Priya Juneja asked: The economic ties between India and Japan while growing in recent years is still far below its potential. What are the policy constraints?

Pranamita Baruah replies: India-Japan economic ties have witnessed remarkable growth in the last few years. In the 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.

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 lot of opportunities to foreign companies, it still has not been able to attract adequate attention of the Japanese investors. Lack of appropriate infrastructure development is considered to be one of the major constraints in this regard. Till 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.

(Posted on June 02, 2014)