India-Japan Economy and Investment Forum

Syllabus: GS2/IR

Context

• India-Japan Economy and Investment Forum was held recently.

About

• Concerns Over Trade Surplus: Union Minister Piyush Goyal expressed concerns over Japan’s growing trade surplus with India.
• Stagnant Exports: India’s exports to Japan have remained stagnant for the past 15 years.
  • Many Japanese investments in India source products from countries like Korea, Japan, Taiwan, and China, using India mainly as a market for their goods.
• Rising Japanese Exports: Japanese exports to India have consistently increased, worsening the trade imbalance.
• Focus on Addressing Imbalance: The Union Minister highlighted the need to address this growing disparity in trade between the two countries.
  • He urged Japanese companies to produce goods and services in India that can be exported to Japan, aiming to balance the trade relationship.

Brief on India and Japan Relations

• Historical and Cultural Ties: Both countries share spiritual and cultural traditions, such as the influence of Hinduism on Japan’s Seven Lucky Gods and historical connections like the 752 AD consecration of Lord Buddha’s statue by Indian monk Bodhisena at Todaiji Temple in Japan.
• Establishment of Relations: After WWII, India opted for a separate Peace Treaty with Japan, signed in 1952, marking the start of formal diplomatic relations.
• Strategic Synergy: Both nations align on key regional initiatives, such as India’s Act-East Policy, Indo-Pacific vision (SAGAR), and Japan’s Free and Open Indo-Pacific Vision.
• Trade and Investment:  Japan is a key ally in India’s economic growth, with FDI from Japan exceeding $43 billion from 2000 to 2024, making it India’s fifth-largest source of foreign investment.
  • In 2023-24, the country’s export to Japan was $5.15 billion and imports were $17.7 billion. The trade gap was $12.55 billion.
• Collaboration on Global Initiatives: Japan and India cooperate in initiatives like the International Solar Alliance (ISA), Coalition for Disaster Resilient Infrastructure (CDRI), and Leadership Group for Industry Transition (LeadIT).
  • Both countries work together in multilateral frameworks like the Japan-Australia-India-U.S. Quad and the India-Japan-Australia Supply Chain Resilience Initiative (SCRI).
• Integral Defense Partnership: India-Japan defense cooperation is a key pillar of bilateral ties, focused on Indo-Pacific peace, security, and stability.
  • Key Agreements:
    • Joint Declaration on Security Cooperation (2008).
    • Memorandum of Defense Cooperation (2014).
    • Agreements on Defense Equipment & Technology (2015) and Protection of Classified Military Information (2015).
    • Reciprocal Provision of Supplies and Services Agreement (2020).
  • Exercises and Joint Activities: Maritime Exercise Malabar.
    • First Bilateral Fighter Exercise, Veer Guardian, in Japan (2023).
    • First-ever Army-to-Army Exercise Dharma Guardian held in Japan ( 2023).
    • Exercise Shinnyu Maitri between IAF and JASDF.
    • JIMEX joint Naval Exercise between two nations.
• Connectivity Projects in India: The first High Speed Rail (HSR) corridor is being implemented from Mumbai to Ahmedabad with technical and financial assistance from Japan.
  • Presently, six Metro Rail projects (Ahmedabad, Bangalore, Chennai, Delhi, Kolkata, Mumbai) are being implemented with technical and financial support from Japan.
• Space Collaboration: ISRO and JAXA collaborate in X-ray astronomy, satellite navigation, lunar exploration, and the Asia Pacific Regional Space Agency Forum (APRSAF).
  • In 2016, they signed a Memorandum of Cooperation (MoC) for peaceful space exploration and use.

Challenges 

• Trade Imbalance: There is a significant trade imbalance, with Japan exporting more to India than India exports to Japan, creating a need for better reciprocal trade.
• Geopolitical Tensions: Regional security issues, such as China’s influence in the Indo-Pacific, pose challenges for India-Japan relations, requiring careful diplomatic balancing.
• Cultural and Language Barriers: Despite strong ties, differences in language, culture, and business practices pose challenges to deeper integration.
• Limited People-to-People Exchanges: The scale of people-to-people interactions is still limited, impacting deeper mutual understanding.
• Infrastructure Constraints: Despite improvements, some areas in India still lack the infrastructure necessary to support large-scale Japanese investments effectively.
• Different Economic Priorities: India’s focus on rapid economic growth may sometimes contrast with Japan’s emphasis on sustainable development and technology.

Way Ahead

• Enhance Trade and Investment: Focus on reducing the trade imbalance by increasing Indian exports to Japan and encouraging Japanese investment in India’s manufacturing and technology sectors.
• Boost People-to-People Connections: Increase cultural exchanges, tourism, and educational collaborations to deepen mutual understanding.
• Technology and Innovation Partnership: Leverage Japan’s expertise in technology and India’s growing digital sector to collaborate in AI, robotics, renewable energy, and space exploration.
• Address Environmental Concerns: Increase cooperation on environmental sustainability, climate change, and disaster resilience to support both countries’ green energy goals.

Source: PIB