Indo Japan Trade

8/8/2019 Indo Japan Trade

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Many centuries ago, India and Japan had begun exchange between them, when

Buddhism was introduced to Japan via the Korean Peninsula. However, Direct

exchange, began only in the Meiji era (1868-1912), when Japan started with its

process of modernization. From then on, bilateral relations developed around

Japanese purchases of cotton. India's friendship with Japan after the war helped a

great deal when Japan returned to the international arena.

Since 1952, Japan and India have maintained diplomatic relations and enjoyed

cordial relations based on trade and economic and technical cooperation. After

the WW II, the focus of Japan's economic relations with India switched from the

prewar import of cotton to the import of iron ore. Relations developed steadily as

Japan's imports of ore and exports of manufactured products increased.

Following Japanese Prime Minister Nobusuke Kishi's visit to India in 1957, yen

loans to India began in 1958, as the first loan aid extended by Japan.

In 1958 Japan participated in the Consortium Meeting of India's creditor countries

hosted by the World Bank and embarked on the full-scale assistance to India that

has continued to the present. Since fiscal 1986 Japan has been India's largest aid

donor. Japan and India have traditionally enjoyed cordial and friendly relations

and the feelings of Indian people towards Japan have been good. The number of

Jaanese nationals residing in India was 2,050 (Oct., 1999) while the number of

Indian nationals residing in Japan: 9,067 (Dec., 1999) is an indicator of

cooperation between the two nations. Bilateral relations between two countriesfaced delicate situation after India conducted underground nuclear tests in May

1998. Japan also took a series of measures in accordance with Japan's ODA

Charter. But both sides have been making efforts to understand each other

through dialogue the important partners in Asia.

Economic Cooperation between the two nations has been buoyant with Japan's

total loans to India amounting to $4,239.0 million in 2004, grant aid were of the

order of $ 399.2 million, while technical cooperation totalled to an amount of $

179.5 million.

Traditionally, Japan has been the second largest destination of Indian exports

(major exports include gems, marine products, iron ore, and cotton yarn). India is

also a major importer of goods from Japan, and its importance has been growing

in recent years (major imports include machinery, plant-related products,

transport equipment, and electronic machinery).


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Agreement on Commerce Between Japan and India (1958) was one of the

remarkable treaties signed by the two nations to strengthen their trade relations.

Japan-India Trade Talks on overall bilateral trade and investment began in 1978.

Since then many such talks have taken place. Besides, private sector forum such

as 'Joint Meetings of the Japan-India Business Cooperation Committee', which

holds annual joint meetings, promotes private-sector bilateral cooperation in

various economic fields as well as mutual understanding.

India is a first country to which Japan extended the first Yen Loan and India has

been one of the largest recipients of Japan's ODA. Japan has long been actively

providing assistance to India, primarily in the form of Official Development

Assistance loans, for upgrading of economic infrastructure, alleviation of poverty

through public health and medical care, agricultural and rural development and

population and AIDS countermeasures, support for small business and for

environmental conservation.

India has actively pursued economic liberalization and market oriented economy

since 1991. With India's push towards greater economic liberalization policies,

Japanese corporations' interest in India has risen, and private-sector investment

has increased dramatically and it is expected to rise further in future.

Closely linked to the prospect of FDI is the improvement of India's economicinfrastructure. In this respect too Japan has been helping India since 1958

through its Official Development Assistance (ODA) programme. ODA is provided

to infrastructural sectors like telecommunication, power and transport. Of

course, over the years ODA has expanded beyond infrastructure. Recent ODA

packages include just completed Delhi Metro Railway, Yamuna Action Plan and

some projects in the Power sector. Japan's assistance under ODA since fiscal

1990-91 to 2001-02 cumulates at 977.14 bn.

Majority of the Japanese companies surveyed said that they are making profits

and are "positively considering further expansion of their operations". However,

to many of them, the inhibiting factors are differences in business practices,

environment and culture etc but at the same time they are aware of India's huge

market potential, especially in IT and IT-related.

Japanese investors feel that availability of skilled manpower is a major

advantage enjoyed by India in attracting foreign investment into India but at the

same time a healthy market growth is also equally important.


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However, there is a lack of clarity in the policy guidelines. Also, most of Japanese

investors feel that ground level hassles like labour laws, taxes, legal and

regulatory framework are high in India. They consider procedural delays a major

discouraging factor for potential investors. The infrastructure forms the

backbone of development of any country. According to the majority of the

Japanese investors, overall infrastructure facilities are lacking in India. To attract

Japanese investment, Indian transport infrastructure needs improvement; power

facilities are below average. The telecommunication facilities are however rated

as "average". Japanese investment in India is driven by Indian domestic demand,

and that for reasons such as geographical factors, high tariffs and other

regulations, it would be difficult to expect the same level of growth as in Sino-

Japanese trade." The sectors that attract Japanese investment include

transportation (28 percent); telecommunications (18%), fuel (13.5%), chemicals

(12.17 percent) and trading (6 percent).

Although investments in IT and automobile industries are increasing, thanks to

deregulation, further economic reforms and deregulation are required to attract

foreign investment into India. "Specifically, the retail and real estate industries

are still closed to foreign investors, and respective deregulation measures are

urgently needed. It is absolutely necessary for India to take steps to strengthen

the competitiveness of Indian products and to improve the comprehensive

productivity through revision of the Labour Act, improvement of infrastructure

and individual private companies, of self-help improvement.

For Indian investors, investing in Japan is pretty alluring. Japan, the business hub

of Asia's growing economies is rated as world's second largest market. Apart

from highly skilled human resources, Japan offers innovative technologies. So far

as infrastructure back-up is concerned, the transportation network is rated as

one world's bests. Other advantages to work with Japan include world-class

information and communication technology ICT) facility, a highly reliable logistic

infrastructure and other investor-friendly facilities. Responding to economic

globalization, commercial laws and major elements of country's economic legal

framework have been reformed by the Japanese government.

It is significant to note that many a foreign companies doing businesses in Japan

have posted higher profit even than Japanese companies themselves. Japan has

identified four major areas of foreign investment, namely, ICT, Biotechnology,

Medical Care and Environment.

Indo-Japan bilateral development cooperation has seen remarkable and

progressive expansion in recent years. The Government of Japan provided Yen

1250.04 million for projects in FY 2003, in which India became the largest


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recipient of the Japanese ODA. Till the FY 2003-04, Japan has provided

approximately Yen 2193 billion on commitment basis as ODA to India.Japan plans

to start exploring for natural gas on its own in the area possibly in the summer

months (June-August) and embark as early as next year on joint exploitation of

natural gas led by the private sector, according to government sources. The

Japanese government will start selecting private contractors for drilling and

development of natural gas in the area. Natural gas from the field will be

supplied to India via pipeline and be exported to Japan as well.

Japan wants to diversify its sources of natural gas as it currently relies on imports

for 97 percent of its needs with Indonesia, Malaysia and Australia being the

major suppliers. The natural gas deal is also aimed at strengthening bilateral ties

as Japan's ruling party hopes to use its strong partnership with India for checking

China's increasing presence in western Asia. The deal also reflects a tie-up

between Japan and India in their bids to become permanent members of the

United Nations Security Council.

While Japan is implementing structural economic reforms, India is in the process

basic economic reforms. The Japan-India Joint Declaration of December 10, 2001

has set the ball rolling for things to shape up in Indo-Japanese relationship in the

21st century. To raise the bilateral relationship to a " qualitatively new level" is

the ultimate of the Joint Declaration. Stronger Indo-Japanese bilateral relations

would also mean a more stable and prosperous Asia. Broader and deepereconomic relations between the countries would form the cornerstone of this

bilateral relationship.

Both the countries are strongly committed to an "open and non-discriminatory

rule-based multilateral trading system". Indo-Japanese trade relations and

economic cooperation is going stronger by the years, though, if compared with

neighboring China's trade with Japan, India's share in Japan's total trade does not

give any impressive look. So also in the field of foreign direct investment. Japan,

which is the fourth largest investor in India itself, is not happy with this rate.India has to do a lot to create an investor-friendly environment through speedier

economic reforms and freeing the country from clutches of deregulation at the

earliest.

Recently, Indian commerce minister Kamal Nath has pointed out that the

emphasis of India-Japan bilateral trade should be foreign direct investment-based

and not official development assistance (ODA)-based.


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He said, "India is one of the largest ODA recipients from Japan. However, in the

changed context of our desire for seeking a new economic partnership, it is

important that we shift the emphasis of India-Japan relationship from ODA-based

to FDI-based," approvals of Japanese FDI in India during the period 1991-2004

have been in the order of $3.2 billion, which was around 4.8 per cent of total

Indian approvals for all FDI. But of this, the actual inflow of investment from

Japan was around $1.8 billion. He said Japanese investments in India are very low

despite a number of successful Indo-Japan ventures such as Suzuki-Maruti, Hero-

Honda, Toyota-Kirloskar.

Presently, Japan is the fifth major trading partner of India having a share of 3.1%

in India's total exports and imports2003-04 However, the figure is not very

encouraging; it was only $4 billion, which was traded between the two nations

during 2003-04, a growth of 18 per cent over what it was in 2002-03. there is an

immense scope for increasing the trade between the tow nations in the coming

years.

Another issue, which binds India and Japan together, is getting permanent

membership in the UN Security Council. In his visit to New Delhi, in late April this

year, Japanese Prime Minister Junichiro Koizumi may urge New Delhi to work out

a common bilateral approach for securing permanent membership in the UN

Security Council. With China clearly emerging as a stumbling block for Japan's

entry into the elite club, Japan feels it is important to make a concerted effortwith India.

The Japanese PM Junichiro Koizumi on his visit to India on 29th April 2005,

addressed the Indian business community to tap the tremendous opportunities

between the two countries. He charted a three-point agenda to strengthen

bilateral relations, regional cooperation and cooperation at global level.

Meanwhile, Japanese PM has agreed to give financial support in build $ 5 billion

rail corridor between New Delhi and Mumbai and Delhi and Hawrah to speed up

infrastructure in India. The corridor will allow multi-modal, high axle load freight

trains, with a fully computerized traffic control, to run from one end of the

country to another. The project will be under Japans Special Terms for

Economic Partnership (STEP) scheme.

The Indian and Japanese PM met on Friday and agreed to set up a joint Indo-

Japan study group to make economic relations stronger. The Japanese premiersaid that India is third important destination for Japan in Asia after China and


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Korea. He added, I hope other Japanese companies will share the success of

Suzuki and other companies that set up shop in India. Indian commerce

minister, Kamal Nath, said India and Japan could easily reach a trade level of $

10 billion within three years, though trade has been stagnating at $ 4 billion

annually for the past 8 years.

Japan wants India to be a more prominent Asian player when china is expanding

rapidly.

Indo Japan Trade

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