Millennium Post


For the first time, the visit of an Indian Prime Minster to Japan to strengthen bilateral relation had a rider of third country and that was China. Interestingly, Japan and China are bogged down by their historical political rivalries. After China emerged the biggest trading partner of India and Japan became the second biggest investor in India, both countries have become important economic allies. Even though India-China political convulsion has not ebbed yet, a gushing visit of new Chinese Prime Minister Li Keqiang to New Delhi before the Indian Prime Minister’s visit to Japan evoked a new chapter in the bilateral relationship between India and Japan. Manmohan Singh seemed to have nicely portrayed India’s real non-alignment attitude amidst the tug-of-war between Japan and China to woo India.  

Reports on the Chinese Premier’s visit to India juggled several questions. Will India emerge as the epicentre for power games in the Asia-Pacific region or will China make hard sale to woo India to expand its global power and counter Japan’s attempts to contain China in the region? Or, will Japan make India the next Japanese overseas investment hub after China lost its zeal? The economic relation between India and Japan was good, but not euphoric till Lehmann shock in 2008. It was only after the great tumult that the Japanese investment sparked in India. During the seven-year period from 2001 to 2007, the annual average of Japanese investment in India was $406 million. The average sparked to $3,441 million during 2008-2012 – an eight-fold increase in investment according to Japanese Ministry of Finance.  

Japan emerged an important economic ally to India in true sense. Even though her role in trade with India is one-fourth of China, Japan helped in building manufacturing hub for automobiles in India. In 2012-2013, Japan was the third biggest foreign investor in the country. During the 11-year period of 2000-2011, Japanese FDI in India was $12,110 million. As compared to this, Chinese FDI was $103 million only. Foreign capital is more important in building a nation’s economy than indulging in trade expansion only. This forced Indian Finance Minister P Chidambaram to visit Japan, Dubai and Canada immediately after the 2013 Budget to attract FDI.

Japan has made deep inroads into Indian infrastructure development. It is the biggest ODA donor in the development of infrastructure in India such as Delhi Metro and DMIC (Delhi Mumbai Industrial Corridor) projects. DMIC, when completed, will create a strong platform for manufacturing base in western part of India, covering six states.     

Last year, India celebrated 60th anniversary of India-Japan diplomatic relation. It is one of the rarest foreign relations of India, where all throughout the friendship with Japan remained cordial and was harping on each other cooperation. There were few occasions when the relation between the two countries turned sore. In the history of India’s foreign relation, Japan is the only country which acted as a true economic partner of India, notwithstanding it remained politically a passive ally to India.

India has always been compared with China by the Japanese investors. This is because both countries are complementary to each other in terms of workforce, low wages and faster economic growth. But situations have changed after Lehmann shock. China’s supremacy for high investment potential has dampened with the appreciation of Chinese currency renminbi, which negated the advantage of low wage.

Notwithstanding marginal hope on India bouncing back to golden period of economy in near future and the decline in overall FDI flow in India in 2012-2013, Japanese investors are pouring money into India. In 2012 (January-December), Japanese investment surged by 20.5 per cent over the previous year – from $2326 million in 2011 to $2802 million in 2012 (according to Japanese Ministry of Finance). In contrast, Japanese investment in China increased marginally. It increased by 6.5 per cent in 2012. The major areas of Japanese investment in India were automobile, pharmaceutical and metallurgical industries.   

Some cases will prove Japanese growing interests in India. While the Japanese electronic giants are plunging into red in Japan, their India operations are thriving. During nine month period of 2012-2013, India emerged as the fourth largest market for Sony globally. The Indian arm of Japanese Panasonic notched a 72 per cent growth in 2011-2012. Burying the border dispute bitterness, China bowed to gear up for a better relation with India through economic partnership. The return of the Japanese Prime Minister Shinzo Abe and the second win of American President Barak Obama – both known for their India favour – propelled the Chinese Premier Li Keqiang to hasten his visit to India. China enticed India by extending full support for establishing the BRICS bank for infrastructure development, which was originally mooted by India. Japan and USA woo India with more doses of economic cooperation and foreign investment.

The four decades politically hostile relation between India and China has now changed into a strong trade relation. In 2011-2012, China accounted for 9.5 per cent of India’s total global trade. Taking the shelter of buoyant trade relation, new Chinese Premier Li Keqiang emphasised for a new dimension of India-China relation. This will sprout a new chapter for a triangular relation between India, Japan and China. The futurists forecast that China’s growth would slip from high speed to medium term growth in five to ten years. China lowered its GDP growth to seven per cent. India too is not hopeful to achieve more than 6-7 per cent in next two to three years. But, India’s slow growth has bottomed out.

India’s growth depends on strong domestic demand and China’s growth rests on export. There are several reasons, which will cripple China’s growth. They are rise in wages, pressure on renminbi, weak base to spur domestic consumption, drying up of working age population, dwindling saving ratio, weak SMEs after global downturn and institutional weakness to do business in domestic market. Given the situation, India can splurge more potential for Japanese investment.
With its strong economic fundamentals, such as strong domestic demand, huge workforce with big pool of human skill, non-aging society, large scope for investment in infrastructure, India can edge China in attracting Japanese investment.

No doubt that China pitched for buoyant economic relation with India through trade. But the surge in trade led to an wide trade deficit, which raised an alarming current account deficit. IPA

The author is Adviser at Japan External Trade Organisation, New Delhi
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