India, Japan hold finance dialogue, discuss bilateral co-operation and international issues

The second India-Japan Finance Dialogue, attended by top government officials and regulators in Tokyo last week, discussed cooperation in third countries, international issues, and agreed to promote financial cooperation and strengthen bilateral ties, the ministry of finance said on Monday.

Japan's vice minister of finance for international affairs, Atsushi Mimura and Ajay Seth, secretary, the department of economic affairs led their delegations.

Delegates included representatives from the Ministry of Finance and Financial Services Agency from Japan and Indian representatives from the Ministry of Finance, Reserve Bank of India, Securities and Exchange Board of India, Pension Fund Regulatory and Development Authority, Insurance Regulatory and Development Authority of India, and International Financial Services Centres Authority. 

What were discussed?

"The participants exchanged their views on the macroeconomic situation in both countries. They discussed cooperation in third countries, bilateral cooperation, and international issues," the Ministry of Finance said in a statement.

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"The participants also shared views on financial sector issues, including regulation and supervision, financial digitalization, and other policy initiatives in both countries. The participants were joined by representatives of Japan’s financial services industry for a session to discuss various financial regulatory issues towards further expansion of investment in India," it added.

The next round of dialogue is slated to be held in New Delhi.

Interestingly, the Bank of Japan raised its interest rate for the second time in 17 years last month, in another step away from its long-standing ultra-loose monetary policies, setting an interest rate of 0.25%, up from 0- 0.1%.

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In the recent past, Indian companies, as well as the government, have been increasingly reliant on Japanese loans for their fund-raising purposes due to low interest rates.

However, the Bank of Japan has played down the chance of a near-term hike in borrowing costs.

Among Indian companies, JSW Steel, Rural Electrification Corporation (REC), Power Finance Corporation (PFC), and Housing and Urban Development Corporation (HUDCO) have cumulatively raised yen-denominated debt upwards of ¥200 billion (about  ₹11,000 crore) in the past year, according to publicly available company disclosures. 

These include loans as well as bonds. The largest amongst these was REC, which has raised about ¥153 billion (  ₹8,390 crore), since January 2024, over three separate debt facilities.

Among state governments, this April, the Tamil Nadu opted for a loan of $300 million in Japanese Yen from the World Bank for developing urban water and sanitation services.

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Last month, state-run Power Finance Corporation announced it secured a long-term loan worth JPY (Japanese Yen) 25.5 billion from the Japan Bank for International Cooperation (JBIC) to finance a 300.3 MW wind energy project in Karnataka.

Another public sector lending major, Housing & Urban Development Corporation, recently tied up for Yen-denominated ECB (external commercial borrowing) worth $400 million.

While India's external debt-to-GDP ratio, at 20%, is one of the lowest among major economies, about 11-12% of the country's external borrowing is from Japan, making it one of India's largest bilateral creditors.