Indo-Japan Relations: Building on Complementarities

          The friendship between India and Japan has a long history rooted in spiritual affinity and strong cultural ties. The modern nation states have carried on the positive legacy of the old association which has been strengthened by shared values of belief in democracy, individual freedom and the rule of law. Over the years, the two countries have built upon these values and created a partnership based on both principle and pragmatism.

          The Indo-Japan relationship is said to have begun in the 6th century when Buddhism was introduced to Japan. Indian culture, filtered through Buddhism, has had a great impact on Japanese culture, and this is the source of the Japanese people's sense of closeness to India. Japanese support and assistance to Netaji and Indian National Army (INA) during India’s freedom struggle continue to persist in popular imagination. The sole dissenting voice of Judge Radha Binod Pal at the Nuremberg War Crimes Tribunal struck a deep chord among the Japanese public that continues to reverberate to this day.

          Today, Japan and India are two of the oldest democracies in Asia and among its three biggest economies. In fact, throughout the various phases of history since civilisational contacts between them began some 1400 years ago, the two countries have never been adversaries. Bilateral ties have been free of any kind of dispute – ideological, cultural or territorial, making them natural partners. The relationship is unique and one of mutual respect manifested in generous gestures and of standing by each other in times of need.

          Notwithstanding establishment of diplomatic relations in April, 1952, there was not much beyond the formal protocol, whether politically, geopolitically, culturally, socially, economically, or in sports. On the international stage, India was a prominent architect and leader of the non-aligned movement, while Japan in military alliance with the United States followed Washington’s lead in what was referred to as a low-profile foreign policy.

          Following Japanese Prime Minister Nobusuke Kishi's visit to India in 1957, Japan started providing yen loans to India in 1958, as the first yen loan aid extended by Japanese government. Japanese Official Development Assistance (ODA) has also continued to flow, thereby supporting India’s efforts for accelerated economic development in priority areas like power, transportation, new townships, environmental projects and projects related to basic human needs. A test of the reliability of Japan as a friend was witnessed in 1991, when Japan was among the few countries that bailed India out of the balance of payment crisis.

          India has been the largest recipient of Japanese ODA Loan for the past several years. Delhi Metro is one of the most successful examples of Japanese cooperation through the utilization of ODA. The Dedicated Freight Corridor (DFC), the Delhi-Mumbai Industrial Corridor (DMIC) and the Chennai-Bengaluru Industrial Corridor (CBIC) are other shining examples of cooperation between the two. Prime Minister Abe reaffirmed Japan’s commitment to India’s efforts towards socio-economic development during his visit to India in January 2014.

          Looking back in history, Japan owes an enormous debt to India for its industrial development. When Japan started its industrial development in the 1860s, its principal sector was textiles, its looms and mills using raw cotton imported from India. Later, India also helped a World War II-ravaged Japan to recover from the devastation through the much-needed export of iron ore. Japan’s high economic growth, starting in the mid-1950s, was centred on the steel industry that drew raw materials of iron ore from India.

          Even though there were regular summit level meetings between the two countries, a transformational development in the bilateral ties was Suzuki Motor Corporation’s path-breaking investment in India in the early 1980s that revolutionized the automobile sector, bringing in advanced technology and management ethos to India. The beginning of the 21st century witnessed a dramatic transformation in bilateral ties. During Prime Minister Mori’s path-breaking visit to India in 2000, the Japan-India Global Partnership in the 21st century was launched providing the much needed impetus for the trajectory of relations to soar to new heights.

          The Global Partnership formed the foundation for the strengthening ties in diverse fields, including identifying strategic convergences. The Indo-Japan statement in 2006 added a new dimension to jointly face new challenges as they emerged, and the relationship was upgraded to a Global and Strategic Partnership with the provision of annual Prime Ministerial Summits. In 2007, India and Japan concluded a strategic agreement which would form an “essential pillar for the future architecture” of Asia.

          Since then, the two countries have signed a comprehensive economic partnership agreement and held talks on a potential civil nuclear deal. A Comprehensive Economic Partnership Agreement (CEPA) between Japan and India was concluded in August, 2011 which proposed to eliminate about 94% of the tariffs between Japan and India within 10 years.

          Indo-Japan bilateral economic cooperation which has shown a gradual increment since the 2000s, is expected to accelerate greatly along with the introduction CEPA which has been a game-changer of sorts. CEPA is the most comprehensive of all such agreements concluded by two and covers not only trade in goods but also services, movement of natural persons, investments, intellectual property rights, custom procedures and other trade related issues.

          During the Prime Minister Narendra Modi’s visit to Japan during August-September, 2014, the two sides decided to upgrade the relationship to a ‘Special Strategic and Global Partnership’ and launched an India–Japan Investment Promotion Partnership under which Japan announced its intention to invest in India approximately US$ 35 billion over the next 5 years.

          Economic relations between India and Japan have vast potential for growth, given the obvious complementarities that exist between the two Asian economies as could be noted in Japan’s ageing population (23% above 65 years) and India’s youthful dynamism (over 50% below 25 years); India’s rich natural and human resources and Japan’s advanced technology; India’s prowess in services and Japan’s excellence in manufacturing; and Japan’s surplus capital for investments and India’s large and growing markets.

          The Japanese economy today is faced with severe difficulties related to its ageing and shrinking population, with the result that Japan is having difficulty achieving favourable growth, whereas India, although poised for rapid economic growth, lacks adequate infrastructure and financial resources. By implementing mutually beneficial policies, the two countries are expected to be able to realize win–win situations.

          In FY 2013-14, Japan-India bilateral trade reached $16.31 billion with India’s exports rising by 4.36% in 2013-14. In fact, India accounted for only 1.2 percent of total Japanese exports, whereas China accounted for 18.3 percent of total Japanese exports in 2014. The share of the India-Japan bilateral trade has been in the range of 2.2 to 2.5% of India's total trade in the last few years. Despite CEPA, India-Japan bilateral trade stands at measly USD16 billion as compared to Sino-Indian trade amounting to USD 70 billion and Sino-Japanese trade at whooping amount of USD 343 billion in 2014.

          In order to change this, Japan agreed in 2014 to double its private and public investment in India to a total of $33.6 billion over next five years. Despite this, the India-Japan trade could reach only US$ 14.51 billion in 2015-16, showing a decrease of 6.47% over FY 2014-15.  India’s export to Japan for 2015-16 was US$ 4.66 billion whereas India’s Import from Japan for 2015-16 was US$ 9.85 billion.

          The amount of Japan's cumulative investment in India since April 2000 to March 2016 stand at US$ 20.966 billion, which is nearly 7 per cent of India's overall FDI during this period.        Japanese FDI into India has mainly been in automobile, electrical equipment, telecommunications, chemical and pharmaceutical sectors. The comprehensive trade pact between India and Japan aims to double bilateral trade nearly to $25 billion.

          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. India’s primary imports from Japan are machinery, transport equipment, iron and steel, electronic goods, organic chemicals, machine tools, etc.

          An important factor affecting Indo-Japan trade is the tariff and non- tariff barriers imposed by both countries. Japan has placed import prohibitions and quantitative restrictions on imports from India, for example, on fish, poultry, meat, fruits and silk items. This issue highlights the need for sharing and facilitating the exchange of technology under the agreement to promote Indian exports to Japan. Engaging Japan economically is important as India is biggest recipient of Japan’s ODA. India is also premium destinations for foreign direct investment from Japan.

          Attracting Japanese investment, technology and business is crucial for transforming India into Asia’s new economic powerhouse. There is a strategic rationale behind economic engagement of India with Japan. India is far more comfortable with Japanese businesses investing in development of strategic assets of infrastructure but Chinese investment in infrastructure is seen with concerns and suspicions due to security reasons and mistrust, even when such investment resolve some of the trade imbalance between India with China.

          For Japan, economic partnership is shaped by realpolitik too. Japanese investment was very vital for Chinese miracle. However, greater economic integration with China has not translated into political trust between two countries. Hence, security vis-à-vis China is the primary factor pushing the two countries closer, more than their economic complementarity. Ever since the declaration of India-Japan strategic partnership in 2006, the two countries have initiated regular consultations and joint exercises. Such collaborations are distinctive in contrast to lagging progress in economic affairs.

          A key factor driving the ongoing Indo-Japan negotiations is India's desire to significantly increase the size and sophistication of its nuclear energy sector. Japan, on the other hand, wants to clear the way for the export of its nuclear technology to India. Despite these incentives on both sides, it seems unlikely that a deal will soon be signed since India has not yet signed the Nuclear Non-Proliferation Treaty (NPT). Tokyo recently lifted ban on six Indian firms involved in defence R&D blacklisted after 1998 nuclear test, commencing towards transfer of Japanese military technology. India also needs Japan’s support for NSG (Nuclear Suppliers Group) membership but later has expressed reservations citing New Delhi’s lack of commitment to nuclear disarmament, especially at CTBT and FMCT (Fissile Material Cut-off Treaty).

          Japan and India are also said to have agreed on measures aimed at preventing the leak of technological secrets, a deal which would pave the way for arms transfers between the two countries. The two countries have also been working at their first major defense deal relating to the joint production of Japan's US-2, an amphibious plane that Japan's Self-Defense Forces use for search and rescue operations as well as maritime surveillance. The coast guards of the two countries have conducted joint exercises on anti-piracy, search and rescue since 2000.

          The Science & Technology Cooperation Agreement between India and Japan was signed in November 1985. The cooperation picked momentum after establishment of India-Japan Science Council (IJSC) in 1993. Since then several Institutional Agreements/MoUs in the areas of life sciences, material sciences, high energy physics, ICT, biotechnology, healthcare, methane hydrate, robotics, alternative sources of energy, earth sciences, outer space etc have been signed between the two countries. In 1951, India established a scholarship for young Japanese scholars to study in India. A cultural agreement was signed between India and Japan on in October 1956.

           The arrival of Indians in Japan for business and commercial interests began in the 1870s at the two major open ports of Yokohama and Kobe. More Indians entered Japan during World War I when Japanese products were sought to fill gaps in demand that war-torn Europe could not meet. The old Indian community in Japan focused on trading in textiles, commodities and electronics. With close linkages to India as well as connections in Hong Kong and Shanghai, they became major players in trading activities across Asia. A newer segment of the community is engaged in gems and jewelry.

          In recent years, there has been a change in the composition of the Indian community with the arrival of a large number of professionals. These include IT professionals and engineers working for Indian and Japanese firms as well as professionals in management, finance, education, and S&T research who are engaged with multinational as well as Indian and Japanese organizations. The number of Japanese nationals residing in India was 8,313 in October, 2014 while the number of Indian nationals residing in Japan stood at 24,524 in December, 2014.

          Varied factors have supported momentum of this partnership viz. India’s economic resurgence, its engagement with USA and its increasing interest and stakes in East Asia in the form of Look East Policy in 1992 and Act East Asia Policy in 2015. On similar lines, for Japan, India has emerged as an alternative economic partner and important constituent of Asia’s emerging security order. The improvement of Indo-Japanese ties are part of India’s ‘Act East’ policy, which aims at strengthening relations with Asia-Pacific countries, such as Vietnam, South Korea, Japan and Australia, in line with India's growing economic and strategic interests.

          India would like to build a strong relation with Japan, a relationship which specifically addresses issues of global governance, its nuclear status, international financial institutions (FII), maritime security and reform of the UN Security Council (UNSC). Perhaps, divergences in approach might derive from the fundamental orientation of a status quo power (Japan) and a revisionist power (India). India would never give up its nuclear weapons and would not like to join the Nuclear Nonproliferation Treaty and the Comprehensive Test Ban Treaty (CTBT) so long as there is no global abolition of nuclear weapons. In contrast, Japan, under the US nuclear umbrella, encourages India to join the two treaties, although Japan would like to extend nuclear cooperation with India.

          A worsening balance of military power and an ever aggressive China has paved intensification of strategic cooperation between India and Japan. While Japan is a member of the US-led Trans-Pacific Partnership (TPP), India is not. Still, both countries are engaged in creating a Regional Comprehensive Economic Partnership (RCEP) and Japan has agreed to support India’s case for membership of Asia-Pacific Economic Cooperation (APEC), even as the US continues to drag its feet over this. The Joint Statement repeatedly refers to the Indo-Pacific as the shared region of strategic engagement for both powers.

          The impulse for multilateralism stems from the desire to make 21st century as Asian century through working for peace and stability in the region, providing better connectivity and greater regional integration. India was included into East Asia summit membership (ASEAN 3+3) at the behest of Japan along with Australia and New Zealand despite protest by China. India has always supported freedom of navigation and unimpeded lawful commerce in international waters in sync with UNCLOS (UN Convention on the Laws of Seas) vis-à-vis South China Sea dispute and East China Sea issue. The Tokyo declaration of 2014 underscored the significance of strategic cooperation between two of Asia’s largest maritime democracies and castigated states indulging in expansionist policies in the region.

          While committing itself to investing in infrastructure within India to improve road and rail connectivity, Japan has also agreed to promote India’s “Act East” policy by developing and strengthening reliable, sustainable and resilient infrastructures that augment connectivity within India and between India and other countries in the region aimed at advancing Asian industrial networks and regional value chains with open, fair and transparent business environment in the region.

          Japan and India plan to build road and rail connectivity across the Eurasian landmass, running parallel to China’s own “One Belt, One Road” project. India shows its appreciation for current Japanese PM’s initiative to help Bangladesh in developing the region around the Bay Of Bengal though ” Bay of Bengal Industrial Growth Belt” or BIG -B initiative. Japan’s active involvement in India’s neighbourhood offsets China’s growing economic and strategic influence. The recent civil nuclear deal between the two countries is a further step towards cementing bilateral ties.

          All this signals a new level of partnership between Asia’s two great democracies, imparting new self-confidence to both nations at a particularly critical moment in Asia’s emerging power structure. In the context of 21st Century, among all the bilateral relations, Indo-Japan relations have all the potential to transcend this era into an ‘Asian century’.