A comprehensive coverage of India-Japan relationship

BEGINNING OF NEW ERA IN INDIA JAPAN RELATIONS POST 2000

Visit of Prime Minister Yoshiro Mori to India- A new beginning

After 1998 nuclear tests, India and Japan relations remained nearly frozen for three years. However, a turnaround in the ties was achieved shortly afterwards, when Japanese Prime Minister Yoshiro Mori visited India in August 2000. He urged both countries to build a new global partnership that would address a wide spectrum of international issues like nuclear disarmament, anti-terrorism, the restructuring of the UN, maritime safety, technology transfer, environment, etc. In particular, he wanted both India and Japan to take advantage of the IT revolution in building a new partnership.

The same point was reiterated by the Indian prime minister Atal Bihari Vajpayee when he visited Japan in December 2001. The Joint Communique he issued with his Japanese counterpart Koizumi Junichiro on 10 December provides a comprehensive framework for the future directions of Indo-Japanese relations. Both leaders recognized that “unbounded opportunities exist especially in the area of Information and Communication Technology in which there are extraordinarily strong complementarities between Japan and India.” They wanted their two countries to help bridge the digital divide so that the benefits of IT revolution could be shared by all.

Reasons that compelled Japan to conclude global partnership with India

1. During the 1990s, there was considerable misunderstanding in Japan on President Bill Clinton’s overtures to China and many Japanese leaders wondered whether it would be wise for Japan to continue to depend solely on its alliance with the US.
2. This skepticism was further deepened at the time of the currency crisis in 1997-98 in Southeast Asia. During the crisis, Japan’s proposal to create an Asian Monetary Fund (AMF) with a capital of US $10 billion for assisting the countries affected by the crisis was turned down by the US, as it did not entertain a prominent role for Japan in the region.
3. It  is relevant in this context to note that Japan at the same time was promoting ASEAN+3, a new  institutional mechanism that would bring greater coordination with China and South Korea and link  it  up with ASEAN  countries.

All these developments indicated Japan’s anxiety to increase its diplomatic options outside the ambit of US Japan alliance. It is in this backdrop of Japan’s quest for seeking a broader Asian arena to safeguard its own interests that Mori’s call for a global partnership between India and Japan was made.

Towards Annual summits- Building greater cooperation

The  idea  of  global partnership  received  a  fresh  impetus  from  the  top  leaders of  the  two countries. The visit made by Prime Minister Junichiro Koizumi in 2005 was a landmark that set in motion a process by which the Prime Ministers of the two countries would meet annually in either of the countries. Since then eight annual summit meetings have been held.The joint statement contained an eight-point agenda which provided a new direction to the bilateral relations. One of its objectives was to develop a well-structured framework for security dialogue and cooperation between the two countries.  It was agreed that both countries would pursue their partnership at three levels.

1. Bilaterally, they would strive to strengthen the prevailing political and     economic links.
2. At the regional level, they would promote peace and security in Asia by contributing to regional  cooperation  in  such  areas  as  maritime  security  and  energy  self-sufficiency.
3. At the global level, both would cooperate in areas such as UN reforms, nuclear disarmament, counter terrorism and environment.

Beginning of India-Japan strategic and Global Partnership

The second summit was held in Tokyo in December 2006 when Prime Minister Manmohan Singh met his new Japanese counterpart Shinzo Abe. He was keen to establish a close rapport with Abe who, on his side, was strongly desirous of cultivating closer relations with India. Their joint statement entitled ‘Towards India-Japan Strategic and Global Partnership’ constitutes a long and detailed roadmap for building a multilayered network of bilateral relations.  Broadly, it proposed that following actions be taken:

a) Holding annual summit meetings between the top leaders of the two countries;

b) Institutionalizing strategic dialogue at the level of foreign ministers;

c) Pursuing negotiations for the conclusion of a bilateral economic partnership agreement/comprehensive economic cooperation agreement;

d) Establishing of a business leaders forum;

e) Cooperating in the field of science and technology;

f) Encouraging of people-to-people exchanges;

g) Cooperating in multilateral fora like the UN, SAARC, EAS and ARF and;

h) Cooperating in areas like energy, environment and global trade.

Eighth bilateral summit in Tokyo in 2013 – reflecting a new trend

The Bilateral annual summits started since 2005 have been conducted regularly till now and we have been successfully completed sixty years of diplomatic ties.

The Prime Minister Manmohan Singh visited Japan in May 2013 to conclude eighth Annual summit in Tokyo. The Tokyo summit took place at a time when both countries face serious territorial frictions with China. The Ladakh crisis arising out of China’s controversial intrusion into the Indian territories inside the Line of Actual Control demonstrated the unpredictable nature of their bilateral relations. Though China agreed to withdraw to its earlier position after India’s rather tough stance, the incident left a long trail of bitterness. Many believe that Beijing’s withdrawal was due to its concern to see that Prime Minister Li’s scheduled official visit to India was not affected in any way.

Japan continues to face tremendous pressure from China in the maritime sphere, particularly since 2010 when a Chinese ship rammed a Japanese coast guard vessel. China’s relentless pursuit of its claims to the Diaoyu/Senkaku islands became far more intense after September 2012 following the Japanese government’s purchase of three of the islands. On almost a daily basis China’s surveillance ships intrude into Japan’s territorial waters around the islands and Chinese air forces have also violated Japanese air space in the area.

For a long time, the partnership was centered on economic matters such as development loans, trade and investment. But it has diversified to cover a wide spectrum of interests including security, counter terrorism, sea-lanes, UN reforms, energy security and climate change. This year’s  bilateral summit in Tokyo reflects this trend.

India’s look east policy and mutual interests with Japan

New Delhi has optimally utilized its Look east policy to foster its deeper relations with Japan particularly with regard to forging the foundations of a potentially far-reaching economic and strategic partnership with Japan. As pointed out by Prime Minister Manmohan Singh, “Our relationship with Japan has been at the heart of our Look East Policy.”

In addition to their shared concerns about growing financial and military strength of China, New Delhi and Tokyo have found mutual interests in their engagement of Southeast Asia. Both are working actively to support Burma’s political and economic opening; investing in regional trade frameworks for open economic exchange with member states of ASEAN; and engaging strategically important Indonesia and Vietnam. Both are playing a greater role in ASEAN-led institutions not only to boost regional webs of economic connectivity, but, importantly, to prevent regional clubs from tilting in a sinocentric direction.

INDO-JAPAN RELATIONS AND ISSUE OF CHINA

One of the main contributing factors to the question of peace and security in the Asian region is the phenomenal growth of China. These include the rise of China as an economic power. This rise in the last decade has also led to increased military spending by China, creating one of the most sophisticated armed forces in the world. Consequently, China has used its military and economic power to assert its dominance in Asia.

For both India and Japan, China is a challenge as well as an opportunity. China’s claim over the South China Sea makes the security environment in the East Asian region fragile. Despite tensions between India and China, and Japan and China, their bilateral economic relations have flourished.

China’s position in the world clearly demonstrates the importance of having financial power. Japan cannot afford to derail the process of deepening economic ties with China. Similarly, any irritants between India and China, in the political domain, have not deterred strengthening of economic ties between the two. Engaging China, rather than infuriating it by designing a strategy of containment, would be in the larger interests of securing peace and stability in Asia because the Chinese have spent significant dollars on military expenditures.

Chinese military expenditures were almost 1.5 times more than the defence outlay which stood at 788.0 billion yuan in the year 2010. This expansion of military power is a cause of concern for both countries as they are engaged in talks with China over Arunachal Pradesh and Senoku Islands.

Way forward

Every relationship has its ups and downs and the Indo-Japan relationship is no exception.

Over the past year, Indo-Japanese relations have gained new momentum. In the words of Prime Minister Manmohan Singh “the time has come for India and Japan to build a strong contemporary relationship, one involving global and strategic partnership that will have a great significance for Asia and the world as a whole”. In Abe’s words “a strong India is in the best interest of Japan, and a strong Japan is in the best interest of India”. Given the Shared areas of interest and mutual issues of concern, Both the countries have a long way to go together. Might be in near future, they will emerged as a global players in real sense.

INDIA – JAPAN Economic Relationship:

END OF COLD WAR ERA AND INDIA’S ECONOMIC LIBERALIZATION

The launching of the economic liberalization programme in India in 1991 was a landmark development in the post-independent economic history of India. The new policy had placed India on the road to free and market economy.

Japan, which had always entertained deep misgivings about India’s earlier inward-looking economic strategy based on import substitution, welcomed the liberalization policy.

Japanese foreign direct investment into India

The Economic reforms coincided with a period of global surge in FDI outflows. Investment outflows from Japan also registered an impressive rise even from the 1980s. During this period, US, Europe, China and ASEAN countries remained top destinations of investment for Japanese companies.

Though economic liberalization policy of India was welcomed by Japan, Investments in India remained far below compared to other countries. The reasons were numerous i.e. issues related to infrastructure, custom clearance, taxation, land acquisition, official bottlenecks in India and cheap labour and investment friendly climate in others countries.

The period following the nuclear tests by India in 1998, Japanese companies hesitated in investing in India. The diplomatic relations remained nearly frozen during this period and so the economic relations. It was only after the visit of Japanese Prime Minister Mori, the relations became normal.

India is emerging as a favored destination in Asia for Japanese FDI. DIPP (Department of Policy and Promotion) statistics show that Japanese companies have made actual investments of $14.85 billion to India between April 2000 and August 2013. This accounted for 7% of total FDI inflow into India and made Japan the 4th largest investor in India (top three being Mauritius, Singapore, U.K.).

According to the Japanese External Trade Organization, (JETRO), Japanese firms increasingly prefer India as an investment destination over China. The availability of a large market and abundance of semi-skilled and skilled workforce make India an attractive destination.

In the private sector, Japanese investments in India have been mainly in the form of mergers and acquisitions( M & R), as is evidenced from Japanese-Indian companies ties like Ranbaxy-Daiichi Sankyo, Hero-Honda, Tata- DOCOMO, etc. which have made sizeable investments in India.

The majority of investments have been in traditional fields like automobiles, auto parts and electronics, although some companies have invested in businesses like pharmaceuticals (EISAI), health drinks (Yakuruto), pulp (Nihon Koso) and rice processing (Yanmar). Japan’s small and medium enterprises have also started to discover India as the new growth market.

Share of Japan in FDI equity inflows from April 2000 to august 2013

1. Rank: Japan ranks 4
2. Percentage share of total FDI inflows: is 7.36%
3. Total FDI Inflows from Japan: are US$ 14.85 billion

Top sectors that attracted FDI equity inflows (from April 2000 to August 2013), from Japan, are:

1. Services Sector (19%)
2. Construction Development: Townships, Housing, Built-Up Infrastructure and Construction-Development Projects (11%)
3. Telecommunications (6%)
4. Computer Software & Hardware (6%)
5. Drugs & Pharmaceuticals (6%)

Portfolio investment and its growth

Another trend that deserves to be noted is the steady increase in the number of portfolio funds through which the Japanese could invest in the Indian stock market. The India Portfolio Fund that was started only in 2004 has already attracted huge Japanese investments into the Indian stock market. The total asset of the Japanese portfolio investment funds amounted to $8.2 billion in March 2007.

Bilateral trade

Trade between Japan and India had never been impressive. Japan has always enjoyed favorable balance of trade with India except in 2001 and 2002. Improving bilateral trade between India and Japan has always been a priority agenda for both the countries.

Realizing this in November 2004, the then Prime Minister of Japan, Mr. Junichiro Koizumi and the Prime Minister of India, Dr Manmohan Singh agreed to set up a Joint Study Group (JSG) to study all aspects and give its recommendations on strengthening economic relations between the two countries. The JSG in its Report of June 2006 concluded that there was a huge potential to deepen and expand existing bilateral economic relations. The negotiations for Comprehensive Economic Partnership Agreement (CEPA) commenced in January 2007 and were concluded after fourteen rounds in September 2010. The Japan- India Comprehensive Economic Partnership Agreement finally came into effect in August 2011.

 It covers such areas as trade in goods and services, investments, intellectual property rights, customs procedure. CEPA goal is to abolish tariffs over 94 per cent items bilaterally traded over a period of next ten years.

INDIA-JAPAN ECONOMIC RELATIONSHIP

Japanese exports to India picked up momentum after the CEPA came into effect, but India’s exports to Japan have not seen much of an increase. 

There has not been any significant change in the composition of trade and  the major  items of  India’s  exports  to  Japan  continue  to be  gems  and jewellery,  marine  products,  minerals,  iron  ore  and  textiles  whereas Japan’s  exports  have  been  mainly  centred  on  machinery,  transport equipment,  electronic  goods,  chemicals  and metal  products.  In other words, Japan’s exports to India consist of products that are on the higher side of the value chain, but India’s exports to Japan cover only the lower levels of the value ladder. Any significant breakthrough in the bilateral trade can occur only if India is able to diversity its exports.

In 2012-13 India-Japan bilateral trade touched US$ 18.6 billion. Indian exports to Japan were at US$ 6 billion, and imports at US$12.5 billion. In effect, India’s exports and deficit were nearly equal.

Official Development Assistance (ODA)

The ODA has been the core component of the bilateral partnership for decades now and India was the first country to receive Japanese assistance (1958), following Prime Minister Jawaharlal Nehru’s historic visit to Tokyo in 1957.

In 1990s Japan became the largest donor to India. Even at a time when Japan’s overall ODA volume has shrinking to declining economy after 2003, its assistance to India markedly increased. This indicates the importance that Japan attaches to its partnership with India.

In general terms the basic objective of Japanese ODA loans is to facilitate long-term, low interest funds for the self-help efforts of developing countries for their socio-economic infrastructure development.

Japanese ODA has three categories- bilateral loans, grants and technical assistance. Loans are extended at the government to government level on the basis of extensive negotiations and consultations. These loans are repayable within a prescribed time and carry a fixed rate of interest.

Today the ODA loans are totally united and project related. The sectors that benefitted most were electric power, gas, transportation, irrigation and environment. Some of the important projects that received ODA were Delhi Mass Rapid Transport system, Kolkata East-West Metro project, Chennai Metro project etc.

India’s flagship projects and Japanese assistance: Japan is closely associating itself with India’s three mega power projects which would give a huge boost to investment and industrial progress. The projects are:             1) Delhi Mumbai Industrial corridor

2) The dedicated fright corridor project

3) Chennai Bangalore Industrial Corridor

India-Japan complementarities

Japan:

• Surplus capital with businesses and technology powerhouse
• Limited  investment opportunities and stagnant domestic demand
• Aging population – 23% above  65 years
• Limited availability of skilled and technical manpower
• High tech hardware and technological capabilities
• High cost economy

India:

• Requires capital in all areas and technology
• Many investment
• opportunities with strong
• domestic demand
• Young population
• Easy availability of scientific,
• Technical and skilled personnel
• Global powerhouse in software solutions
• Extremely cost competitive

There is a lot to do!!!!

The growing presence of Japanese companies in India are obvious, as India offers a large domestic market base, but mutual synergies between businesses in the two countries are also driving initiatives. Japan is a relatively labour-scarce, capital and technology abundant country that complements India’s rich spectrum of human capital.

India’s prowess in the software sector lends synergy to Japan’s excellence in the hardware sector. India’s abundance of raw-materials and minerals matches well with Japan’s capabilities in technology and capital to produce knowledge intensive manufactured goods.

But still Japanese companies have apprehensions about underdeveloped infrastructure, policy bottlenecks, red tapism, Land acquisition problems, Labor laws etc. It is imperative for India to ally these apprehensions to tap the unrealized potential of Indo- Japanese economic cooperation.

INDIA-JAPAN DEFENSE AND SECURITY TIES

In July 2001, the first comprehensive bilateral security dialogue was held in Tokyo to discuss security and defence policies, the Asian security environment and nuclear non-proliferation. The dialogue was institutionalized as an annual event.

This was followed by greater military-to-military  cooperation  between  the  two  countries.  Japan’s participation  in  the  International  Fleet  Review  held  in  Mumbai  in February  2001  was  an  important  event  followed  by  the  visit  of  a Maritime Self-defence Force (MSDF) squadron to Chennai in May 2001.

Such mutual visits have been taking place regularly since then, in addition to exchange of visits by service chiefs.

India and Japan also set up another mechanism on counter-terrorismwithin the bilateral security framework.

JOINT DECLARATION ON SECURITY COOPERATION

A truly epoch-making development in Defense and Security arena took  place  on October  22  2008, when  Prime Minister Manmohan Singh and his Japanese counterpart Taro Aso signed the Joint Declaration on Security Cooperation on the sidelines of third annual summit. This is a historic document in that Japan  has  such  arrangements  only  with  Australia  and  the  US.

Undoubtedly, it was an outcome of the continuous efforts made by the top leaders of both countries over a long period. A study of the document shows that it embodies almost all the pledges and assurances made by them in various joint statements and other official meetings since 2001.

One significant aspect of the Declaration is the emphasis placed on the need  for  bilateral  policy  coordination  in  regional  affairs,  as  well  as bilateral cooperation within multilateral fora in Asia such as the EAS(East Asia Summit), ARF(Asean regional forum) and RECAAP (Regional cooperation Agreement on combating piracy and armed robbery) .

The Declaration essentially seeks to build on the existing tempo in defence ties, while attempting to broaden the framework with a view to influencing the emerging security architecture. In this context, it has also envisaged an action plan that would define specific measures to concretize security cooperation.

ACTION PLAN ON SECURITY COOPERATION:

In 2009 Japanese Prime Minister Hatoyama visited India and the two significant outcomes of this visit were signing of an action plan to strengthen bilateral security cooperation and initiation of 2+2 security dialogue at the cabinet/official level.

The  Singh-Hatoyama action plan lays out a comprehensive agenda that mentions specific measures to be taken by the two countries in nine areas, including strategic and defence cooperation mechanisms, maritime security, safety of  transport,  cooperation  at  the  UN,  disaster  management,  and cooperation  on  disarmament  and  non-proliferation.

 MARITIME SECURITY: STRENGTHENING SHARED INTEREST

As noted earlier, the India-Japan Action Plan pays considerable  attention  to  maritime  security  as  a  critical  area  in  the bilateral relations.

Both countries share identical interests and concerns on  the  need  to  ensure  the  safety  of  the  sea-lanes  of  communication (SLOCs) in the Indian Ocean area. Maritime security in the Indian Ocean calls for systematic efforts at multilateral levels in view of the diverse and overlapping interests of numerous countries involved.

In this context, it is imperative for both Japan and India to jointly address several issues such as ocean piracy, maritime environment, transport of weapons of mass destruction (WMD) and the safety of Malacca Strait. Indo-Japanese cooperation should become a key component in the whole Indian Ocean security mechanism.

Why does it hold great importance for Japan and India?

Japan is a maritime  nation  depending  on  the Ocean  for  its  basic  resources  and external  trade. More than seventy per cent of its energy resources are transported by sea from the Middle East and any disruption to its energy supplies could seriously affect its economy. Indian Ocean security is directly linked to the well-being of the Japanese economy.

With a coastline of 7,500 kilometers, India too has a vital stake in the security of the Indian Ocean.

Since the end of the Cold War, India has pursued a  comprehensive  maritime  strategy  that  emphasizes  the development  of modern  ports  and  harbours,  exploitation  of marine resources, expansion of shipping, and modernization of fishing industry. Following the implementation of  the UN Convention on Laws of the Sea (UNCLOS), it set up its Exclusive Economic Zone (EEZ) and went on  to widen  the  framework  of  its maritime  strategy. Equipped with warships, aircraft carriers, submarines and minesweepers, India has one of the strongest and most sophisticated navies in the Asia-Pacific region. India also has a highly developed Coast Guard whose main function is to protect life and property at sea against piracy and terrorism.

With India’s commercial and trade relations growing with East and Southeast Asia, the need for ensuring the safety of the SLOCs has assumed much greater importance. More than 90 per cent of India’s external trade is sea borne. India also depends on oil supplies from the Middle East to the extent of seventy five per cent. There is therefore a strong convergence of mutual interests between India and Japan.  They share many common perceptions on the evolving security situation in the Indian Ocean.

Since piracy is one of the most serious threats to the SLOCs, they have already started cooperating with ASEAN countries. The India-Japan Action Plan talks about strengthening cooperation between the navies and Coast Guards of the two countries. Both countries have held periodical antipiracy joint exercises in the Bay of Bengal.

 Compelling interest in freedom of the sea

 India and Japan share a compelling interest in freedom of the seas. The three common areas of interests are:

1)    South China Sea: 

Both India and Japan are dependent on freedom of passage through the South China Sea for trade flows and access to naval partners in Southeast Asia. (Nearly 60 percent of Japan’s energy supplies are shipped through there.) One-third of all global trade passes through the South China Sea.

The Indian armed forces’ exchanges and joint-exercises with not only Japan but also with Vietnam, Indonesia, and South Korea require unimpeded access through these waters. China’s 2012 warning not to penetrate the South China Sea littoral for an Indian Navy vessel’s port call in Vietnam was seen as unwarranted interference in India’s relationship with a third country with which it has long enjoyed ties.

2)     Western Pacific

The Western Pacific is another maritime domain of vital concern to both India and Japan. These waters connect both nations to their principal military partner, the United States, and its major hubs of power projection in Guam and Hawaii, while carrying exports to North America. Chinese dominance of these waters would put at risk the security of the air and sea lanes and the US military’s ability to operate freely in waters that bind together the economies of East Asia and North America. New Delhi has demonstrated its strategic interest in the freedom of these distant sea lanes by holding naval exercises with both Japan and the United States east of Okinawa.

3 ) Indian Ocean

The third maritime domain of special interest to both India and Japan is the Indian Ocean, which carries a majority of both nations’ energy imports from the Persian Gulf and is, therefore, intrinsically important.

It is the home sea of India, whose balancing role in East Asia is growing, as attested by the development of security partnerships with Japan, Vietnam, Indonesia, and other regional powers.