India-Japan ties offer strong trade opportunities

With a combined GDP representing 9.3 per cent of the global total in 2019, India and Japan with their human capital and technological prowess, respectively, are a global force to be reckoned with

August 10, 2020

There has been an 85 per cent jump in bilateral trade over the past five financial years to touch nearly US$17 billion in 2019-20

Japanese investment in India has been reported at US$3.2 billion in 2019-20, marking 4th-largest FDI equity inflow for the period

The Japanese presence in India spans across connectivity, energy, STEM and healthcare R&D, retail, precision manufacturing, etc

India was ranked as one of the most attractive investment destinations in a 2018 survey of Japanese manufacturing companies

With a combined GDP representing 9.3 per cent of the global total in 2019, India and Japan with their human capital and technological prowess, respectively, are a global force to be reckoned with. Over the past five years, the India-Japan relationship has steadily gained strength with new and expanded collaborations covering agricultural trade, precision manufacturing, workforce skilling, STEM R&D, and innovation to cultural and people-to-people exchanges. This has led to an 85 per cent jump in bilateral trade over the past five financial years to touch nearly US$17 billion in 2019-20. Japanese investment in India, meanwhile, was reported at US$3.2 billion in 2019-20, marking the fourth-largest FDI equity inflow for that period. In 2018, there were more than 1,400 Japanese companies registered in India – a 5 per cent y-o-y rise. On the other hand, the number of Indian firms in Japan has also risen, crossing 100. 

Today, Japanese presence in India spans across the sectors of automobiles and railways, nuclear power and renewable energy, STEM and healthcare R&D, retail and food processing, precision manufacturing, and metallurgy, among others. The wholesomeness of this bilateral engagement is now opening up new avenues of cooperation that will help both leading economies overcome future challenges and seize new opportunities. The partnership attains special significance in the post-COVID-19 economy. Beyond trade and investment ties, Japan has been actively involved in India’s economic development. While Japanese automakers were some of the earliest foreign investors in India, Japan has remained the largest donor for India since the 1950s. From energy security to infrastructure to skill development, financial and technological assistance from Japan has helped in boosting bilateral confidence. 

Promises of a rapidly-growing consumer base and a vast pool of human resources in India have driven Japanese business interests. Herein, the India-Japan Comprehensive Economic Partnership Agreement (CEPA), in effect since August 2011, has driven trade and investment as well as the movement of human resources and IPR. In the recent past, India-Japan cooperation had focussed on bolstering ties in the Indo-Pacific region; civil nuclear partnership; high-speed railway; economic collaborations; and cultural exchanges. Going ahead, this partnership has been envisaged to expand into defence and security; Indo-pacific connectivity; “Make in India;” environmental conservation; and Japanese language training. Building on past achievements, future cooperation between India and Japan will seek to encourage interaction amid stakeholders from Australia, the ASEAN, Africa, and North America. 

India was ranked as one of the most attractive investment destinations in a 2018 survey of Japanese manufacturing companies, conducted by the Japan Bank for International Cooperation (JBIC).

India-Japan Trade (2015-16 to 2019-20)

Year2015-20162016-20172017-20182018-20192019-2020
EXPORT4,662.853,845.734,734.224,861.734,519.79
%Growth
-17.5223.12.69-7.03
INDIA’S TOTAL EXPORTS262,291.09275,852.43303,526.16330,078.09313,217.25
%Growth
5.1710.038.75-5.11
%Share1.781.391.561.471.44
IMPORT9,850.229,754.6410,973.3512,772.6712,434.66
%Growth
-0.9712.4916.4-2.65
INDIA’S TOTAL IMPORTS381,007.76384,357.03465,580.99514,078.42473,988.29
%Growth
0.8821.1310.42-7.8
%Share2.592.542.362.482.62
TOTAL TRADE14,513.0713,600.3715,707.5717,634.4016,954.45
%Growth
-6.2915.4912.27-3.86
INDIA’S TOTAL TRADE643,298.84660,209.46769,107.15844,156.51787,205.55
%Growth
2.6316.499.76-6.75
%Share2.262.062.042.092.15

US$ Millions

Over the recent years, India’s primary exports to Japan have been petroleum products, chemicals, elements, compounds, non-metallic mineral ware, fish and fish preparations, metalliferous ores & scrap, clothing and accessories, iron and steel products, textile yarn, fabrics, and machinery, etc. Meanwhile, India’s primary imports from Japan are machinery, electrical machinery, iron and steel products, plastic materials, non-ferrous metals, parts of motor vehicles, organic chemicals, agri and food items, etc. In 2019, India supplied 0.8 per cent of Japan’s total imports and there remains scope to increase this.

Japan’s Global Trade (May & June 2020)

In May 2020 Japan exported ¥4.2 trillion (US$40.1 billion) and imported over ¥5 trillion. Between May 2019 and May 2020, the exports from Japan have decreased by ¥1.7 trillion (-28.3%), while imports fell by ¥1.8 trillion (-26.2%). The top exports from Japan were unspecified Commodities (¥292 billion), Cars (¥274 billion), Integrated Circuits (¥232 billion), Machines and apparatus of a kind used solely or principally in semiconductor boules or wafers, semiconductor devices, electronic integrated circuits or flat panel displays (¥182 billion), and Vehicle Parts (¥114 billion). Meanwhile, in May 2020, Japan’s top imports were Petroleum Gas (¥271 billion), Computers (¥191 billion), Telephones (¥176 billion), Integrated Circuits (¥166 billion), and Packaged Medicaments (¥159 billion), as per the findings of the Observatory of Economic Complexity (OEC) platform. In May 2020, while Japan exported mostly to China (¥1.13 trillion), United States (¥588 billion), Taiwan (¥359 billion), South Korea (¥329 billion), and Hong Kong (¥254 billion), the nation imported mostly from China (¥1.51 trillion), United States (¥578 billion), Australia (¥285 billion), Taiwan (¥237 billion), and South Korea (¥201 billion), as per the OEC.

In June 2020, imports to Japan plunged 14.4% y-o-y to ¥5.1 trillion, compared with market forecasts of a 16.8% slump and following a 26.2% in May, as per the findings of the Trading Economics platform. This marked the 14th consecutive month of a drop in inbound shipments, as purchases of electrical machinery fell 6.3%, led by semiconductors (-3.9%) and IC (-3.6%). Imports of others also dropped 7.7%, driven by scientific, optical instruments (-8.4%) and clothing (-17.1%), while those of mineral fuels plunged 48.7%. of which petroleum (-71.8%) and LNG (-10.6%). Arrivals of manufactured goods fell 8.1%, due to nonferrous metals (-9.9%), and those of transport equipment dropped 58.2%, of which motor vehicles (-69.2%) and parts of motor vehicles (-43.4%). Imports fell from Hong Kong (-77.5%), South Korea (-15.8%), Thailand (-16.7%), Indonesia (-27.4%), Vietnam (-12.8%), the US (-12.6%), Australia (-22%), Germany (-12.5%), the UK (-29.1%), United Arab Emirates (-72.9%), and Saudi Arabia (-63%). With Japan importing increasing volumes of medicaments, agricultural, and food items, India can emerge as the preferred sourcing destination for a variety of medicines as well as agricultural and processed foods.

Growing Scope of Bilateral Cooperation

India was ranked as one of the most attractive investment destinations in a 2018 survey of Japanese manufacturing companies, conducted by the Japan Bank for International Cooperation (JBIC). Apart from core business activities and sourcing of essential commodities, including food and agricultural items, Japan has been turning to India to meet its rising demand for labour across sectors that has led to collaborations in skill development. Meanwhile, strong bilateral exchanges in heavy industries have paved the way for the nations to jointly incubate grassroots entrepreneurship, be it an MSME or a digital startup. The India-Japan Digital Partnership (I-JDP), launched in 2018, has driven this initiative. Backed by growing capabilities in AI, IoT, automation, robotics, and other next-gen technology, India-Japan ties have now spread across rural empowerment to defence and security. 

Traditional linkages between the two nations, which go back 1,400 years, have steadily matured to cover every scope of equitable and sustainable economic growth. Building on this strategic partnership, the Governments of India and Japan held their first 2+2 Foreign and Defence Ministerial Meeting in New Delhi in November 2019. The vital consultation sought to discuss ways to jointly address the ongoing challenges to the sovereignty and territorial integrity in the Indo-Pacific region. Today, India-Japan leadership is actively driving efforts to usher in prosperity in the developing world, resolving challenges brought forward by COVID-19, climate change, disruptive technologies, and modern-day terrorism. In the future, the marriage of India’s human capital and Japan’s technological prowess will be the epicentre of sustainable global growth and trade will strengthen that growth.