India-Japan Relations: New Times, Renewed Expectations

The Tokyo Declaration has added qualitative depth to the evolving bilateral bonhomie and demonstrated the new leadership’s commitment to cultivate a robust political, economic, strategic and defence cooperation. While Prime Minister Narendra Modi inherited a strong India-Japan relation from the previous administration, the charismatic Modi-Abe rapport has redefined the relationship by elevating it to a Special Strategic and Global Partnership, underscoring the mutual trust.

While Modi has demonstrated India’s resolve to refuel the development story by way of facilitating Japanese businesses and investments, there is renewed confidence among the Japan Inc who are well-versed with Modi as a result-oriented leader. As Chief Minister of Gujarat, Modi had embarked on cultivating a strong bond with Japan External Trade Organisation (JETRO) while drawing investments to the state. Articulating the convergence of interests by way of 3D’s- democracy, demography and demand, Modi’s initiative to pass a strong message against India’s ‘red-tape’ image, sharing his brand India vision, marketing India as a manufacturing hub, underscoring his focus on SMEs, promise of instituting a special management team under the PMO to process Japanese investment marks a positive tone. Moreover, it is a profitable economic partnership for Japan as well which is experiencing economic stagnation since 2008 and needs alternative markets following its relation with China.

The biggest takeaway for India from this visit is Abe’s assurance of $33.5 billion public and private investment and financing including ODA, doubling Japanese FDI and the number of companies in India over the coming five years. Even as the footprint of Japanese ODA in India is expanding in the infrastructure sector, the economic content of India-Japan bilateral relation so far is not commensurate with the diplomatic energy. Modi’s visit reflects an attempt to address the concern over low economic profile of the relationship.

The bilateral trade component lacks steam when compared with Japan-China trade (US$311.995 billion in 2013)1 despite the ongoing tensions in the East China Sea. India-Japan bilateral trade further declined to $16.31 billion in 2013, which is 11.89% lower compared to the $18.43 billion in 2012.2 Concern over the issue of trade deficit in favour of Japan is a priority. While the India-Japan bilateral trade represents approximately one per cent of Japan’s overall foreign trade, it amounts to 2.2-2.5 per cent of India’s total trade. Moreover, Japanese companies invested $15.359 billion in India between April 2000 and December 2013, accounting for seven percent of the total FDI inflow into India. 3

Japanese Foreign Direct Investment Flows to India

Source: Reserve Bank of India4

India-Japan trade
Values in US $ Millions

Source: Department of commerce, Export Import Data bank   

ODA loans from Japan

Source: Ministry of Finance, Government of India

Departure in Japan’s policy position on transfer of defence equipment and technology has raised India’s hopes about new vistas of high-end defence technology cooperation. While considerable progress was achieved in strengthening defence cooperation, negotiation in the Joint Working Group (JWG) on the ShinMaywa Industries Utility Seaplane Mark 2 (US-2) did not yield an agreement during the visit. India is eager to secure supply of high-end defence technology and collaborative projects in defence equipment and technology with Japan since it is among the foremost manufacturer of sophisticated military technologies. Negotiators are weighing the option of assembling the US-2 aircraft in India which will offer India the chance to access Japanese military technology.

One of the expectations from Modi in the coming years is to narrow the differences and inculcate confidence among the Japanese citizens regarding India’s voluntary moratorium on nuclear testing. Despite India’s demonstrated commitment towards non-proliferation, critical differences over principled position on NPT and CTBT continued to make the negotiation on the Agreement for Cooperation in the Peaceful Uses of Nuclear Energy difficult. It is difficult for Japan to justify to the domestic constituencies given India’s status as a non-signatory to NPT and CTBT, thus jeopardizing Japan’s identity as a crusader of non-proliferation and disarmament. Besides India, the agreement is important for the commercial interests of the Japanese nuclear businesses who are struggling to cope with the post-Fukushima financial loss. Delay in signing the agreement runs the risk of mounting cost.

With his visit to Japan, Modi has unveiled a season of high-powered diplomacy. India will shortly host Australian Prime Minister Tony Abbott and Chinese President Xi Jinping before Modi’s meeting with President Obama later in September. Modi balanced his foreign policy orientation by hinting at the prevailing 18th century expansionist approach without naming any particular nation while, at the same time, arguing the case of focussing on nation’s “progress and development instead of paying attention to others” in a direct reference to China.5

India is expected to pursue its quest for multi-polarity, great power identity and pragmatically engage with all the important players. Prime Minister Modi has demonstrated statesmanship by underscoring that the essence of Asian century lies in development.

Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India

• 1. “JETRO survey: Analysis of Japan-China Trade in 2013 and outlook for 2014”, JETRO, February, 2014
• 2. , Ministry of External Affairs Government of India, July 2014
• 3. “India–Japan Relations”, Ministry of External Affairs Government of India, July 2014
• 4. “Reserve Bank of India Annual Report 2013-14”, Reserve Bank of India, August 2014, pp-169
• 5. Amit Baruah, “Mere psychological comfort from growing India-Japan ties”, The Hindu September 3, 2014,