India - Japan Relations

• Recently PM visited Japan for 2nd in person Quad summit.
• Launched new initiatives under the Quad and also participated in launch of IPEF.

Areas of cooperation

• Special Economic Partnership Initiative (SEPI): inked during Prime Minister Manmohan Singh's 2006 visit. Main elements:
  • Dedicated Freight Corridor-West (DFC-W) project,
  • Delhi-Mumbai Industrial Corridor (DMIC) project,
  • Establishment of multi-product special economic zones/clusters,
  • Free trade and warehousing zones at select locations, and
  • Encouraging Japanese investment in India through assistance in the development of infrastructure related to SEZs
  • Industrial estates
• Act East Forum: established to give ODA(Official Development Assistance) for the development of the north eastern states.
• ODA: India continues to be Japan's top beneficiary of official development assistance (ODA).
• Smart community initiatives: seawater desalination project, model solar project, and gas-fired independent power producer (IPP) projects in Gujarat (Dahej), Rajasthan (Neemrana), and Maharashtra.

Trade

• Indo-Japan CEPA 2011: signed to eliminate tariffs on 90 percent of Japanese exports to India such as auto parts and electric appliances and 97 percent of imports from India, including agricultural and fisheries products, until 2021.
• Bilateral trade: $ 13.66 billion in 2021-22
• Exports from India: 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
• Exports from Japan: machinery, electrical machinery, iron and steel products, plastic materials, non-ferrous metals, parts of motor vehicles, organic chemicals, manufactures of metals, etc.
• Bilateral Swap agreement: held between RBI and the Bank of Japan to address short-term liquidity difficulties, financial market stability, and bilateral trade support

Investment

• FDI: Japan is the 5th largest investor in the Indian economy with cumulative FDI inflows of $35.98 bn during April 2000 and June 2021, contributing nearly 6.58% to India's total FDI inflows.
• Sectors of FDI investment: automobile, electrical equipment, telecommunications, and chemical and pharmaceutical sectors. Eg. Suzuki.
• Japan Plus: formed by Indian government in October 2014 to promote Japanese investment and help Japanese enterprises in India.
• Bullet train project: connecting Mumbai and Ahmedabad is partially funded by Japan.

Special strategic and global partnership:

• To work together for Peace and Prosperity of the Indo-Pacific Region and the World
• Afro-Asian sea corridor project: between India, Japan and multiple African countries for Indo-Japanese collaboration to develop quality infrastructure in Africa, complemented by digital connectivity, which would undertake the realisation of the idea of creating a free and open Indo-Pacific Region.
  • Priority sectors: health and pharmaceuticals, agriculture and agro-processing, disaster management and skill enhancement
• Quadrilateral Dialogue (Quad): informal strategic dialogue between the United States, Japan, Australia, and India that began in 2007 and was resurrected in 2017. (2nd In-person Quad summit hosted by Japan)
• Acquisition and Cross-Servicing Agreement: to allow the militaries of the two countries to exchange supplies and services on a reciprocal basis during exercises in which both participate
• Defence Exercises
  • Exercise Malabar: joint military exercise of Quad members
  • JIMEX: Japan-India maritime exercise (JIMEX)
  • SHINYUU Maitri: joint exercise between Air Forces
  • Dharma Guardian: joint army exercise

Strategic

• 2+2 Dialogue: among foreign and defence ministers of both countries to strengthen their global alliance.
• Trilateral dialogue: between India, Japan, and Australia for the Indo-Pacific area to develop an open, inclusive, stable, and transparent economic, political, and security architecture.

Political cooperation:

• UNSC: India and Japan along with Germany and Brazil (G4 countries) are supporting for reforms in the United Nations Security Council (UNSC) to make it more "legitimate, effective and representative".
• Support for development of South Asian nations: Japan’s “India-plus” Strategic Engagement with South Asia.

Cultural

• Restoration of Nalanda university: a Japanese delegation suggested to raise funds and provide other assistance for the reconstruction of the world-famous historical Nalanda University into a significant international educational institution in April, 2006
• Japan has offered aid for maintenance and restoration of Ellora and Ajanta cave.

Challenges/Issues

Trade/Investment Obstacles

• CEPA has produced limited results: India Japan trade has not produced the anticipated results in spite of CEPA.
• In 2011-12, the total volume of bilateral trade was $18.43 billion, but it declined to $13.48 billion during 2016-17.
• Trade with China: India-Japan trade is still only $15 billion In comparison to China's $300 billion in commerce
• Ease of doing business issues: Investors in Japan complain about a lack of clarity in policy guidelines, labour regulations, tax laws, and the legal and regulatory environment.
• Divergent interests in economic issues like RCEP, e-commerce: Both had diverging interest with respect to economic issues like on E-commerce rules (Osaka track), Regional Comprehensive Economic Partnership etc.

Asia-Africa Growth Corridor (AAGC) project

• Uncertainity about the AAGC's viability as well as the nature of the projects that are part of it
• No concrete action on projects like Asia Africa Growth Corridor, despite it being signed in 2017.
• China factor: Both countries do not have a specific China policy. Despite, converging interests of Japan, India, trade with China represents more than 20% of Japan's total trade.
• Civil nuclear agreement divergent approaches: India is in a dire need to augment its energy resources. Japan has delayed the cooperation agreement with India because it has not shared its nuclear technologies with any country that is not a signatory of the nuclear non-proliferation treaty (NPT).

Recent Developments Between India and Japan

• Supply Chain Resilience Initiative (SCRI)
• Partners: India, Japan, and Australia
• Aim - to fight China's supply chain dominance in the Indo-Pacific region
  • to build a virtuous cycle of supply chain resilience in the region
• Critical Infra Projects: Japan has approved a total of 233 billion yen in loans and grants for various critical infrastructure projects in India including one in the Andaman and Nicobar Islands.
• Acquisition and Cross-Servicing Arrangement: signed in 2020 will allow military forces to interact closely in terms of services and supplies
• Launch of IPEF(Indo-Pacific Economic Framework)
  • The Quad leaders during 2nd Quad summit launched IPEF
  • The IPEF involves countries of the Indo-Pacific region which includes the USA, India, Japan, Australia, Brunei, Indonesia, Republic of Korea, Malaysia, New Zealand, Philippines, Singapore, Thailand, and Vietnam.
  • The IPEF seeks to strengthen economic partnership amongst participating countries with the objective of enhancing resilience, sustainability, inclusiveness, economic growth, fairness, and competitiveness in the Indo-Pacific region.
• 2nd Quad summit hosted byJapan
  • Launch of Quad fellowship for 100 students, 25 from each country to pursue masters and doctoral degrees at leading STEM graduate universities in the US.

Way Forward

• India-Japan Investment promotion partnership: it should be taken forward for mutual progress of both nations
• Ageing population of Japan and surplus labour from India: Japan can utilise abundant young labour from India to overcome the challenge of labour deficit due to ageing population
• Continuation of balancing security policy
  • Both countries must assess the current condition of their security partnership while also pushing the boundaries of their still-developing defence technology and export cooperation
• Increasing cooperation in various sectors
  • Both countries can cooperate In areas like cybersecurity and emerging technologies
  • There is a need to strengthen collaboration between research institutes and increase funding in light of China's aforementioned technological investment initiative
  • Defence ties need to be strengthened. More defensive equipment and technologies should be exchanged.
• Joint strategy toward key third countries
  • Both countries should work together in third countries to counter China's expanding influence
  • Significant examples of it are infrastructure development projects in Iran and Africa

Exams Takeaway

• Quad
• IPEF
• Supply Chain Resilience Initiative (SCRI)
• Defense exercises
• G4

Mains Question

Q. The bilateral trade between India and Japan has not reached its desired potential. Discuss the challenges and opportunities in light of recent developments in relation.