India-Japan economic, strategic ties set to grow closer under Abe’s successor

India-Japan economic, strategic ties set to grow closer under Abe’s successor

Asia’s two largest democracies are sowing the seeds of a new alliance that is necessary to ensure the freedom of navigation, peace and prosperity in the Indo Pacific region.

Ask any Indian diplomat to identify India’s closest strategic and economic ally in Asia and the near unanimous answer will be Japan.

According to Invest India, the government’s foreign investment promotion and facilitation agency, Japan is the fifth largest investor in India, with cumulative investments of $34.5 billion between April 2000 and September 2020. This is about 7 per cent of the $500-billion FDI flows into India during this period.

Actual investments from Japan are much larger but these are not reflected in these figures as lots of investments are routed through third countries such as Mauritius, Singapore and elsewhere.

Trade figures point to huge scope for growth

In 2018-19, India imported goods worth $12.77 billion from Japan and exported goods valued at $4.86 billion.

Given that Japan is the world’s third largest economy and India the sixth – down one spot after the contraction so far this year – these figures are disappointing.

That is one of the reasons why the two countries have stepped up efforts to increase bilateral trade and are also, along with Australia, considering setting up a Supply Chain Resilience Initiative (SCRI).

The stated goal of this initiative is to set up a strong supply chain for inputs and finished products that can emerge as an alternative to China’s dominance of global commerce.

China remains the 800-pound gorilla in the room

But the main glue of the India-Japan relationship is the not-so-peaceful rise of China and the resultant geo-political tensions in Asia.

Former Japanese Prime Minister Shinzo Abe had first proposed an “arc of democracies” as a bulwark against the then newly rising continental hegemon. Since then, the Asia Pacific has been renamed Indo-Pacific by most countries to cement the centrality of India in any strategy to ensure peace in the region.

India and Japan key to peaceful and free Indo Pacific region

Indian Navy, United States Navy, Japan Maritime Self Defence Force, & Royal Australian Navy are participating in 24th Malabar naval exercise. The safety and freedom of navigation within the Indo Pacific is one of the core sentiments the two countries share.
Indian Navy, United States Navy, Japan Maritime Self Defence Force, & Royal Australian Navy are participating in 24th Malabar naval exercise. The safety and freedom of navigation within the Indo Pacific is one of the core sentiments the two countries share.

India and Japan anchor the two ends of the Indo-Pacific. So, close collaboration between these two Asian democracies is sine qua non for ensuring the freedom of navigation across this vast region stretching from the Western Pacific to the eastern rim of the Indian Ocean.

An agreement signed between the two countries in 2008 began with the observation that they have a “mutual stake in each other’s progress and prosperity.”

That remains the raison d’etre for the ever-burgeoning bilateral relationship even today. Add to that their growing mutual concern about China’s unprovoked muscle flexing in the South China Sea in Japan’s neighbourhood and on the Line of Actual Control that is the de facto border between India and China.

That is why New Delhi and Japan have signed an Acquisition and Cross-Servicing Agreement (ACSA) on the lines of the Logistics Exchange Memorandum of Agreement (LEMOA) with the United States. This agreement allows the Indian and Japanese armed forces to exchange supplies and services on a reciprocal basis and will enable both countries to expand their spheres of influence across the vast Indo-Pacific region.

Helping India upgrade its infrastructure

Japan has also been helping India improve its infrastructure. It is helping finance and build the $90-billion Delhi–Mumbai Industrial Corridor Project (DMIC), one of the world’s largest infrastructure projects, and is planned as a high-tech industrial zone spread across six Indian states and Delhi. This 1,500 km corridor envisages setting up several industrial zones and smart cities along the way and will significantly reduce the logistics costs and turnaround time for goods shipped to, from and within India.

Then, there is also the bullet train project between Mumbai and Ahmedabad, which is coming up with technology and finance from Japan. The Japan International Cooperation Agency (JICA) is financing 81 per cent of the total project cost through a 50-year loan at an interest rate of 0.1 per cent, which is among the most generous terms offered by any international agency for global infrastructure loans.

Waiting for the deluge

These two projects could signal the start of a deluge of Japanese investments in India as companies in that country typically wait for a signal from their government before committing largescale investments in any country.

The India-Japan relationship, which has largely been driven by the great personal chemistry between Indian Prime Minister Narendra Modi and Abe over the last six years, will now enter a new phase under Yoshida Suga, Abe’s successor, who has pledged to carry ties forward.

Foreign policy experts in New Delhi said the bilateral relationship has acquired enough breadth, depth and heft – both economic and strategic – to be able to go from strength to strength from here.

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