- Japan: Case for Strategic Engagement
— Prof. Mukul Asher
National University of Singapore
has made good progress during the past decade in constructively
engaging key countries and regional organisations around the world.
This has been made possible as India tries to translate its economic
potential into actual performance, and pursues strong and creditable
national security policies.
this juncture, there is a strong case for India and Japan to broaden
and deepen economic and political engagement with a view to enhancing
strategic depth and leverage of each country. The two countries
had envisaged “global partnership” in the year 2000.
It is time to give greater substance to this partnership. The fact
that India is the single largest recipient of Japanese Overseas
Development assistance (ODA) is a strong signal from Japan but it
needs to be complemented by more robust economic and political relations
to achieve the strategic engagement.
following indicate the extent to which the bilateral economic relationship
needs enhancing. Merchandise trade between the two has been relatively
stagnant since 1997-98 at around USD 4 to 4.5 billion. In contrast,
India-China trade has shown substantial acceleration, exceeding
USD 10 billion in 2004. In services trade also, perceptions are
that India- Japan trade has not been buoyant, though bilateral country
data for services trade are not available. India should urgently
consider capturing and publishing disaggregated country-level data
on services trade.
are 265 firms from Japan, which have invested in India, with total
FDI stock of only USD 2 billion. This is in sharp contrast to Japan’s
FDI stock of USD 50 billion in Southeast Asia, and USD 40 billion
in China. This large imbalance cannot be solely explained by objective
factors. India has demonstrated capacity to compete in the 21st
century. It ranks highly (third in the world) in FDI attractiveness.
Harvard University’s Professor, Tarun Khanna has observed
that India’s FDI Policies are more attractive than China’s
through India lacks marketing and soft skills to translate these
into actual investments. Over 80 percent of foreign ventures in
India are profitable, and most are earning above average returns.
sharp contrast to Japan, its traditional rival South Korea has been
pro-active in establishing a substantial manufacturing presence
in India for both domestic and export markets. At current rates,
India’s trade with South Korea is set to overtake its trade
with Japan in the near future.
a November 2004 seminar on Building a New Asia in Tokyo, former
high-level economic ministry official Professor E. Sakakibara persuasively
argued that the primary reason why many win-win opportunities between
the two countries have not been actually realised lies in the mind
–set of Japanese policy and business establishments as well
as opinion-makers and researchers. They have not been monitoring
India’s unilateral liberalisation and rapid integration with
the world economy with sufficient focus and depth. The fact that
Indian IT companies have been providing key support to manufacturing
firms in Japan to become more competitive has not been recognised
sufficiently in Japan; and nor the fact that the location (India)
where some of the key (such as chips) are designed or further developed
should be regarded as an integral part of the electronics chain.
Japan’s business rivals from US, and the EU as well as South
Korea and China have been using India as a location for design and
Research and Development activity to become more competitive. He,
therefore, urged the Japanese establishment to make concerted efforts
to broaden and deepen engagement with India.
case for broader and deeper partnership between India and Japan
may be summarised as follows:
Japan’s energy security and trade flows are heavily dependent
on secure routes through the Indian Ocean. India has common interests
with Japan in keeping this vital sea route secure, and is developing
capability to constructively cooperate with Japan in this area.
Such cooperation will also be welcomed by the U.S, thereby fulfilling
a key requirement for Japan's engagement.
there are strong demographic complementarities between India and
Japan. Japan’s population in absolute terms will begin to
decline by the end of this decade, and median age of its population
will continue to increase due to individual ageing. India in contrast
is entering a demographic gift phase resulting in rising proportion
of population in the working age group. India could have nearly
50 million well-qualified internationally competitive persons to
address the demographic complementarity with Japan, EU, U.S, South
Korea and others.
can substantially extend its economic space and its technological
capabilities and capacities through partnership with Indian firms,
particularly in biotechnology, pharma IT, space and certain manufacturing
areas such as auto design. Such partnerships will permit Japan to
access knowledge professionals from India without necessarily requiring
the physical movement of these professionals. Japan would thus be
able to extend its economic opportunity set, and diversity global
India and Japan have teamed up with Germany and Brazil to coordinate
their efforts to become permanent members of the UN security Council’
The economic and strategic widening and deepening of India- Japan
relations will enhance leverage of each in pursuing this goal. The
current composition of the Security Council does not reflect the
realities of the 21st century. All four countries have a strong
case for full permanent membership of the Council.
there has been perception in some circles that Japan has not reaped
diplomatic and tangible economic benefits proportionate to its role
as investor, aid provider, and trading partner of Southeast Asia.
The capability or Southeast Asia to absorb further large scale Japanese
Investments has diminished since the 1997 East Asian Crisis. The
risk of over-concentration by Japan on the performance of Southeast
Asia (and China) has risen substantially. As a result, substantially
increasing comparatively miniscule FDI stock in India represents
lowering of overall global risk for Japan.
will also open up opportunities for Japanese business to participate
in a mega market. Before the end of this decade, India’s GDP
in current terms is set to exceed USD 1000 billion, and its international
trade in goods and services is expected to reach USD 500 billion.
India’s economic growth is founded on strong private sector
that has set itself ambitious target of global competitiveness in
many areas. FDI however has a critical role to play in India’s
growth strategy. FDI, particularly from the US, EU, and South Korea
is already doing so. The longer the Japanese companies defer their
decisions to invest in India; greater will be the opportunity cost
of the delay.
presence of Japanese financial institutions in India’s increasingly
sophisticated and competitive financial and capital markets is also
extremely limited. Foreign Financial Institutions (FII’s)
have invested about USD 60 billion in India’s stock markets
alone. Japanese presence in venture capital and private equity funds
in India is also limited.
are many small and medium size Indian companies and startups in
high technology areas, which provide substantial opportunities for
private equity and venture capital firms.
would be useful if the joint study group agreed upon by the Prime
Ministers of the two countries in November 2004, gives priority
to considering specific ways to bring about the wider and deeper
engagement between the two countries.
policymaker, business community, media, and researchers on their
part need to make concerted and focused efforts to mitigate substantial
information and perception gaps in Japan about Indian proficiency
in commercial diplomacy and soft power skills.
ultimate determinants of India’s success in engaging not only
Japan but also other major powers will continue to be its economic
and governance records, and perusal of strong and credible national