The Hindu Business Line : India-Japan ties

A new beginning towards upgrading Indo-Japanese ties seems to have been made during Dr Manmohan Singh's recent visit to Japan that resulted in the unfolding of a roadmap to transform the low-key relationship into a major strategic partnership.

THE DELHI METRO... Japan has promised to invest in the second phase of the metro project. — R. V. Moorthy

There is reason to believe that the recent four-day visit of the Prime Minister, Dr Manmohan Singh, to Japan will help in heralding a new era of special partnership between the two countries. The time now seems most opportune to benefit from the complementarities prevailing in both the economies in several areas. While the Japanese economy has come out of the decade-long recession, the Indian economy has entered a higher growth trajectory.

Recognising that Asia is now emerging as the leading growth centre of an increasingly interdependent global economy, the two countries have expressed their desire to pursue a comprehensive economic partnership in the region. Both the sides feel that the levels of engagement between the countries need to be enhanced and synergy achieved in policy and implementation.

A NEW BEGINNING

Though the bilateral relations between India and Japan commenced over half a century ago, somehow they continued to remain lukewarm. Following the 1998 Pokhran nuclear tests, Japan imposed sanctions against India and suspended its ODA (Overseas Development Assistance). The relations began to improve gradually after 2000, thanks to the visits of two Japanese Prime Ministers to India — Mr Yoshiro Mori in 2000 and Mr Junichiro Koizumi in 2005. And India's former Prime Minister, Mr Atal Bihari Vajpayee, visited Japan four years ago.

However, a new beginning towards upgrading ties and enhancing the quality of economic partnership in a true sense seems to have been made during Dr Manmohan Singh's recent visit that resulted in the unfolding of a roadmap to transform the low-key relationship into a major strategic partnership.

As many as 12 agreements were signed covering diverse areas, including trade and investment, technology, defence, infrastructure, energy and human resource development.

What is more, the countries laid out an action plan to ensure timely implementation of the plans. At their summit meeting in Tokyo, Dr Singh and the Japanese Prime Minister, Mr Shinzo Abe, announced a Japan-India Special Economic Partnership initiative to promote larger investments from Japan and help India develop its infrastructure and manufacturing capacity.

BILATERAL TRADE

Bilateral merchandise trade between India and Japan was only $6.5 billion in 2005-06 — exports from India $2.5 billion and imports from Japan $4 billion. Japan's share in India's trade basket was a mere 2.59 per cent during the year.

This is much below the potential considering that India-China trade is three times this level while India's trade with South Korea is equal to that with Japan. How insignificant the trade volume between India and Japan is can be gauged from the fact that it is $184 billion between Japan and China.

Trade statistics reveal that between 1993-94 and 2003-04 Japan slid from being India's third largest trading partner to its sixth export destination and seventh import source.

It is in this context that Dr Singh expressed surprise about Japan losing ground in India during the 1990s to other East Asian and South-East Asian economies, both in terms of trade flows and foreign investment flows. This is despite India emerging as the top recipient of ODA from Japan, receiving $1.04 billion last year.

According to a study by the Federation of Indian Chambers of Commerce and Industry (FICCI), India's exports to Japan have remained confined to gems and jewellery, marine products, minerals, iron ore and textiles, while imports consist of machinery, transport equipment, electronic goods and textiles.

Unless this imbalance is rectified by diversifying Indian exports to Japan, it may not be possible to provide a big push to the bilateral trade between the two countries.

To provide a new thrust to bilateral trade, Japan and India have now agreed to begin talks on forging a bilateral trade agreement within two years; the move is expected to bring together Asia's biggest economy and its second most populous nation. It is seen as apart of the new Japanese Prime Minister's desire to deepen ties with India which has now emerged as one of Asia's fastest growing economies.

Investment flows from Japan over the past 15 years have also been insignificant. Between 1991 and 2006, Japanese companies invested just about $2.15 billion or about six per cent of the total FDI flows into India. During 1993-2003, Japan's total FDI averaged $50 billion a year, of which, India received only $220 million a year or less than one-fourth of one per cent. Even at the regional level, India received just two per cent of Japanese FDI while China's share was 10 times higher at 22 per cent.

However, very soon there may be a quantum jump in Japanese investments in India with promised investments in the second phase of the Delhi metro, the Delhi-Mumbai and Delhi-Kolkata freight corridors, the Delhi-Mumbai industrial corridors, the development and setting up of integrated transport projects to connect railways to ports and airports and special economic zones. Japan will also help in setting up some of the power projects.

Dr Singh stated that India would require $500 billion over the next five years ($320 billion in infrastructure alone). He invited Japanese companies to seize the opportunity with an assurance that "all legitimate concerns" of investors would be addressed. "An economically resurgent India offers a variety of investment opportunities, both in traditional and new sectors, in labour-intensive and knowledge-based industries," said Dr Singh.

NEW AREAS

To upgrade the level of partnership from low-key to a comprehensive and strategic one, the two sides have agreed to launch negotiations towards a Comprehensive Special Economic Partnership Agreement (CEPA). The CEPA concerns not just freeing trade but also facilitating the exchange of services such as software and banking, promotion of investment in either country by removing discrimination against foreign investors, the protection of intellectual property rights, etc.

There is vast scope for collaboration in a host of new areas, such as biotechnology, agriculture, hydrocarbon fuels, and information and communication technology. Japan has agreed to help in the development of Indian Institute of Information Technology for Design and Manufacturing at Jabalpur and setting up of an IIT with Japanese collaboration. It will also help in setting up of Japanese language teaching cells at seven IITs and centres of Japanese studies at select Indian universities and institutions.

The Confederation of Indian Industry (CII) has sought the support of the Japanese industry for upgrading the technology and competitiveness of small and medium enterprises (SMEs). This could be done through technical collaborations for training in India, support of SME clusters in hi-tech units, building deeper integration between institutes for industrial research and helping units in quality management.

JETRO (Japan External Trade Organisation) has agreed to participate in the upgradation of Industrial Training Institutes (ITIs) in India. This is important considering the emerging shortage of skilled manpower in the country following the resurgence of manufacturing.

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