India's relations with Japan is likely get further fillip when Prime Minister Abe comes visiting India as the chief guest for this year's Republic Day festival. Not only is this the first time that a Japanese PM is the chief guest on Republic Day, but the visit assumes significance at a time when the world is slowly coming out of the financial crisis and the macro-economic foundations of both countries are being tested.
India and Japan have historically been friends, right from Japan's Meiji era through episodes in modern history, like the post-War period, up till today. The relationship has been underpinned by not just commerce but also a sense of like-mindedness with regards to world politics. Ties between the two got a further pragmatic and material boost during the post-Cold War period when Japan was faced with a rising China and a hostile North Korea, and India liberalised its economy and embraced globalisation. India has also received substantial Japanese Overseas Development Assistance since 1958, when economic cooperation between Japan and India formally began. However, the ties aren't limited to aid or assistance.
As it stands now, there is both untapped potential for cooperation as well as a scope for strengthening existing ties. And commercial and economic engagements should be at the heart of a 21st century Indo-Japanese engagement. Of course, strategic and geopolitical cooperation at the global high tables should continue to act as a major pillar of this growing bilateralism. Already, the two countries work together in the area of UN reforms. To boot, bilateral civil nuclear cooperation between the two is slow but steady.
Interestingly, Japan and India are facing two different kinds of economic predicaments. While Japan has suffered from deflation for more than a decade now, India in recent times has reeled under price rise. Under the so-called Abenomics, Japan has been seeking to undo the depression that has long befallen the ageing nation by engaging in massive quantitative easing that would inject liquidity into the system, boost demand, unleash investments, and drive up prices. It is in testing times such as these that mutual cooperation can actually benefit both countries. Currently, the areas of cooperation between India and Japan are varied and there's much potential for joint action.
On the strategic side of things, Japan's economic cooperation with India is also a hedge against a rising China which is a direct threat to Japan as also India, if to a lesser extent. The geopolitical strategy adopted by Abe also fits into Indian Foreign Policy approach of looking eastwards. Also the trilateral talks between US, India and Japan firmly counterbalances the Chinese aggressiveness in the region. Thus, with India-Japan ties poised to reach historical heights, Chinese aspirations to establish itself as a regional hegemon may not go unchallenged.
The Comprehensive Economic Partnership Agreement (CEPA) signed between India and Japan in 2011 has cemented ties between the two and given out a clear signal to the world about the seriousness of the relationship. Under the CEPA, tariffs have been slashed on more than 8000 products, including apparel, agricultural products and machinery, and also cover services, labour and investments. Of course, with the CEPA coming into effect in August 2011, it is too early to confirm its impact. But during the one year since the CEPA came into effect, India's exports went up by 24% while it imported 40% more from Japan. The estimated trade volume in 2014 is going to be $25bn, rising from $18.3 bn in 2013. As the figures demonstrate, India's trade deficit with Japan grew to somewhat uncomfortable levels following the CEPA and Japan seemed to benefit more. Of course, India is yet to realise the full benefits because as per the CEPA agreement Japan will eliminate tariffs on 97% of the items over a period of ten years.
While China's trade volume with India far surpasses Indo-Japanese trade, Japanese commercial ties with India are deep-rooted and go beyond just trade. And with Abe and Singh's personal investments into the relationship, and the rapport that they share, ties are decidedly headed in the right direction.
Japanese firms' interest in India is no new thing. For long, the Sonys and Suzukis were India's household brand names. Indo-Japanese cooperation in electronics received a boost in recent times when Japanese firms started to look beyond China, even as it deals with a huge loss in market share to South Korean and Taiwanese firms. But Japanese technology remains dear to India and India's market size, rapid economic growth and rising demand for consumer durables continue to attract Japanese firms, many of which in 2013 announced massive investments in India to set up manufacturing plants and undertake product innovation tailored for the local market.
Japanese economic cooperation in India ranges from ODA loans to investments by Japanese firms and beyond, and what's been particularly heartening is Japan's assistance in India's infrastructure. It is no secret that India needs to pump in heavy investments to beef up its crumbling infrastructure. The government in fact has articulated the need for a trillion dollars of investments. Japan has strongly chipped into this effort and its cooperation reflects the growing responsiveness of Japan to India's needs. Of course there are gains for Japan too, as Japanese firms are entering into profitable joint ventures with Indian companies. And with Japan's capacity to invest in capital-intensive long gestation projects, it might be just what the doctor ordered for India. And Japan.
Buoyed by the incredible success of the Delhi Metro, which was largely funded by low cost loans from Japan International Cooperation Agency (JICA), Chennai Metro Project too is funded by Japan and is a potential shining example of Indo-Japanese commercial, infrastructural and technical cooperation. That the thrust of JICA's activities is on India is borne out by the fact that over 50% of the value of all JICA projects in South Asia is cornered by India. The projects are all in strategic sectors that offer Japanese companies a strong business opportunity. It's a win-win partnership that one hopes will be further fortified by Abe's visit this Republic Day.
(The writers are researchers with Observer Research Foundation, Delhi)
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