Japanese Prime Minister Shinzo Abe told India’s Parliament that he wants to build on the countries’ bilateral trade and strategic relationship. Japan currently represents only 2% of India’s trade and 5% of its foreign investment. With a trade treaty possible in 2008, there would appear considerable value-added from closer links.
The two countries have complementary skills and needs. With 1.13 billion people, India will always have a large manufacturing sector and an abundance of low-cost labour. Japan, on the other hand, has superb skills concentrated in manufacturing sectors, ample surplus capital and an aging population that is beginning to decline.
This has already been demonstrated in some sectors. Japan’s Suzuki Motor Corp. owns a controlling interest in India’s largest automobile manufacturer, Maruti Udyog Ltd, and was responsible for the design of the 1983 Maruti 800, India’s most successful domestic car model with more than one million sales. Honda has the fifth largest automobile market share in India, while Toyota is aiming for a 15% market share by 2015. With its large home market, India is becoming a major producer of small, low-cost automobiles, which could become market leaders in Third World countries where they are competitive.
Nevertheless, with only 2% of India’s exports and imports and $250 million (Rs1,025 crore) of annual investment flow, Japanese companies have been only a modest factor in India’s economy. A Japan-India free trade agreement, which the two agreed last December to negotiate by the end of next year, could change this. Both countries have historically been highly protectionist, so lowering tariff and non-tariff barriers between them should greatly boost mutual trade and investment. Barriers of language and distance historically limited trade, but modern telecommunications and the two nations’ shared facility in English have dramatically lowered them.
Japan and India have a common traditional adversary in China and increasingly a common ally in the US, meaning a closer relationship also makes sense geopolitically. Marrying curry with sushi might be a challenge, but on several more important fronts the two countries’ needs and capabilities appear to be an excellent fit.