It’s win-win for India and Japan

Japanese Prime Minister Yoshihiko Noda arrives in New Delhi today to participate in the Sixth Annual Summit between the two countries. The visit comes at a crucial juncture in contemporary geopolitics. It closely follows the first trilateral meeting between the United States, India and Japan held in Washington, DC on December 19. The Washington meet was clearly aimed at containing China, which is being perceived as becoming increasingly aggressive in the Indo-Pacific, a region of great significance to the three countries. Further, the death of Kim Jong Il, the North Korean leader who led the country to become an intimidating nuclear power, has led to further uncertainty in the region.

With the West reeling under severe financial crisis, Asia is being looked upon as the propeller of the global economy. It now accounts for 35% of the world’s GDP, up from less than 20% in 1980. Over the last 30 years, developing Asia has surpassed the rest of the world in recording a phenomenal GDP growth of 7.2 per cent. Japan perhaps may well be the fastest growing developed economy in 2012.

India and Japan have strengthened bilateral relations in recent years through new initiatives in the spheres of economic and cultural linkages to defence and security co-operation. It is hence no surprise that Japan and India’s leaders will devote considerable attention to reviewing this Strategic and Global Partnership. The two have shared interests in maintaining the security of sea lanes from Djiboiti in the Horn of Africa to Port Blair all the way up to the East China Sea. Cooperation for fighting international crime, terrorism, piracy and proliferation of weapons of mass destruction is of vital importance to them.

On the economic front, under the India-Japan Strategic and Global Partnership, the two sides have launched a Special Economic Partnership Initiative, which has several high-visibility flagship projects like the Western Corridor of the Dedicated Freight Corridor to be partially funded by Japanese soft ODA loan and the Delhi-Mumbai Industrial Corridor (DMIC), whose project development is to be partially funded by Japan. The DMIC, projected to attract about $92 billion in foreign investment, will be built around the DFC. A consortium of Japanese private sector companies is collaborating with the DMIC Development Corporation as well as the governments of the concerned states, in developing eco-friendly townships in the DMIC zone using Japan’s best practices.

A Comprehensive Economic Partnership Agreement was signed by commerce minister Anand Sharma and the then Japanese foreign minister Seiji Maehara on February 16 in Tokyo. The CEPA is one of the most comprehensive of all such agreements concluded by India. It covers more than 90% of the trade, a vast gamut of services, rules of origin, investment, intellectual property rights, customs and other trade related issues.

However, despite these initiatives, economic ties between India and Japan have been far below their potential. Though Japan had been one of the top five investors in India for long, its share in India’s total FDI inflows has been dwindling since 2000. Other countries have surpassed Japan in terms of their investment and market share in the Indian economy. Trade between India and Japan ($13,823 million in 2010-11) has risen in the last five years, but the figure still remains way below China-Japan trade ($2,97,193 million in 2010) or even trade between India and China ($63,095.61 million in 2010-11). Japanese investments account for just 4% of the total FDI flows into India. According to JETRO, during January-March 2011, India received $289 million worth of Japanese FDI, which is a 36.3% decline over the same period last year. As per the suggestions by the Japan Chamber of Commerce and Industry in India to the Indian government, poor infrastructure, taxation system, procedural hassles in customs clearance, and red tapism are important factors deterring Japanese investment in India.

How the two countries deal with this challenge would be the litmus test of the envisioned strategic partnership. Enhanced trade and investment relations between Japan and India can act a counterbalance to the growing influence of China. Stronger economic ties with Japan would also help India establish its presence in East Asia and get market access for its exports through Japan’s bilateral agreements with other countries in the region. India and Japan, the two major Asian democracies, need each other as partners not only to deal with rising China but also for achieving the larger goal of community building in the region.

With no historic baggage to jeer them, it is only thumbs up to India-Japan partnership.