Economic ties between India and Japan have steadily strengthened over the past few years, yet they remain below the envisioned potential. This disparity highlights various policy constraints that impede their growth trajectory. One significant limitation is the regulatory barriers hindering bilateral trade and investment. Despite efforts to streamline regulations, bureaucratic complexities persist, dissuading businesses from fully capitalizing on the opportunities available in both markets. Additionally, differing tax regimes and legal frameworks pose challenges for companies seeking to operate across borders. Another critical factor is the lack of comprehensive infrastructure connectivity between the two countries. Insufficient transportation networks and logistical inefficiencies increase the cost and complexity of conducting business, deterring investment and trade expansion. Furthermore, the absence of a robust bilateral trade agreement constrains the scope of economic cooperation. Negotiations for such agreements often face delays and deadlock due to divergent priorities and protectionist sentiments. Moreover, geopolitical tensions and strategic considerations occasionally overshadow economic cooperation, leading to hesitancy in forging deeper ties. Addressing these policy constraints demands proactive efforts to streamline regulations, enhance infrastructure connectivity, and foster a conducive environment for bilateral trade and investment. Only through concerted policy reforms can India and Japan unlock the full potential of their economic partnership.
Tag: Bilateral relationships involving India and/or affecting India’s interests including India and East and West Asian Nations, African Nations, Europe and the Americas.
Decoding the Question:
- In Introduction, try to write about the India- Japan relationship.
- In Body,
- Briefly write about growing economic ties between both countries.
- Discuss why the potential between two nations has not been achieved.
- Also, write policy constraints in growth of economic ties.
- Try to conclude the answer with suggestions.
Answer:
The modern nation states have carried on the positive legacy of the old association which has been strengthened by shared values of belief in democracy, individual freedom, and the rule of law. Over the years, the two countries have built upon these values and created a partnership based on both principle and pragmatism. Today, India is the largest democracy in Asia and Japan the most prosperous.
Growing Economic Ties:
- India-Japan economic ties have witnessed remarkable growth in the last few years. In FY 2011-12, the bilateral trade reached $18.43 billion from $13.72 billion in 2010-11. The conclusion of the Comprehensive Economic Partnership Agreement (CEPA) between the two countries in October 2010 has played a significant role in enhancing the economic ties.
- According to the survey conducted by the Japan Bank for International Cooperation (JBIC) in FY 2012, India was ranked the second (after China) among the promising countries for overseas business by the Japanese companies over the medium term. Since 2003-04, India has been the largest recipient of Japan’s Official Development Assistance (ODA).
- In fact, by February 2013, 66 projects were under implementation in India with Japanese ODA. Among them, the Dedicated Freight Corridor (DFC) and Delhi-Mumbai Industrial Corridor (DMIC) projects have been the most ambitious ones so far.
But investment of Japan and economic ties between both the countries has not taken place up to the mark.
Why the potentials have not achieved:
- Unfortunately, the bilateral trade seems to be quite disappointing given the enormity of the two economies. The investment from Japan too fails to reflect the potential of Japan to invest and the capability of India to absorb it. In spite of the fact that India’s growing economy and stable investment climate provides a lot of opportunities to foreign companies, it still has not been able to attract adequate attention from Japanese investors.
- Lack of appropriate infrastructure development is considered to be one of the major constraints in this regard. Till the 1990s, factors like corruption, red-tapism, dense Indian bureaucracy, rampant corruption, social unrest, political instability, etc. seemed to discourage Japanese companies/investors from investing in India.
- Many of these factors continue to remain relevant even in today’s context. Adequate policy decision in doing away with these challenges is extremely important in boosting the India-Japan economic ties further.
Policy Constraints:
- Economic ties: Though economic ties are growing, Japan, the third largest economy of the world, is the 12th trading partner of India.
- Bilateral trade declining: Currently, both countries have diversified their trading partners, and the share of bilateral trade has declined. As of 2018, India had a 1.1% share of Japan’s total trade, and Japan’s share of India’s trade was 2.1%.
- Annual trade: Despite the Japan-India Economic Partnership Agreement, which took effect in August 2011, bilateral trade has not increased by any great degree. Japan-India trade totalled about $17.6 billion in 2018—less than the trade between India and South Korea, and only a fifth of India’s trade with China.
- Horizontal trade: It has not developed between Japan and India as seen in the trade of industrial products and parts between Japan and East Asian nations.
- Drugs/ pharmaceutical: While India has a comparative advantage in generic drugs, exports of pharmaceuticals to Japan remain stagnant, even though the Japan-India EPA gave India national treatment for the registration of generics and related applications.
- Unstable reforms agendas in India: In India if a new economic reform needs to be implemented there is need a lot of political consensus and some this leads to political controversies. Hence it is creating an unstable environment for policy implementation.
- Land acquisition issues: Japan is the main player in development and building India’s first Bullet Train project between Mumbai and Ahmedabad. But land acquisition in Maharashtra has not been completed.
- Ease of Doing Business (EODB): Despite constant improvement in EODB ranking India is not able to attract Japanese investors. As they are hesitant to invest in India due to the long process in registering property, exit norms etc.
- Free Movement of Professionals: Japan has been reluctant to allow free movement of professionals.
India and Japan share a great value of Buddhism, share greater strategic partnership in Asia and Indo-Pacific particularly, aspiring joint partnership in development projects in Sri Lanka, International North-South Transport Corridor and there is huge potential to increase cooperation to counter Chinese influence in Asia- Pacific. India-Japan partnership is also very crucial when reducing the American role in Asia- Pacific. Hence, the Government of India needs to remove all the obstacles which are hindering economic ties and build strong, strategic relationships based on shared values.
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