Despite strong strategic government to government ties, India-Japan economic relationship remains far below the expected levels.
While the are ample avenues to expand cooperation, cultural perceptions and are related incompatibilities have hindered progress.
What are the condition that are ideal for enhancing Indo - Japan ties?
India is a fast-growing economy and has a big young population, while Japan is economically rich and has an aging demography and declining population.
India needs technical expertise and investments to develop its infrastructure, while Japan has capital to spare and know-how to share.
They have a common strategic objective in countering Chinese hegemony in Asia, a goal that can be best met in collaboration.
Also, both countries share cultural and religious ties, and are also sufficiently close for trade but far enough to avoid broder and other neighbourhood issues.
Technically, these factors provide for the establishment of strong and robust economic ties, but this hasn’t happened.
What is the current status of economic ties?
PM Narendra Modi and his Japanese counterpart Shinzo Abe have worked hard to upgrade ties, through high-profile visits and sealing multiple deals.
Notably, Japanese has emereged as a prolific investor in India’s infrastructure sector - Japnses investments totalled $4.7 billion in 2016-17.
Japan currently ranks as the third largest investor in India and there are 1,369 Japanese companies and over 4,800 Japanese corporate offices active in India.
Yet, the India-Japan economic relationship remains underwhelming both in relation to its potential, and to the ties that each nation shares with China.
Notably, China received about five times more Japanese investment between 1996-2015 ($116 billion) than India ($24 billion).
Japan-India two-way trade was merely $13.48 billion in 2016-17, which is dwarfed in comparison to China-Japan trade ($350 billion) 0r even India-China trade ($84.44 billion).
Additionally, the share of India-Japan trade in Japan’s total trade basket is barely 1% and it is a little over 2% of India’s trade with the rest of the world.
Beyond the common issues like - poor infrastrure, and complex tax structures, there are other issues that plague Indo-japan business ventures.
What are the main reasons for this?
The major problem is that it takes Japanese companies longer time to learn to localise their products for the Indian market.
Pricing - Japanese tend to think that the most important element is the quality, so that there is minimal requirement for repairs and replacements.
They fails to recognize that reapirs aren’t really a major concern for the Indian consumer as it is cheap due to abundant availability of technicians.
Hence, cost at purchase is the critical factor than durability, which calls for companies to reduce manufacturing costs even if quality is lowered.
Cultural bias - Japanese also tend to have a strong cultural bias against India and Japnsese employees perceive an Indian posting as a de-promotion.
While larger corporations have realised India’s potential, small and medium enterprises continue to carry a biased attitude, which impedes business.
Also, punctuality is akin to religion in Japan, whereas in India, time is more lax and this is has immense implications for business.
Risk - Japanese corporations are strongly risk averse which makes it difficult for them to cope in the freewheeling, jugglering environment of India.
Flexibility and impromptu decision making are necessary skills to operate in India and Japanese businesses need to co-opt these to sustain in India.
What are the hopes ahead?
Recently, collaboration between Japan’s Panasonic and India’s Tata Elxsi to develop smart solutions and products for the south Asian market was sealed.
This is only possible because India has the capacity and skills for engineering designs that can match Japanese requirements.
Hence, there are avenues to rope in more Indian companies to develop and design Japanese products, which could help in deepening business ties.
But despite all these, “government to government ties” is far ahead of the “business to business ties” and closing this distance remains a tough ask.
