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Modi's Trip Sets Tone For New Indo-Japan Relationship
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Prime Minister Narendra Modi's visit to Japan has provided a clear template to develop future relations between Tokyo and New Delhi.
As Modi and his Japanese counterpart Shinzo Abe agreed during their talks, this relationship has strategic importance for both countries as they seek common goals towards a brighter future.
"India and Japan are the book-ends of a rising Asia. The strategic convergence between the two is defined by a wide range of historical, geographic, geopolitical and geo-economic factors, and not just the rise of China. Japan has taken a long time to discover India's importance to it. It now has thanks to Prime Minister Shinzo Abe," said Sanjaya Baru, director for geo-economics and strategy at the London-based International Institute for Strategic Studies.
Three things stood out on Modi's recent five-day tour. The first is economic engagement, second is defence cooperation and the third is technology transfer.
Redefining Economic Links
Japan has clearly sent a signal that it considers India a good place to put money and build businesses. Japan will invest $35 billion over the next five years in India. This is a massive commitment as Japan has only committed about $10 billion over five years in external investment to any country. The main focus of Japan's investment will be on developing India's creaky infrastructure.
"This has been a transformational trip by Prime Minister Modi. It has made an impact both in sentiment among the Japanese and in substance. India for Japan has long been an attractive idea, now it is a substantial opportunity. We believe that Japanese firms will follow up on the mega investment plans that have been lined up. There is a new belief that India is a place where you can do business," said Bharat Kaushal, chief executive officer of India operations of Sumitomo Mitsui Banking Corporation.
"Japanese firms have done well here. New investments in infrastructure and manufacturing will certainly follow. Mega industrial parks and factories will be the focus of this new Japanese investment thrust into India. The political capital invested by both leaders into the relationship will give confidence to the business establishments in New Delhi and Tokyo," Kaushal added.
Japan is helping in developing the Delhi-Mumbai Industrial Corridor (DMIC), which is the showcase project aimed at attracting largescale Japanese investments in India. DMIC is a 1,483-km dedicated freight train corridor across six states and two Union territories. On both sides of the corridor, industrial townships will be developed covering an area of 150-200 km.
The corridor is aimed at transforming infrastructure but has the potential to change the overall Indian economy as well as the investment and trade relationship between Japan and India.
Modi's visit will ensure a new investment thrust for this $90-billion project. Japan has already provided an initial loan of $4.5 billion for DMIC.
The project will double the employment potential in seven years while industrial output is projected to go up three times in nine years. Exports from the project and its periphery are likely to quadruple in eight years.
As the Japanese expertise and money are combined with Indian capabilities for this project, the key impact will be in terms of industrial townships that will be developed around the corridor.
Gujarat and Rajasthan are set to benefit most as 70 per cent of the infrastructure will be developed in these two states. But the project will boost India's manufacturing sector as it will open up many possibilities along the route.
The Prime Minister's Office is all set to have two special nodel officers who will look after investment-related issues and make Japanese initiatives in India hassle-free.
India, however, has not directly addressed Japanese concerns on $3 billion of retrospective taxes imposed on Japanese firms, including $2 billion on Mitsubishi. The Indian side faced several inquiries on the issue during Modi's visit and it is understood that the Japanese want India to ensure that these retrospective taxes are urgently revaluated.
Modi's visit creates new opportunties for expanding bilateral trade, which is just $9 billion at present. This is small compared with Indo-Chinese trade worth about $51 billion. However, a large part of India's Chinese trade is with Japanese-owned firms and this could slowly change as Japanese investment grows in India.
A rise in Japanese investment could also mean more balance in trade. The Indian trade deficit with Japan amounted to $6 billion in 2013.
"Modi's Japan visit can be termed historic in many terms. Japanese companies in India welcome the 'Special Strategic and Global Partnership', which means both nations get priority and given special status in each other's progress," said Rajeev Sharma, head of corporate services and strategic planning at Mitsubishi Electric India.
India and Japan are more than business partners. The two countries took four important initiatives in defence during Modi's visit. The first is India will now hold the large navy exercise "Malabar" with Japan and US regularly. In Asia, India and Japan have two of the most modern navies and their interactions will help strengthen confidence in maritime security.
Inevitably, a US-Japan-India maritime cooperation agreement is likely to cause concern in China. The rise of Chinese belligerence at sea and on land was hinted by Modi in his speech. Modi has raised the security stakes and signalled that just as China is prepared to encircle India with military aid and building ports in Myanmar and Sri Lanka, India too is prepared to counter it. This is a bold new approach to India's defence posture.
However, to India's disappointment, a nuclear cooperation agreement with Japan could not be signed on the Modi tour. The prime minister hinted that progress is being made in this direction.
Sources in the Ministry of External Affairs say that India is keen that Japan agrees to a US-type deal where in the event of a nuclear test by India there is no abrupt cancellation of supplies. In the US-India deal, a framework has been agreed upon where the two sides will meet for a year before deciding on any sudden change of course. It is likely that Delhi and Tokyo will iron out their differences soon.
As an important first step, Japan has lifted sanctions on six Indian firms, including Hindustan Aeronautics, that were previously refused advanced Japanese technology and dual-use items. This will lead to a flow of critical technologies in aerospace reconnaissance and sensors to India.
The least reported achievement of the Modi trip has been agreements to supply technologies to India. Japan will provide India its expertise in cleaning rivers, which will come as a boon for the Ganges cleaning project underway in India.
Similarly, the proposed Mumbai-Ahmadabad bullet train will need technology and project execution skills from Japan. In three other sectors - mining, construction and bio-technology - the Japanese have offered technological assistance.
Modi's trip to Tokyo has elevated the Indian-Japanese relationship from important to strategic. Much work, however, remains to be done in New Delhi to ensure that the prime minister's promise of a red carpet welcome to Japanese investors is kept. Japanese are extremely polite yet famously pragmatic people and India will do well to understand that.