India-Japan : Fall Short On Economic Potential

India - Japan Falls short on Economic Relationship

India - Japan Bilateral Relations

Introduction :-
In theory, it’s hard to find two nations that make a better economic fit than fast-growing, populous India and rich, demographically challenged Japan. India needs technical expertise and investments to develop its infrastructure, while Japan has capital to spare and know-how to share.

  • They have a common strategic objective in countering Chinese hegemony in Asia, a goal that can be best met in collaboration.
  • They enjoy a rare historic amity, being geographically and culturally close, but not too close and, therefore, free of contentious issues such as border disputes.

Recent developments :-

The two governments in recent times have worked hard to upgrade ties.

  • There have been memoranda of understanding, some big-ticket projects, notably Japanese investment in India’s first bullet train, and political avowals to grow the economic relationship exponentially during bilateral visits.
  • There are now 1,369 Japanese companies and over 4,800 Japanese corporate offices active in India.
  • Japan currently ranks as the third largest investor in India.

Yet to reach its potential :-

The India-Japan economic relationship remains underwhelming both in relation to its potential, and to the ties that each nation shares with China.

  • According to Japan External Trade Organization (JETRO) data, China received about five times more Japanese investment between 1996-2015 ($116 billion) than India did ($24 billion).
  • Japan-India two-way trade — $13.48 billion in 2016-17 — is also a fraction of the $350 billion China-Japan trade relationship or even India-China trade ($84.44 billion in 2017).
  • The share of India-Japan trade in Japan’s total trade basket is barely 1% and it is a little over 2% of India’s trade with the rest of the world.

Reasons behind:

  • Inadequate infrastructure, complex tax regulations and land acquisition problems in India for foreign investors.
  • It takes Japanese companies in India longer than their Korean or Chinese counterparts to learn how best to localise their products for the Indian market.
    Example The Japanese tend to think that the most important element is the quality of the air conditioner so that it is able to last without the need for repairs. But in India it is cheap to have an air conditioner repaired and technicians are abundant. The consumer is therefore more focused on cost than durability.


  • The greatest challenge is cultural: an outdated and negative image of India. He said that employees picked for jobs in India often act as though they have drawn the short straw.
    The larger corporations may realise India’s potential, but small and medium enterprises are the worst culprits of this attitude.
  • The difference in the cultural relationship to punctuality is another stumbling block.
    In Japan, being on time is akin to religion, whereas in India, punctuality rarely exists.
  • Japanese corporations are strongly risk averse which makes it difficult for them to cope in the freewheeling, jugaad-proud environment of India, where flexibility and impromptu decision making are necessary skills in the businesses.

Some measures:

  • Roping in Indian companies to develop and design Japanese products for the South Asian market could be one major way forward in deepening the bilateral engagement.
    Example- The recent collaboration between Japan’s Panasonic and India’s Tata Elxsi to develop smart solutions and products for Panasonic customers in India and the neighbouring region.
  • The use of India as a manufacturing base for markets in Africa, a trend that is interesting to Japan’s business strategists.
    Existing examples include Hitachi Construction Machinery’s joint venture with Tata whose Kharagpur plant is a hub for exports to developing countries, as well as auto major Nissan, which exports the India-made Datsun ‘GO+’ to South Africa.


Overall, the G (government) to G relationship is far ahead of the B (business) to B.” Closing this distance is what is required.

Importance :-

Mains level :- Despite the Improving Strategic ties between India & Japan. Why India-Japan Falls short on Economic Relationship.


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