India and Japan

  • India and Japan

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June 29, 2010

According to a survey conducted by the Japan Bank for International Cooperation (JBIC) released in December 2009, covering 620 Japanese manufacturing companies, India remains the second favourite investment destination for Japanese companies after China. 278, or 58 per cent of the companies surveyed wanted to do business with India in the medium term. The survey reflects Japanese companies' mounting interests in Indian businesses, especially in sectors such as automobiles, IT, infrastructure, steel, power and pharmaceuticals.

Japan ranked seventh in terms of cumulative foreign direct investment (FDI) in India, accounting for US$ 3,714 million in the period from April 2000 to March 2010, of which US$ 1,183 million came in the period April 2009-March 2010, according to the latest data released by the Department of Policy and Promotion (DIPP).

According to the Japanese External Trade Organisation, (JETRO), Japanese firms are increasingly preferring India as an investment destination over China. The number of Japanese companies in India has grown three fold over the last three years from approximately 100 companies in 2006-07 to 300 in 2009-10. "More Japanese companies would enter the Indian market in the coming years," said Naoyoshi Noguchi, retired director-general of JETRO.

According to investment bankers, India may witness US$ 20 billion worth of Japanese investment by 2012.

India's exports to Japan in the period 2008-09 stood at US$ 3025.70 million while imports totalled US$ 7886.27 million for the period. During April to December 2009, India exported goods worth US$ 2,479.38 million to Japan. India imported merchandise worth US$ 4823.66 million from Japan during April-December 2009-10.

Major Japanese funds have been coming into India by way of offshore funds, with many Indian houses such as SBI Capital, UTI and DSP Blackrock raising money from the Japanese markets to invest in India.

India and Japan have decided to jointly develop one city in India as a 'solar city'. The project aims to reduce its projected demand of conventional energy at the end of five years, through energy efficiency measures and generation from renewable energy installations.

The two sides also agreed to strengthen cooperation in research and development for promoting renewable energy. As part of the exchange programme, a ten-member delegation from India participated in the Japan-India New and Renewable Energy Seminar in Tokyo in January 2010.

Further, in May 2010, India and Japan agreed to set up a working group on civilian nuclear energy. The working group is being seen as a first step towards potential civilian nuclear cooperation between the two countries.

Government Initiatives

During Japanese Prime Minister Yukio Hatoyama's visit to India in the last week of December 2009, the prime ministers of India and Japan discussed cooperation in infrastructure projects, climate change and security and renewable energy. The two countries also agreed to work out funding and logistical issues relating to the Dedicated Rail Freight Corridor.

In the course of the visit, the governments of India and Japan also agreed to relax visa rules in a year's time in order to facilitate improved trade and widen cooperation between the two nations.

In the last week of December 2009, India and Japan signed two important agreements for implementing the ambitious US$ 77.16 billion Delhi-Mumbai Industrial Corridor (DMIC) project which seeks to create integrated investment regions and industrial areas across six states.

The agreements included collaborating in the development of eco cities that are environmentally and ecologically sustainable along the corridor and setting up of a project development fund to undertake activities like master planning & feasibility studies, preparing project reports and obtaining approvals and bid process management for projects.


Top Japanese consultants, including Mitsubishi, Nikken Sekkei and IBM Japan, have joined hands with three state governments and the Delhi-Mumbai Industrial Corridor Development Corporation (DMIDC) to develop eco-friendly infrastructure for new cities planned along the DMIC.

The first phase of the project which was launched in 2006 will be completed by 2018, according to Minister of Commerce and Industry Mr Anand Sharma.

The corridor will run through six states —Haryana, Uttar Pradesh, Madhya Pradesh, Rajasthan, Gujarat and Maharashtra—and is being developed as a global manufacturing and trading hub.

The Japanese consultants will launch feasibility studies to set up the first set of eco-friendly cities in Manesar-Bawal region of Haryana, Dahej, Changodar in Gujarat and Shendra industrial region in Maharashtra, as per the agreements entered into by them, the three state governments and the DMIDC.

In the first phase, seven cities, each entailing an investment of around US$ 9-10 billion, will be developed.

Moreover, according to the Japanese ambassador to India, Hideaki Domichi, the Government of Japan is keen to extend financial assistance to the proposed Chennai-Bangalore corridor project. “This project is another strategic area from our point of view. Big Japanese companies like Toyota are already here, and the Chennai area is also attracting a lot of Japanese investments. We will soon work out the exact amount of financial assistance the Japan government will provide for this project,” he said at the 33rd annual general meeting of the Bangalore Chamber of Industry and Commerce in June 2010.

Once the free trade agreement or the Comprehensive Economic Partnership Agreement (CEPA) is signed and operationalised, 9,000 products—ranging from steel and apparel to drugs and machinery—are expected to be traded either without duty or at substantially reduced tariffs. The CEPA is expected to be signed by the end of the year.

Further, in order to attract Japanese investments, the Karnataka Government is planning to set up a 1,000-acre 'Japanese village' which will house Japanese industrial and business establishments. The proposed village would be set up near Tumkur.

Investments & deals

  • The initiatives of the Ministry of Trade and Economy, Japan and the Japan External Trade Organisation (JETRO) have helped rope in Japanese companies into investing in India's first exclusive industrial parks for Japanese firms in Rajasthan. The companies include majors such as Daikin Industries Ltd, Nissin Kyogo Ltd and Mitsui Chemicals.
  • Tata Steel, India's largest steel producer, has entered into a joint venture (JV) with Japan's Nippon Steel for production and sale of automotive cold-rolled flat products at Jamshedpur. The JV is expected to invest US$ 400 million towards setting up of an automobile venture in India.
  • Hitachi Transport System, an offshoot of Japan's Hitachi, has acquired Flyjac Logistics for nearly US$ 54.61 million, giving it a firm footing in India's logistics and warehousing sector. The deal propels Hitachi to the top 10 Indian logistics companies.
  • Japan's JR Kyushu Group and Patni Computer Systems, have announced a 51:49 venture to provide information technology (IT) and product engineering services to the Japanese enterprise market. The venture is being formed with a capital of US$ 1.09 million.

The Road Ahead

Japan looks at India as a frontier in the future with its strength in technology.

Besides automakers, Japanese investments have diversified to include areas such as power plant, pharmaceuticals, home electronics, life and non-life insurance and telecommunication, according to the Ambassador of Japan, Mr Hideaki Domichi. He added, "Our strength is in manufacturing, and more and more Japanese companies are expecting opportunities in the area of environment-related business in which they have competitive edge, or consumer goods and distribution, infrastructure and civil nuclear."