Event ReportsPublished on Mar 20, 2021
Japan wants to assist India to improve the investment climate to attract more FDI so that New Delhi can be linked more closely with Japan–ASEAN-based supply chains.
Cooperation between Japan and India from the perspective of geoeconomics in the intensifying US-China hegemony competition

The Japan Forum on International Relations (JFIR) and Observer Research Foundation (ORF) on 16 March 2021 held a virtual seminar on ‘Cooperation between Japan and India from the Perspective of Geo-economics in the Intensifying US-China Hegemony Competition.’

Terada Takashi, a Distinguished Research Fellow at JFIR and Professor at Doshisha University was the chair for the two sessions. Masahiro Kawai, another Distinguished Research Fellow at JFIR; Professor Emeritus, The University of Tokyo, delivered his key note speech emphasising on India–Japan Economic Relationship: Importance, Challenges, and Prospects. His deliberations emphasised the importance of India from a Japanese perspective. Both the nations share common values of democracy, rule of law, and human rights. In this regard, he highlighted the strengths within the nation which Japan is interested to capitalise. India is a lucrative destination comprising of English-speaking IT youth who Japanese firms will be interested to employ. In addition, Japanese firms are attracted towards digital transformation within Indian markets. India also has strength in the pharmaceutical markets, especially in terms of generic medicines and has a major role to play in manufacturing a vaccine against COVID-19 with Japanese financial assistance. India, as an important neighbour of the Mekong subregion has been trying to strengthen connectivity within the subregion and ASEAN as a part of the Act East Policy. Japan has great interest to promote South Asia-Mekong connectivity and for this purpose supports multilateral initiatives for instance, BBIN, IMT, SASEC, and BIMSTEC. Japan is also interested in cooperating with India in assisting India’s neighbouring countries through high quality infrastructure investment, particularly to ensure these countries debt sustainability.

Japan wants to assist India to improve the investment climate to attract more FDI so that New Delhi can be linked more closely with Japan–ASEAN-based supply chains. Additionally, India needs to invest more in domestic infrastructure. Dr. Kawai concluded by stating that more efforts are needed to nurture a better understanding with each other through economic, socio-cultural, and various types of people to people exchange programs and dialogues.

Dr. Titli Basu, Associate Fellow, at the East Asia Centre, Manohar Parrikar Institute for Defence Studies and Analyses (MP-IDSA) centred her discussion on three points. Firstly, she emphasised on Tokyo’s approach through the push for quality infrastructure financing, championing trade liberalisation and data governance. Tokyo remains an indispensible player in economic modernisation of India. The latter is also underscoring the need of accelerating structural reforms within its financial institutions to boost its competitiveness within the region.

Secondly, Japan has established a new division within its National Security Secretariat (NSS) to focus on economic statecraft, primarily in response to China’s growing geoeconomic influence in Asia. The purpose of the unit is to coordinate government policy on issues including infrastructure investment, the protection of sensitive technology and the proliferation of digital currencies created by China and commercial actors. However there remains a gap. Despite there being policy consensus regarding tough Chinese stance within Washington and its allies, there have been differing economic interests with China, for instance the EU–China Comprehensive Agreement on Investment (CAI) or greater integration with China through the Regional Comprehensive Economic Partnership (RCEP). According to several reports, even during the pandemic, China has been the leading recipient of FDI. It is the largest trading partner of Europe, and ASEAN has also become the largest trading partner of China for the first time. It may be safe to confer that China is going to be an important component to drive the post-COVID economic recovery.

Thirdly, strategic risk management in supply chain in key sectors, for instance, technologies, resource security, digitalisation, and strategic infrastructure is vital. Supply chain conversion in Japan is under the China plus one model; however, restructuring of supply chain is in the backdrop of altering the cost structure in various countries and rapid deployment of digital technology in manufacturing. While Australia-Japan-India supply chain is being initiated it is dependent on a host of factors like economic rationale of cost competitiveness, market, and economic efficiency. This initiative is driven more by geopolitical realities and thus, businesses need to be incentivised. Japan in this respect has introduced subsidy package from Japanese government in terms of reshoring manufacturing back to Japan adding Southeast Asian countries, especially Bangladesh and India. However, the onus lies on India to attract Japanese companies seeking alternatives to China. Despite the size of Indian market, the manufacturing cost is relatively higher along with other logistical, infrastructure, and regulatory costs. Thus, certain policy measures need to be chalked out to leverage Indian markets for Japanese companies. In terms of progress in geoeconomic, connecting the growth poles in key subregions of Indo-Pacific will remain the key.

In the next session, Akshay Mathur, Director, ORF Mumbai; Head of the Geoeconomics Studies Programme, ORF, provided his observations from an Indian geoeconomic perspective. He pointed out that Indo-Pacific has developed as a key strategic construct due to the geopolitical developments in the Indo-Pacific region. However, there is a need for a new economic construct for the Indo-Pacific region that looks beyond China. The Indo-Pacific is a formidable space of geoeconomically powerful cities such as Singapore, Hong Kong, Shanghai, Shenzhen, Sydney, Dubai, and Tokyo. Mumbai has an opportunity to position itself as a vibrant centre of geoeconomics for the region. Thus, in this respect, Tokyo and Mumbai can jointly collaborate as financial centres for the larger Indo-Pacific interest owing to shared trust, regulatory system and history. To achieve such a state, the Indian markets must play a larger role to leverage such opportunities. On the point of growing India–Japan geo-economic cooperation, it was stressed that both the nations will need to work closely to develop financial institutions, instruments, and intermediaries.

The last speaker, Dr. Nagao Satoru, Specially-appointed Research Fellow, JFIR; Fellow at Hudson Institute, in his deliberations provided an overview of US–China relations. As elaborated by him, United States of America as a more prominent power within the region has higher GDP than China, thereby, investing more in its research and development as well as military. Additionally, while India and Japan should be aware of this geopolitical dimension, their welfare-related collaborations with United States should also be given precedence.

In conclusion, the two-hour long virtual discussion noted that comprehensive integrated approach is required to look at geoeconomic dimensions of the India–Japan relations.

This report was compiled by Sreeparna Banerjee, Junior Fellow, ORF Kolkata
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