Prospects and Challenges for Expanding India-Japan Economic Relations

While India has become the largest recipient of Japanese ODA since 2003-04, both bilateral trade in goods and Japan’s FDI into India have almost stagnated during the past decade. With major Indian exports to Japan being dominated by products of mineral oils, gems & jewels, marine products (mainly shrimps) and iron ore, India and Japan have not yet formed such a dynamic international division of labour as can be seen among the East Asian countries. Japan’s cumulative FDI into India is so far larger than that of Korea, but as far as electronics appliances are concerned, Japanese companies have been overwhelmed by Korean companies in the Indian market.

India and Japan are highly complementary economies, but their mutual complementarities remained underexploited hitherto. Recently, however, a new tide has been observed in Japan to expand Indo-Japan relations based on mutual complementarities. Japan has abundant capital and is highly advanced in technological skills and product development while India is endowed with a huge market and abundant human resources. Japan is outstanding in terms of manufacturing abilities, whereas India has advantages in IT services and bioinformatics.

Download Issue Brief