India and Japan have enjoyed the best of relations over the decades. Yet, their trade and economic partnership has, strangely, been underperforming, belying the promise and potential. Bilateral trade at $16.29 billion in 2013-14 accounted for just 2.13 per cent of India’s total trade and barely 1 per cent of Japan’s.

The low-profile trade relationship is especially disappointing considering how much Japan has to offer in terms of investment and technology, and how much India needs both. India may be one of the largest recipients of Japanese ODA (Official Development Assistance), but when it comes to foreign direct investment (FDI), it ranks low, well behind China.

Between April 2000 and February 2014, Japanese companies cumulatively invested $15.97 billion in India, accounting for just 7.46 per cent of total FDI inflows into India, which in a way epitomises the state of the economic relationship between the second and third largest economies of Asia. All this could change for the better, post-Prime Minister Narendra Modi‘s visit to Japan, which seems to have breathed new life into economic relations.

Japan has said it would invest 3.5 trillion yen ($33.5 billion) in India in the next five years in the sectors of infrastructure, manufacturing, transport and clean energy, and on smart cities, all thrust areas for development for the Modi government. To be sure, this is not the first time we have seen positive intent in the leadership of the two Asian giants to improve trade and investment. Ever since India liberalised in the early 1990s, there has been steady interest among Japanese companies and investors – but they have often been frustrated by complicated procedures and cumbersome processes.

Actually, Japanese companies willingly ceded market space in India to competitors from South Korea and China rather than deal with the red tape. It is in this context that Mr. Modi’s promises of “red carpet, not red tape”, and a special track in the Prime Minister’s Office to facilitate Japanese investments, have to be seen. Mr. Modi harped on all the right themes including the three Ds that India can boast of, namely democracy, demography and demand, while making his pitch to Japanese business.

With manufacturing costs increasing in China and given the political issues between the two countries, Japanese businesses are looking to diversify, and India presents a good choice with its huge market. New projects such as those for superfast trains and smart cities are ideal destinations for Japanese investments. The Modi government has to now move quickly to fulfil its promises of easing procedures and facilitating investment to capitalise on the optimism and goodwill generated from what has clearly been a successful visit in economic terms.

British English (The Hindu)