as India undertakes her “ Atmanirbhar Bharat” mission seriously. They have developed a Japan-India Digital Partnership and Partnership for Innovation through the Japan Innovation network and Start-Up India enterprise. 

Since financing of projects is significant for their success, according to the official statistics, India and Japan decided to jointly launch a fund-of-funds of $187 million (Rs 1,298 crore) to invest in technology start-ups in India. US$150 million of the targeted corpus will be raised from Japanese investors, and the remaining will be raised from Indian investors. Reliance Nippon Life Asset Management Ltd (RNAM) will manage the fund. Four Japanese investors- Mizuho Bank, Development Bank of Japan, Nippon Life and Suzuki have already signed letters of intent. The fund aims to invest in more than 200 Indian companies focused on emerging areas such as the Internet of Things (IoT), Artificial Intelligence (AI), Machine Learning (ML), fin-tech, healthcare, consumer, education, robotics, automation and business-to-business (B2B) software. In addition, MeitY Startup Hub & JETRO signed a partnership agreement to strengthen the Indian & Japanese tech startup ecosystem on 20 January 2020. Under which Meity start-up Hub aims to support Japanese tech-start-ups in India by providing a soft-landing sector-specific tech. Incubation platforms for 6 months free of cost.. There are already some success stories. 

Japan has emerged as a key partner in India’s economic transformation. Japan values the expanding size of the Indian market and opportunity and the exceptional human resource and enterprise. Japan’s bilateral trade with India was US$ 17.63 billion in 2018-19. Exports from Japan to India during this period were US$ 12.77 billion, and imports were US$ 4.86 billion. The bilateral trade between India and Japan for 2019-20 (April – December) was  US$ 11.87 billion. India’s exports from Japan amounted to US$ 3.94 billion, while India’s import from Japan amounted to US$ 7.93 bn. India’s primary exports to Japan have been petroleum products, chemicals, elements, compounds, non-metallic mineral ware, fish & fish preparations, metalliferous ores & scrap, clothing & accessories, iron & steel products, textile yarn, fabrics and machinery etc. On the other hand, India’s primary imports from Japan are machinery, electrical machinery, iron and steel products, plastic materials, non-ferrous metals, motor vehicles, organic chemicals, manufacturers of metals, etc. Likewise, with its over $ 32 bn FDI investments, Japan has become the third-largest investor in India during 200-19. While over 100 Indian companies are engaged in Japan, more than 15 times of them are working in India to expand their economic footprint.

Prime Minister Modi and Prime Minister Abe established the India-Japan Act East Forum in 2017 to coordinate joint efforts for the region's overall development. The initiative aims to enhance connectivity between our Northeast Region and Southeast Asia, and Bangladesh. Both are also participating in the Port and other projects in third countries like Sri Lanka. As External Affairs Minister recently mentioned, four road connectivity projects are underway in various parts of the Northeast. Roads are being augmented in Mizoram, Meghalaya and Tripura. The longest bridge in the country across the Brahmaputra in Dhubri in Assam is constructed with Japanese support. Japan is also helping us modernize the Umiam-Umtru Hydroelectric Power Station in Meghalaya and the Guwahati Water Supply and Guwahati Sewerage Project. The forward-looking and holistic aspect of this partnership is visible in projects with the forest department in Sikkim, Nagaland, Tripura and Meghalaya to conserve biodiversity, strengthen forestry management, and improve local incomes. Hence, one can witness the expanded landscape of Indo-Japan mutually beneficial socio-economic cooperation.

Unique Trilateral Initiative: Asia-Africa Growth corridor 

India and Japan- the two powerful economic giants in the region, have achieved an exceptional sophistication for mutually beneficial cooperation in the last decade or so. More importantly, in the past couple of years, as a rising China constrains their strategic space. It is limited to the bilateral context and aims to expand the benevolent footprint into Southeast Asia and Africa. India has been engaged with Africa for centuries or the other, while Japan has been a major ODA and investments provider. Hence it is natural that both decided to work closely in Africa. At the  “India-Japan Act East Forum”, New Delhi agreed to fine-tune and charted out the nuts and bolts of the collaborative strategy and paradigm.

In November 2016, Japan’s Prime Minister Shinzo Abe and Indian Prime Minister Narendra Modi, in their Summit Joint Statement, reiterated the resolve of the two countries to “develop industrial corridors and industrial network for the growth of Asia and Africa.”  India-Japan economic engagement with Africa, under the aegis of Asia Africa Growth Corridor (AAGC), is based on the premise that global economic activities are shifting towards the Indo-Pacific region. As two democracies and robust economies, India and Japan are committed to evolving a sound economic, political and security architecture of the Indo-Pacific region, and collaboration in Africa and ASEAN is a natural corollary.  The vision document clearly highlights that the AAGC would be based on four pillars: “enhancing capacity and skills; quality infrastructure and institutional connectivity; development and cooperation projects; and people-to-people partnership.” 

Synergies' unique initiative could trigger a multiplier effect since the three- continental /regional components present a fine balance of requirement and availability, be it finance, expertise in capacity building, technology or investment, best practices or political will to execute. These, in totality, could comprise a real strategic partnership for the global good. The three constituents in this matrix are at varying levels of development. Japan is the second or third-largest economy, leader in technology and ODA and above all looked at as a benevolent democratic economic powerhouse; India, a country of continental proportions, is on an ascendant curve and is at least a regional leader in this Asian century. More importantly, India, the fastest-growing major economy - in the decades to come, could become the 2nd or 3rd largest economy apart from being the largest functional democracy of the world. Moreover, India is an acknowledged global leader in the sunrise sectors like pharmaceuticals and Information technology, several offshoots that will guide and assist our lives in the times ahead. Besides, India has also witnessed a peculiar growth curve from underdeveloped parts of the country to highly developed regions within the same national matrix. India has led the developing world, especially Asia and Africa, through support for their independence struggles and their quest for development through NAM, G-77, WTO or Climate Change, or unconditional bilateral assistance. This continues in the context of international negotiations and discourse, which remains the fulcrum of India’s development paradigm and foreign and economic policy at its core. Hence India is considered by most others as a preferable benign power and a reliable partner. 

Africa, the vast continent comprising of 54 countries and huge natural resources, has been beset by problems of underdevelopment despite being the richest landscape of opportunities due to internal governance issues, colonisation, neo-colonialism, malnutrition and disease and has bypassed various industrial and economic revolutions in most parts -South Africa and a couple of other countries are exceptions and have a varied and chequered history.  However, given the right impetus and focussed approach and direction Africa could lead in the 2 nd half of the 21st century. Therefore, this trilateral collaborative effort through a credible and trustworthy institutional mechanism could trigger a mutually beneficial developmental paradigm shift.

China has emerged as a major benefactor of the region in accordance with its medium- and long-term global strategy. However, while utilising the available economic space, it indulges in predatory neo-colonialist approaches that have raised questions on its motives and modus- operandi but has not reduced its engagement. Through its chequebook diplomacy, debt traps and financial muscle but quick and firm decision making, China has been able to exert the influence in a much bigger way that leaves a strong footprint. I understand they are also changing tracks and tactics as they fear the Indo-Japanese and Western-focused attention towards the continent. 

In India, we could take great pride in the fact that India enjoyed a huge public trust and affection at the grassroots level in Africa due to historical relations and engagement at the people's level. Indian diaspora has been extremely successful in building bridges of trust and reliability over the centuries and have emerged as major stakeholders in the African developmental story. I recall President Obasanjo of Nigeria often mentioning that he knew India better than I did and that after the “Federal Government Indians were the second largest employers in the country”. Many African leaders and ordinary Africans who were trained or educated in India created this positive critical mass that provides an exceptional edge to us. But in my view over the years, that goodwill was squandered away due to apathy and ad hoc approaches of respective governments. There has been a hiatus ridden approach with high-level visits from India few and far between. Not to say that some major initiatives like the Pan-Africa e-network project, a brainchild of former President Kalam,  had mapped a successful cooperation paradigm across the continent for tele-education, tele-medicine and connectivity.  I am happy that though late in the day, India did embark on extensive engagement with Africa through bilateral meetings and multilateral events like India-Africa Forum Summits and high decibel high-level visits. Since India follows a policy of “Cooperation without Conditions”, Africa does look up to India. It considers it a benign yet willing democracy ready to share its economic achievements and expertise with the continent. We should not flinch from taking on that partnership & responsibility. At the India-Africa Forum Summit 2015, PM Modi announced a $10 billion line of credit apart from a $100 million Fund, which entailed a new approach to engagement with the African continent. This will help finance the projects in African countries, and further contribute to capacity-building, education, and industrial development. India has been awarding thousands of scholarships to African nations under the ITEC and ICCR programme. India is the fifth-biggest investor in Africa, with investments over the past 20 years amounting to $54 billion, creating jobs for Africans since by 2034, Africa countries will have a larger workforce than India or China. For the first time, PM Modi enunciated his 10 guiding principles at Kampala, enshrining India’s act Africa Policy.

On the other hand, Japan has been an active cooperation partner in Africa with its huge assistance under its resource and economic diplomacy that seeks to enhance export infrastructure to meet over $ 100 bn financing deficit for infrastructure projects. It has already invested $30bn under this initiative and is planning to invest US$200 bn in the proposed growth corridor. According to the Japanese Business Federation (Keidanren), Africa is a regional priority and an emerging market for tripling its infrastructure sales. As indicated by KPMG in a report for AfDB, “Africa provides an opportunity for $2.4 trillion. As many as 400 projects worth $70 billion have been discussed. So far investment of about $2.5 billion is already in the pipeline of which $1.5 billion is for the agriculture sector”. Japan’s Africa outreach is done primarily through the Tokyo International Conference on African Development (TICAD). According to various reports, Tokyo concentrates on three important areas, in keeping with the focus of Japanese private sectors, including the Northern corridor, Nacala corridor, and the growth area in West Africa; resources and energy development; and urban development. Japanese investment will be effected partially by using the Enhanced Private Sector Assistance for Africa (EPSA), conceived in partnership with the AfDB. In addition, under the Abe Initiative 2.0, Japan aims to nurture “manufacturing and maintenance service personnel” and capacity building of technical personnel in the field of natural resource development.

AAGC seeks to provide an alternative model of development and partnership between developed and developing countries /region for mutual benefit incorporating interconnectivity, infrastructure development and capacity building. The Indo-Japanese initiative hopefully has considered the shortfalls of the previous engagements. We cannot play around with the pride of the Africans and think that we know what is good for them. I would recall a recent viral video of the Ghanaian President giving some lessons to President Macron of France, underscoring that the Africans have to rise to the occasion and help themselves rather than depend on an external bounty, doles and advice.  We should be mindful of the sentiments of the average African and their political, economic and strategic thinking and mindset and diversity. A joint collaborative approach and an open-minded and open-ended approach will be beneficial.  I am happy that AAGC, in its conceptualisation, sees Africa as a collaborator and an equal partner. This is evident from the fact that the Vision Document of the AAGC notes that the conceptualisation of the proposed growth corridor will be conducted by constituting “a joint study team with other think tanks and organisations in Asia and Africa.” In addition, the vision document also states that “contribution to the local society and economy” will be an important aspect that will define the operationalisation of the economic corridor. Thence it will lead to a unique “Win-Win-Win” Asia-Africa partnership.

Quadrilateral Initiative:

Indo-Pacific is the “Karma Bhoomi “ of India and Japan. Hence enhanced collaboration between the two in this mutually beneficial and sustainable matrix is a given.  The first-ever QUAD leaders’ summit on March 12, 2021, provided the requisite heft and direction that was so needed. It also silenced the criticism that it had no backbone even if it was turning into a unifocal security dialogue and architecture, much to the discomfort of China. But the Summit and an Oped by the four leaders in Washington Post and the Fact Sheet annexed to the “ The Spirit of Quad” catapulted it to an entirely new and essential orbit. Pandemic also provided the backdrop for enhanced cooperation in vaccine development for the region with a unique collaborative mechanism. India has already excelled as the global vaccine hub, having produced its own Covaxin within a concise period and becoming the seat of two Made in India vaccines. SputnikV and others are looking to manufacture them in India. Likewise, the Quad Vaccine Initiative was to manufacture 1 bn doses of US’s J&J vaccines. Japan and Australia will provide funding and logistics, which will benefit ASEAN and other countries in the region. 

The Statement post leaders’ summit underscored, “Building on the progress our countries have achieved on health security, we will join forces to expand safe, affordable, and effective vaccine production and equitable access, to speed economic recovery and benefit global health. However, with a steadfast commitment to the health and safety of our own people, we also recognize that none of us can be safe as long as the pandemic continues to spread. We will, therefore, collaborate to strengthen equitable vaccine access for the Indo-Pacific, with close coordination with multilateral organizations including the World Health Organization and COVAX.” They also agreed to begin cooperation on the critical technologies of the future to ensure that innovation is consistent with a free, open, inclusive, and resilient Indo-Pacific including for a fair and robust rare earth supply chain.

Leaders further committed to combine their nations’ medical, scientific, financing, manufacturing and delivery, and development capabilities and establish a vaccine expert working group to implement our path-breaking commitment to safe and effective vaccine distribution; launch of a critical- and emerging-technology working group to facilitate cooperation on international standards and innovative technologies of the future; and established a climate working group to strengthen climate actions globally on mitigation, adaptation, resilience, technology, capacity-building, and climate finance. They agreed that “Our experts and senior officials will continue to meet regularly; our Foreign Ministers will often converse and meet at least once a year. At the leader level, we will hold an in-person summit by the end of 2021.”. The next Summit is scheduled to be held soon and will be dealing with infrastructure development. However, there is no time for complacency. Even if the groundwork might be gathering momentum, we need to be aware of the challenges ahead. As China ups, its stake for global leadership, the turbulent waters of the Indo-Pacific will continue to be the focal point for strategic competition.

Let me close by quoting EAM Dr Jai Shankar that Japan is a powerhouse of ideas and entrepreneurial energy. It is a valuable partner for us in our efforts to navigate the post-pandemic international system's vagaries and generate new opportunities for cooperative endeavour in all areas of India. The key to success will be genuine trust and forward-looking endeavour in a challenging Sino-centric world. 

Ambassador Anil Trigunayat is a former Indian Ambassador to Jordan, Libya and Malta and is an Advisory Board Member of Usanas, VIF  and the India-Japan Foundation, Tokyo. He is currently associated with several Chambers of Commerce and Think Tanks and is a leading commentator on Foreign and Economic Policy issues.

Disclaimer: This paper is the author’s individual scholastic contribution and does not necessarily reflect the organisation’s viewpoint.