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The determined effort by India and Japan to inject life into their bilateral relationship is showing positive results. The meeting between Prime Minister Manmohan Singh and Japanese premier Yoshihiko Noda, the sixth of the annual India-Japan summits, is a marker of the steady progress. It yielded the first official confirmation since Japan's devastating tsunami-earthquake-Fukushima meltdown that the country has not shut the door on a civilian nuclear deal with India. While Mr. Noda stressed the importance of learning the right lessons from Japan's nuclear accident, it appears that negotiations on a deal to assist India develop peaceful nuclear energy will continue.
His pledge of $4.5 billion over the next five years for the development of the Delhi-Mumbai Industrial Corridor, a commitment of financial assistance for two more infrastructure projects — Phase 3 of the Delhi Metro and a biodiversity conservation project in West Bengal — and his interest in sharing high-speed railway technology with India are significant. Japan's enhancement of its currency swap arrangement from $3 billion to $15 billion will help India better manage the rupee's slump against the dollar. This should also boost financial cooperation and economic and trade ties, which are currently far below potential. The Indian side wants more Japanese investment. For its part, Japan, which has just lifted a longstanding ban on the export of weapons, will be looking to sell defence hardware to New Delhi.
Prime Minister Noda reiterated his gratitude for the substantial support extended from India in the wake of the Great East Japan Earthquake. Prime Minister Singh expressed his hope that Japan will make a full recovery as early as possible.The two Prime Ministers concurred that, as next year marks the 60th anniversary of the establishment of diplomatic relations between Japan and India, they would make best use of the opportunity to strengthen cultural and people-to-people exchanges in order to deepen mutual understanding at their citizens' level.
Prime Minister Noda's visit capped a year of intense bilateral activity. The Foreign Ministers held a strategic dialogue in October, followed by talks between the defence ministers. In February, the two sides signed the Comprehensive Economic Partnership Agreement covering trade in goods as well as services; it came into effect in August. Earlier this month, India, Japan, and the United States held their first trilateral strategic dialogue. It is creditable that despite the political instability in Japan, and the scandal-induced paralysis in India, both countries managed to fit in these high-level exchanges. It is crucial that growing India-Japan ties are viewed independently of each country's relations with China. New Delhi and Beijing are engaged in improving relations at various levels, including trade, eventually aiming to amicably resolve the boundary question. China is Japan's biggest trading partner; the two have a bilateral trade of $340 billion that neither can afford to endanger. The fears expressed in a section of China's news media that Mr. Noda's visit is part of a "containment strategy" aimed at Beijing are needless. The Chinese government has done well to play them down.
History
Exchange between Japan and India is said to have begun in the 6th century when Buddhism was introduced to Japan. Indian culture, filtered through Buddhism, has had a great impact on Japanese culture, and this is the source of the Japanese people's sense of closeness to India. After World War II, in 1949, Indian Prime Minister Jawaharlal Nehru donated two Indian elephants to the Ueno Zoo in Tokyo. This brought a ray of light into the lives of the Japanese people who still had not recovered from defeat in the war. Japan and India signed a peace treaty and established diplomatic relations on 28th April, 1952. This treaty was one of the first peace treaties Japan signed after the World War II. Ever since the establishment of diplomatic relations, the two countries have enjoyed cordial relations.
Bilateral Treaties and Agreements
» Treaty of Peace (1952)
» Agreement for Air Service (1956)
» Cultural Agreement (1957)
» Agreement of Commerce (1958)
» Convention for the Avoidance of Double Taxation (1960)
» Agreement on Cooperation in the field of Science and Technology (1985)
In the post World War II period, India's iron ore helped a great deal Japan's recovery from the devastation. Following Japanese Prime Minister Nobusuke Kishi's visit to India in 1957, Japan started providing yen loans to India in 1958, as the first yen loan aid extended by Japanese government. Since 1986, Japan has become India's largest aid donor, and remains so. Prime Minister Mori's visit to India in August 2000 provided the momentum to strengthen the Japan-India relationship. Since then, annual meetings between prime ministers, including Prime Minister Koizumi's visit to India in April 2005, Prime Minister Singh's visit to Japan in December 2006, Prime Minister Abe's visit to India in August 2007, and Prime Minister Singh's visit to Japan in October 2008, have led to the establishment of the "Strategic and Global Partnership between Japan and India" as well as the further strengthening of the bilateral relationship. Most recently, during Prime Minister Hatoyama's visit to India in December 2009, Japan and India singed the Joint Statement "New Stage of Japan-India Strategic and Global Partnership".
While India has become the largest recipient of Japanese ODA since 2003-04, both bilateral trade in goods and Japan's FDI into India have almost stagnated during the past decade. With major Indian exports to Japan being dominated by products of mineral oils, gems & jewels, marine products (mainly shrimps) and iron ore, India and Japan have not yet formed such a dynamic international division of labour as can be seen among the East Asian countries. Japan's cumulative FDI into India is so far larger than that of Korea, but as far as electronics appliances are concerned, Japanese companies have been overwhelmed by Korean companies in the Indian market.
India and Japan are highly complementary economies, but their mutual complementarities remained underexploited hitherto. Recently, however, a new tide has been observed in Japan to expand Indo-Japan relations based on mutual complementarities. Japan has abundant capital and is highly advanced in technological skills and product development while India is endowed with a huge market and abundant human resources. Japan is outstanding in terms of manufacturing abilities, whereas India has advantages in IT services and bioinformatics. Thanks to vigorous economic growth in the wake of the economic reforms and the "Look East Policy" introduced after 1991, India has successfully deepened its economic relations with the East Asian countries. We can see a remarkable expansion of India's economic tie-ups with the ASEAN countries, China and Korea since the late 1990s, with only IndoJapan relations lagging behind. India-China bilateral trade has remarkably expanded to be more than four times larger than India-Japan bilateral trade.
Koizumi's Visit to India in 2005
The significance of visit of Japanese Prime Minister Junichiro Koizumi in 2005 cannot be understated considering the fact that this was the first visit by a Japanese head of state after a hiatus of nearly half a decade. Prior to that, only two serving Japanese heads of state have visited India with a 10 year gap. While these statistics amply demonstrate that a regular exchange of high-level political visits have been a weak link in Indo-Japanese ties, perhaps Prime Minister Koizumi's visit is a landmark one as it promises to initiate bilateral comprehensive ventures into two areas - economic and strategic, which were lying potentially untapped for several years. The highlight of the Prime Minister's visit was indubitably the signing of the 'Japan-India Partnership in a New Asian Era: Strategic Orientation of a Japan-India Global Partnership' — an eight-fold initiative announced towards strengthening Japan-India Global Partnership, which include the following:
» Enhanced and upgraded dialogue architecture, including strengthening of the momentum of high-level exchanges, launching of a High Level Strategic Dialogue and full utilization of the existing dialogue mechanisms.
» Comprehensive economic engagement, through expansion of trade in goods and services, investment flows and other areas of economic cooperation, and exploration of a Japan-India economic partnership agreement.
» Enhanced security dialogue and cooperation.
» Science & Technology Initiative
» Cultural an academic initiatives and strengthening of people-to-people contacts
» Cooperation in ushering a new Asian era
» Cooperation in the UN and other international organization, including early reform of the UN Security Council
» Cooperation in responding to global challenges and opportunities.
While this eight-fold initiative incorporates many issues addressed by the two countries in their Joint Declaration of December 2001, it is certainly a more comprehensive delineation and framework of areas of common interests and concerns. In a nutshell, it can be stated that there is a unique paradox that has defined India-Japan relations at large. On the one hand, there has been the absence of any major dispute. On the other, however, what has been missing is the richness that could have characterized bilateral ties. In other words, the relationship to date can be chronicled as one of missed opportunities. It is clear that the synergy of Indo-Japanese cooperation is essential not just to further bilateral relations, but for the greater cause of a more secure Asia-Pacific region. Even though the visit by Prime Minister Koizumi was short, it should be used as bedrock for furthering bilateral ties.
An increased awareness among the general populace of the two nations as envisaged under the eight-fold initiative is equally crucial as the extent of media coverage received by such landmark steps as Koizumi's visit and need to be highlighted. While India's embarkation on a 'Look East' policy in the last decade was symptomatic of the significance India attaches to the region, the time has come to exploit the full potential of interaction with countries like Japan. The two countries should work together in the areas of common interests and concerns in the years to come so that they can look back at their relations with pride and satisfaction at the end of the next five decades, when we celebrate a hundred years of the establishment of relations.
Bilateral trade is expanding in the recent years. However, the speed and scope of expansion are still limited. Joint Study Group (JSG), composed of government officials and representatives of business and academia from the two countries, held four meetings after July, 2005. JSG submitted its report to both Prime Ministers when they met in July, 2006, which includes a recommendation for launching EPA negotiations. In December, 2006, the Prime Ministers of the two countries decided to launch immediate negotiations for the conclusion of a bilateral Economic Partnership Agreement/Comprehensive Economic Partnership Agreement aiming to complete in substance as soon as possible in approximately two years. Thirteen rounds of negotiations were held in New Delhi and Tokyo respectively as of July 2010.
Japan-India Strategic Dialogue on Economic Issues which reviews the current status of bilateral economic issues discussed at Summit meetings, and undertakes coordination as necessary was held 3 times in New Delhi and Tokyo respectively as of July 2010 since the Dialogue was launched in July 2007. In August 2007, the Business Leaders' Forum was held in New Delhi on the occasion of Prime Minister Abe's visit to India, and the Second meeting was held in Tokyo in October 2008.
The two Prime Ministers welcomed the entry into force of the Japan-India Comprehensive Economic Partnership Agreement (CEPA) in August this year and the commencement of negotiations on an agreement on social security. With regard to the Delhi-Mumbai Industrial Corridor (DMIC), Prime Minister Noda announced the intention of the Government of Japan to make available finance totaling 4.5 billion US dollars in the next five years. The two Prime Ministers concurred that they would promote participation of Japanese companies to realize the DMIC.
In this regard, both Governments reached an agreement on such issues as Japan's involvement with the Delhi-Mumbai Industrial Corridor Development Corporation (DMICDC), relaxation of financial restrictions so as to promote DMIC projects, allocation of natural gas for DMIC projects, and early realization of three model projects, namely, seawater desalination at Dahej, Gujarat, a microgrid system using large-scale photovoltaic (PV) power generation Project at Neemrana Industrial Area in Rajasthan, and gas-fired independent power producer (IPP) Project in Maharashtra. The two Prime Ministers concurred on the need to strengthen bilateral cooperation on infrastructure development in Southern India, improvement of connectivity between Chennai and Bangalore, and development of India's High-speed railway system. Prime Minister Noda pledged that the Government of Japan would extend ODA loans totaling approximately 1.7 billion US dollars (approx. 134.3 billion yen) in total for two projects including for the Delhi Mass Rapid Transport System Project. The two Prime Ministers decided to enhance the earlier bilateral currency swap arrangement from 3 billion US dollars to 15 billion US dollars. Concerning civil nuclear cooperation, Prime Minister Singh noted that he understood Japan's sensitivity well. The two Prime Ministers decided to move forward with the negotiations with a view to concluding an Agreement for Cooperation in the Peaceful Uses of Nuclear Energy in a mutually satisfactory manner. With regard to rare earths, the two Prime Ministers shared the view that both Governments should continue their dialogue in order for Japanese and Indian enterprises to jointly undertake industrial activities.
The long-awaited India-Japan CEPA/EPA was finally signed in February 2011, and came into effect in August. Tariffs will be eliminated on 90 per cent of Indian and 97 per cent of Japanese goods over ten years. Japan is expected to export more auto-parts and steel products to India and import more agricultural and marine products from India. National treatment, on the side of Japan, is accorded for the application of approvals for the release of generic medicines. Some improvement has been made for the movement of people, including Yoga instructors, English teachers and Indian cuisine masters. IndiaJapan bilateral trade will be more than doubled to $25 billion by 2014 under the CEPA/EPA.
What is CEPA ?
The second phase of India's Look East Policy aims to achieve just that. Against this background, India-Japan ties are appropriately positioned for take-off. The significance of Prime Minister Singh's visit to Japan can be seen in four areas: conclusion of four years of negotiations on a Comprehensive Economic Partnership Agreement (CEPA), deciding to speed up negotiations on a civil nuclear deal, simplifying visa procedures, and finding common ground for convergence of interests in securing peace and stability in Asia. CEPA is broader than a free trade agreement because it includes steps to promote greater investment and also addresses intellectual property rights. The CEPA will help address this imbalance and Japan will have to reduce tariffs on 97 per cent of Indian imports, and India will have to reduce tariffs on 90 per cent of goods imported from Japan over the next decade. Japan will get greater market access for most industrial goods, as well as several agricultural products such as durian, curry, tea leaves, lumber, shrimp and shrimp products. India will get improved market access in Japan in auto parts, steel panels, and other industrial materials, as well as DVD players, video cameras and industrial machinery.
The two countries began talks on a civilian nuclear deal in June 2010 but the subject is too sensitive in Japan because India has refused to adhere to the NPT and CTBT as it considers them discriminatory, even though India has voluntarily suspended nuclear testing. In late 2009, Prime Minister Singh said that India's position on the CTBT could change if Beijing and Washington were to join the pact. China, India and the US are three of the nine "Annex 2" states that must ratify the treaty for it to enter into force. Japan thus agreed to start negotiation with India on a framework for the peaceful transfer of nuclear power technologies to India. Prime Minister Kan agreed to speed up negotiations, while seeking India's understanding for Japan's sentiments. Both leaders agreed that civil nuclear energy can be a mutually beneficial area for cooperation. India welcomes Japanese firms to participate in the expansion of its nuclear industry for peaceful purposes.
Until recently, Japanese companies had a negative image about India's investment environment, which constituted a sense of "psychological distance" from India. However, the success of Korean companies in gaining a large share of the Indian consumer electronics market indicates that what Japanese companies tended to identify as areas of concern, i.e. adverse investment environment, are not necessarily critical factors that deterred Korean or Singaporean companies. The number of Japanese companies in India has increased from 267 in January 2006 to 438 in January 2008 and from 550 in October 2008 to 725 in October 2010. Their investment value has more than doubled to 189 billion yen in 2007-08 and totalled 809 billion yen in 2008-09, outstripping Japanese FDI into China.
Japan is globally ranked the second largest IT market with an estimated turnover of $100 billion. Japan is renowned as one of the most competitive nations in manufacturing industries or hardware production. As of 2007, Japan had a total of 907,990 IT engineers and was short of 501,000 IT engineers including 360,000 professionals. Generally speaking, Japanese companies are inclined towards in-house procurement and are rather cautious about overseas IT offshoring. But when they offshore, they prefer to turn to China , As for the destination of Japan's IT offshoring, currently 80 per cent of Japanese companies offshore to China and only 25 per cent to India. For India, Japan accounts for only less than 2 per cent of its total software and IT services exports. As for Japanese subsidiaries of IBM and Accenture, they are already fully utilizing Indian IT resources through offshoring to their Indian subsidiaries. It will be strategically more important for Japanese companies to focus on India as an IT offshore location, especially if they want to go global.
The level of people-to-people exchange between India and Japan is still far from satisfactory, which is exemplified by stagnated student exchanges. It should be remembered that there are as many as three million Indian Americans, most of whom are professionals, playing an indispensable role in deepening and cementing the relationship between India and USA. Improving the scholarship and Japanese language training schemes for Indian students, increasing the number of lectures given in English at Japanese universities, and providing attractive career paths for Indian graduates to apply for Prospects and Challenges for Expanding India-Japan Economic Relations enlarged employment opportunities in Japanese companies are urgently needed for attracting more Indian students to Japan. Now is a good time, when entering a new phase of India-Japan relations, for us to consolidate our relations especially through accelerated people-to-people exchanges. Number of Japanese nationals residing in India: 3,284 (as of October, 2008)
Number of Indian nationals residing in Japan: 22,335 (as of December, 2008).
The Japanese economy has been strained in the aftermath of the massive earthquake and tsunami, accompanied by radiation leak at the Fukushima nuclear power plant. We cannot ignore the after effects of the Great East Japan Earthquake on India-Japan economic relations. First, the number of Indian IT engineers working in Japan has been reduced from 15,000 to 7,000, since many Indian IT engineers have not yet returned to Japan. Further, since domestic supply chains have been damaged by the earthquake and given the record appreciation of the yen, Japanese companies are under even greater pressure to reallocate their production facilities to emerging economies.
All these factors provide a good opportunity for further accelerating Japanese FDI into India. The following two tasks should be addressed for further expanding India-Japan economic relations. First, the Delhi-Mumbai Industrial Corridor should be started along the right line, which will be the touchstone for future India-Japan collaboration. Second, human exchanges should be promoted by all means for cementing and expanding bilateral relations.
Japanese Aid to India (1,545.7 million dollars)
» Kerala Water Supply Project (II) (Yen Loan: 273.1 million dollars)
» Delhi Mass Rapid Transport System Project (Phase 2) (II) (Yen Loan: 113.2 million dollars)
» Gujarat Forestry Development Project (Phase 2) (Yen Loan: 146.0 million dollars).
» Transmission System Modernization and Strengthening Project in Hyderabad Metropolitan Area (Yen Loan: 197.5 million dollars)
Conclusion
As this year marks the fifth year since the establishment of the Japan-India Strategic and Global Partnership in 2006, with the 60th anniversary of the establishment of diplomatic relations next year, this State visit by Prime Minister Noda has impressed on all sides the friendly bilateral relationship between Japan and India, and contributed to further consolidating a trusting relationship at the leaders' level. With regard to bilateral relations, the two Prime Ministers shared the view that they should expand cooperation in the area of maritime security in the political and security fields. Substantial progress was made in many economic areas, including cooperation for the DMIC, infrastructure development in Southern India including the connectivity between Chennai and Bangalore, enhancement of the bilateral currency swap arrangement, extension of ODA loans including for the Delhi Mass Rapid Transport System, joint rare earths projects, among others. With regard to regional situations and global issues, the two Prime Ministers also affirmed that the two countries continue cooperation in various regional issues in Asia and other international issues such as the global economy and climate change. |
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