Mains Daily Question
Jan. 25, 2021
- The complementarities between India and Japan make for an ideal economic partnership but the economic ties, though improving, have remained far below their potential. Discuss.
- Introduce with Japan and India's potential for economic relationship and highlight the complementarities
- Explain how ties are improving - CEPA in 2011, Investment in Infra, NE etc.
- Point out with data how economic relationship is far below potential
- Note some reasons for the relationship not reaching potential
- Conclude appropriately
The friendship between India and Japan has a long history rooted in spiritual affinity and strong cultural and civilizational ties. There is huge potential for growth in the economic relations between India and Japan, given the complementarities that exist between the two Asian economies such as --
- Japan's ageing population (23% above 65 years) and India's youthful dynamism (over 50% below 25 years);
- Japan's surplus capital for investments and India's large and growing market
- India's prowess in services and Japan's excellence in technology and manufacturing;
Realizing this in the recent past, the India Japan relationship has transformed to a partnership of great substance and purpose. The beginning of the 21st century witnessed a dramatic transformation in bilateral ties leading to the Comprehensive Economic Partnership Agreement (CEPA) between Japan and India in 2011. The improving nature of ties can be seen from the fact that:
- FDI: Japan is the third largest foreign investor in India.
- Investment in Specific Mega Infra Projects, including the Mumbai-Ahmedabad High Speed Rail, the Western Dedicated Freight Corridor (DFC), the Delhi-Mumbai Industrial Corridor (DMIC), the Chennai-Bengaluru Industrial Corridor (CBIC) etc.
- Investment in Northeastern Regionby Japan to enhance connectivity and promote developmental projects.
- Smart Cities- Japan has decided to be associated with the development of Chennai, Ahmedabad and Varanasi as smart cities.
However, the economic partnership has been far from potential, as can be seen from the fact that:
- Low Volumes of Trade- Indian exports to Japan have reduced to $4.85 billion in 2018-19, from $6.81 billion in 2013-14. India's trade deficit with Japan has now widened to $7.9 billion against $2.7 billion in 2013-14.
- Services- India's exports of IT and IT enabled services to Japan account for less than 1% of Japan's IT services market and India also has an overall trade deficit in services with Japan.
Various reason has been cited for the relationship performing below potential. Some of them include:
- Red tape and Corruption: Japanese companies have been conservative while dealing with India. Japanese investors complain of red tapism, issues related to taxation, corruption etc. in India.
- Market Access and Non-tariff barriers: India has highlighted various issues which need to be addressed by the Japanese side for providing greater market access to Indian products in Japan. Japan’s Sanitary and Phytosanitary Measures (SPS) are major barriers to Indian exports of poultry, meat, shrimps and fruits like mangoes and grapes.
Japan's stagnating growth and India's need for rapid growth and the complementarities make it an ideal relationship. Measures like “Japan Plus” by India to resolve problems faced by Japanese companies and "India-Japan Investment Promotion Partnership‟ are good steps in this regard.