New Delhi: Prime Minister Manmohan Singh is to visit Japan between 24 and 26 October, the ninth visit by an Indian Prime Minister to that country in 30 years. The two countries, whose bilateral trade was worth $11.3 billion (Rs50,059 crore) in 2009-10, are expected to sign a Comprehensive Economic Partnership Agreement during the visit to strengthen economic ties. Japanese ambassador to India, Hideaki Domichi, spoke to Mint on the evolving relationship between the two countries. Edited excerpts:

India and Japan are expected to sign the Comprehensive Economic Partnership Agreement (CEPA) during Prime Minister Manmohan Singh’s coming visit to Tokyo. How will this affect trade between the two countries?

Road ahead: Domichi says Japan is satisfied with the progress of the Dedicated Freight Corridor. Ankit Agrawal / Mint

One of the high points of the India-Japan economic cooperation has been the Dedicated Freight Corridor (DFC) or the Delhi-Mumbai industrial corridor. What is the progress on that?

I think we are satisfied with the progress of the DFC. Sometimes we hear some concern from some quarters in India that the progress is slow. But actually this is a gigantic project covering thousands of kilometres... The DFC comprises the western corridor and the eastern corridor. The Japanese government has committed itself to build the Western Corridor. For India to grow further, this project is very significant because even today if you look at this corridor—Mumbai and Delhi—it constitutes a large proportion of industrial production, lots of containers are unloaded or uploaded in the western port and it would take a long time to transport these containers to a destination like Delhi. So this DFC is going to update this transportation system and introduce a new and quite modern type of transportation. Therefore we are doing everything we can technologically and financially and so doing certainly a bit of time but we hope progress will be made according to plan and the year 2016 will see the freight corridor being operational.

We have a G-20 meeting coming up soon. Many developing countries view large exporters like Japan as contributors to the macro-economic imbalance dogging the system today. What kind of role do you see for India in this scenario in the system of international trade and finance?

In my view, this is only part of the recognition of how the problem has arisen. Certainly, there are issues relating to trade surplus and trade deficit and this imbalance ought to be solved. But this is not the crux of the matter. What has caused this problem is rather the financial side; it started with sub-prime loan crisis in 2007 and after that the financial de-stability spread to the developed economies. From my point of view, what we need to address is how to stabilize the financial market. Because, right now, every country is undertaking the stimulus policy that means a lot of money is flowing out into the market and this money is flowing from one place to another; the financial instability will remain and, therefore, we have to address it. India is also participating in IMF and World Bank meetings and there is recognition that India would play a larger role in these institutions. Secondly, India and China, in particular, are demonstrating high economic growth and we hope these emerging economies will occupy a more important role in the integrated world economy. Surplus and deficit is an old question and trade surplus or deficit will hopefully be balanced by financial stabilisation which is crucial in today’s world economy.

We are having the East Asia Summit (EAS) shortly and the US and Russia are expected to join this grouping. What are the strategic implications of this? Will it bring some sort of a balance, do you think, in a region that is dominated by China? What kind of a role do you see for India in this context?

Actually, with regard to East Asia summit, Japan supported India’s participation in 2005 and this time we also support the participation of the US and Russia. In my view, Asia is becoming a very important area; the 21st century is a century of Asia. In Asia we have many mechanism or groupings like Asean (Association of Southeast Asian Nations). But the EAS is the leaders’ forum for dialogue. We believe that the participation of countries like India will strengthen the dialogue for the sake of prosperity of Asia. Now you talk of the strategic balance, we observe that there are some sentiments that by having the participation of the US and Russia somehow the balance will be achieved. But we don’t think China is dominating (the region).

You recently had a diplomatic spat with China over the islands known in Japan as the Senkaku. Has the spat hurt Japan’s image?

We don’t believe so. We see some reports in the Indian media that there are some territorial issues between Japan and China. But actually in our view there is no such issue between Japan and China. These islands are Japanese territory for sure. China made its claim in 1971.

You ask me if there is any dent in the Japanese image. Probably you are suggesting there could be more confrontation with China. Certainly we cannot give in because this is our own territory. Whether our relationship with China has been affected or not. I think it has been affected to some extent but, apart from this issue, building a relationship with China is a challenge. We categorize our relationship with China both ways—one is as an opportunity the other is a challenge.

India and Japan have had two rounds of talks on a civil nuclear pact. Are we likely to see an agreement soon?

Not this time. You know that in 2008, when the Nuclear Suppliers Group made a decision (in favour of India) we joined the consensus despite criticism within our country which has suffered from the atomic bomb. More cooperation with a country like India, which is not a signatory to the nuclear non-proliferation treaty is certainly viewed with some scepticism and criticism (in Japan). But we made a decision (to go ahead and talk with India)...because we have relationship with India and cooperation on the nuclear side is a quite a major element in our overall strategic relationship.

Secondly, I think India is building lot of nuclear power stations, which we hope will contribute greatly to environmental mitigation. This is a must and Japan as a country that has developed civil nuclear technology—(which is) perhaps one of the best (in the world) in parallel with maybe that in France. We have just concluded the second round of talks (on this); the third round of talks are expected at the time of the Prime Minister’s visit.