The age-old infrastructural partnership between Japan and India has been further solidified with Prime Minister Narendra Modi's visit to that country. The rare earth minerals trade deal has enormous significance, writes PRAVAKAR SAHOO and ABHIRUP BHUNIA
India-Japan ties have never seen a trough, but Prime Ministers Narendra Modi and Shinzo Abe can together stitch a new crest. Any bilateral relationship in the 21st century is to be based on concrete deliverables, whether it is on the commercial front, or on the geopolitical side. Mr Modi’s visit to Japan from August 31 to September 3 has been dubbed successful. So there is merit in looking at what has been achieved and what these achievements mean for both countries.
But before that, let’s review the already existing ties between the two, which is underpinned by commercial bonds. Trade between India and Japan totaled $18.61 billion in 2012-2013 and the two sides have set a target of $25 billion worth of trade by 2014. Trade is low, given the size of both economies and also compared to India’s and Japan’s trade of $65 billion and $310 billion respectively in 2013 with China. This is ironical as India and Japan are said to be forging a regional counter-balance to an increasingly assertive and powerful China.
Still, Japan is India’s fourth largest investor, with cumulative foreign direct investment of about $16 billion in the last decade and a half. The Indian automobile sector in particular owes a lot to Japanese investments in terms of development of advanced supply chains, growth in ancillary units and technology transfer.
Mr Modi’s visit assumed far greater significance than any other such visit before because of the mandate he carries, and of course the reported personal bonhomie between him and Mr Abe. When Mr Modi was still Gujarat’s Chief Minister, Japanese firms participating in the ‘Vibrant Gujarat’ summit invested between two to three billion dollars in that State, in response to its investor-friendly environment. This business friendly element is also one Mr Modi shares with the pro-India Mr Abe. Both leaders are dynamic, young and bold in their foreign policy moves. They are also sternly pro-business ardent nationalists.
Out of this visit in particular, nothing radically groundbreaking happened. The nuclear deal remained elusive although Mr Modi spoke of improved ‘understanding’ between the two countries after some ‘frank’ discussions on the civil nuclear front. Japan’s nuclear energy sales are a key to its infrastructure-related exports. Japanese firms produce vital reactor components and are keen to supply them to India. However, because India is a non-signatory to the Non Proliferation Treaty, Japan is having a hard time finalising the agreement. Civil nuclear talks were hit badly following the Fukushima disaster in 2011 but Japan agreed to resume negotiations last year.
On the economic side, Japan has promised investment and financing inflows of around $35 billion to shore up India’s infrastructural sector. Japan’s support to India on this front is already well-known. If anything, its scale has been broadened. The Delhi Metro example is almost a cliché now. The Japanese Official Development Assistance through the Japan International Cooperation Agency has been particularly important for India and is heavily directed towards long-term participation in infrastructure development in india.
As of mid-2013, Japanese loan assistance to India amounted to $15.91 billion, spanning 67 projects. Cumulative Japanese ODA loan commitment to India as on May 31, 2013, was $37.61 billion. Of this, the transportation sector received a sizeable share.
Japan has also responded to India’s call to invest in railway infrastructure: It has offered financial, technical and operational help with the introduction of bullet trains in India. This is likely to be initiated in the Mumbai-Ahmedabad route. Besides presenting Japanese firms with a lucrative business opportunity, this will also help fill India's infrastructure gap. The Chennai metro project is already being funded by JICA, as are the Delhi Mumbai and the Chennai-Bangalore Industrial Corridors. Japan will be more than happy to help India fortify its high speed railway infrastructure, at a time when China is racing ahead with superfast bullet trains.
In line with the requirements of the Indian economy, a third of Japanese ODA is located in the power and energy sectors. This visit saw the signing of deals in these sectors as well as Japanese commitment towards transfer of technology in defence. India will buy the Japanese built US-2 Amphibian aircraft while Japan transfers advanced technology to India, thus paving the way for the two countries to work together in building an indigenous aircraft industry in India.
If there is one takeaway that deserved greater praise, it is the revival of the rare earth minerals trade agreement that has been beset with pricing issues. This is important as currently China has dominates the sector which provides input for sectors as diverse as laptops to aircraft. Finally, Mr Modi’s assurance to strengthen the special Japan cell to fast-track Japanese investment in India and exclusively facilitate Japanese FDI is a signal to the world about the special position India accords to Japan. It is evident that the age-old infrastructural partnership between Japan and India has only been further solidified with this visit.