The long-standing economic ties between India and Japan have got highlighted during the recent visit of Prime Minister Shinzo Abe. It has perhaps never metamorphosed into such a close personal relationship between the leaders of the two countries as was witnessed at the summit in Ahmedabad. The compelling visuals of the Japanese leader and his wife in Indian clothes, viewing historical monuments and sharing an apparently warm camaraderie with Prime Minister Narendra Modi, gives rise to expectations that ties will suddenly be upgraded dramatically. One needs, however, to take a reality check given the fact that there were scenes of equal warmth when the Chinese Prime Minister visited this country. Clearly, strategic interests outweigh personal rapport on the global stage.
As far as India and Japan are concerned, however, there has always been a hardheaded assessment of the economic relationship from both sides. It took Japanese companies a long time to come and invest in a significant manner in this country. It was only after liberalisation that many large companies shed their hesitation about entering the Indian market. No doubt, the big success of Suzuki in India played a major role in convincing many others to make an entry. Auto majors like Honda, Toyota and Nissan played it safe and launched ventures in this country only post-1991. Other leading Japanese companies like Mitsubishi and Mitsui became deeply involved in the infrastructure sector as the pace of development speeded up in this country. The Delhi Metro has been a showpiece of India-Japan cooperation but there are many other infrastructure projects where Japanese companies have played a stellar role.
In the context of the much-publicised easy interest rates on the loan for the bullet train project, it must be explained that these terms – 0.1 to 1.4 per cent – have been the norm for infrastructure lending through the Japan International Cooperation Agency (JICA). A 30 to 50-year time frame has also been usual for lending to big projects. There is, of course, the caveat that 30 per cent of project contracts will go to Japanese companies. The JICA incidentally is the largest international donor agency in the country. It has given loans worth Rs 1,50,000 crore since 2007-8 in the infrastructure sector, mainly in the area of transport.
At the same time, all has not been smooth sailing over the years as far as India-Japan economic ties are concerned. First, there was a blip when Japan imposed political sanctions following the nuclear explosion at Pokhran in 1998. Relations normalised after three years but it took a while for the chill to subside. Second, bilateral trade actually declined by 16 per cent over the past four years. Exports to Japan have almost halved from 6.81 billion in 2013-14 to 3.85 billion in 2016-17. Imports have also fallen from a high of $12.5 billion in 2012-13 to $9.63 billion in 2016-17. Bilateral trade has thus dipped from $18.6 billion in 2012-13 to $13.48 billion in 2016-17. This is in sharp contrast to India-China bilateral trade which stood at $61.3 billion in 2016-17.
Third, there was a phase in the last few years when Japanese companies began to avoid further investments in this country. This followed the acrimonious endings of the Tata-NTT Docomo and Ranbaxy-Daichi partnerships. The former issue is yet to be resolved largely due to bureaucratic regulations on the Indian side.
The current warmth being displayed at the summit meeting in Ahmedabad can thus be described as a new high point in relations between the two countries. It comes on the heels of the friction between India and China over the standoff at Doklam in Bhutan. Japan openly supported India in the spat and has thus incurred the wrath of its western neighbour, who is already miffed with India over the border episode. The growing closeness between India and Japan is being highlighted as a snub to China. Ironically, both India and Japan are probably more closely linked by economic ties to China than to each other. In fact, this high-level meeting is meant to be a major initiative to upgrade the India-Japan economic partnership significantly.
While it is the bullet train that has received the most publicity during Shinzo Abe’s visit, there is another agreement that may ultimately prove to be more important. And that is the one to set up four manufacturing institutes to train workers. Already the JICA is reported to be carrying out training programmes in the Northeast and such institutes could form a vital part of the skills development plan of the government that is aimed at improving the employability of youth in the country.
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