India and Japan: a special relationship

Why trade and investment links between India and Japan may soon be on the up

The relationship between India and Japan may not be an obvious one, if you look at the trade statistics, but things could be about to change in a big way.

The relationship between the two countries has been upgraded to a ‘Special Strategic Global Partnership’, which will see Japan play a much more important role in India’s growth and development

It was highly significant that Prime Minister Narendra Modi made Japan the destination of his first overseas visit last year, as part of his quest to build greater ties with countries beyond the sub-continent.

Revitalising trade

Modi’s Make in India campaign has been front and centre of discussions with Japan – a relatively low number of Japanese companies operate in India today, fewer than in Thailand.

Modi’s declarations that “There is no better place than India for Japanese investors” and “India is one of the most competitive markets in the world” were aimed at revitalising declining trade between the two nations.

Currently, India ranks only 20th as a destination for Japanese exports and accounts for just 1.5 per cent of Japan’s foreign direct investment, according to a recent Economist Intelligence Unit report.

Japan’s pledge

The declarations appear to have worked: Japan’s Prime Minister – Shinzo Abe – pledged USD33.5 billion of public and private investment and financing, including overseas development assistance, doubling Japanese foreign direct investment and the number of Japanese companies in India over the next five years.

Japan’s track record of channelling long-term, low-cost funds into infrastructure projects overseas is well-aligned with India’s needs. Take Modi’s vision of providing 24-hour electricity by 2019. USD250 billion worth of investment is needed to turn this into reality, and as demonstrated by Prime Minister Abe’s substantial investment promise, Japan wants to help.

With India’s rising middle class of 600 million keen to spend, this isn’t really all that surprising. For the many Japanese consumer goods and financial services companies, the opportunity is nothing short of huge.

The appetite for stronger ties between Japan and India was apparent at a recent Standard Chartered event attended by 100 of our Japanese clients. The companies were eager to understand the best way to do more business with one of the fastest growing economies in Asia.


Expediting Japanese investment

Many Indian companies have been waiting for the right opportunity, and it looks like that time could be soon: India has set up a special committee of officials to expedite Japanese investment into the country.

Modi’s historic visit with Abe shows that India’s special relationship with Japan has been reborn. Now it’s a case of when, not if, trade between the two nations is reignited.