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Japan Is Building India's Infrastructure

The Diplomat
By Professor  

In recent years, India-Japan relations have considerably improved in both the economic and strategic spheres. July provided two important examples of how strategic ties have improved immensely. First, there were the week-long trilateral naval exercises between India, Japan, and the United States, which this year came amidst the standoff between India-China over the Doklam plateau. Then on July 20, the landmark India-Japan civil nuclear agreement came into force. The pact was signed in Tokyo on November 11, 2016, during Prime Minister Narendra Modi’s visit to Japan. According to the deal, six new nuclear reactors will be built for power generation. India and Japan are also working on Asia-Africa Growth Corridor (AAGC), which was unveiled on May 23, 2017 during the 52nd Annual Meeting of the African Development Bank (AfDB) held in Gandhinagar, Gujarat.

In the area of infrastructure too, India is seeking to benefit from Japanese expertise. Japan is already associated with the assistance and know-how it provided for Phase 1 of the Delhi Metro. Now, according to some media reports, the Mumbai-Ahmedabad bullet-train project going to be launched during Japanese Prime Minister Shinzo Abe’s visit to India from September 12-14. The Japanese are also involved in other mega projects, like the Delhi-Mumbai Industrial Corridor, which began a decade ago.

Over the past decade and a half, Japanese investment has played significant role in India’s growth story. Japanese invested more than $25 billion in different sectors across the India during the period from 2000-2017. Currently, Japan is the third biggest investor in India, and investment from Japan increased substantially during 2016-17. Japanese investments in India during this period reached $4.7 billion, an 80 percent increase over the $2.6 billion of 2015-16. Most importantly Japan has pledged investments of around $35 billion for the period of 2014-19 to boost India’s manufacturing and infrastructure sectors. The Japanese government even specially tasked Mizuho Financial Group with finding investment opportunities in India.

Earlier Japanese investments were mainly concentrated in a few sectors such as automobiles, telecommunications, and electrical equipment. But now in recent years, FDI from Japan has grown both vertically and horizontally. According to the Economic Times, “Investments from Japan are getting diverse and sectors that have received FDI during 2016-17 period include retail, textile, consumer durables, food & beverages, and banking (credit card services).”

Interestingly, according to a survey conducted by the Japanese government, the state of Haryana in north India received the most investment. Japan has also planned to set up around 12 industrial parks across the India in different states, including Tumkur in Karnataka, Ghilot in Rajasthan, Mandal in Gujarat, Supa in Maharashtra, Ponneri in Tamil Nadu, Neemrana in Rajasthan, Jhajjar in Haryana, and the Integrated Industrial Township in Greater Noida.

Neemrana, roughly three hours drive from New Delhi, is home to big Japanese companies such as Toyota Motor Corp., Daikin Industries Ltd, and Hitachi Ltd on an industrial complex of 1,100 acres dedicated exclusively to Japanese corporations. The complex provides direct employment to approximately 10,000 people.

It is interesting to note that Japanese investment and industrial parks are spread all over India — except for eastern and northeastern India. That may be changing. Lately, increasing importance is being given to the role of the northeast in India’s outreach to Southeast Asia. Modi has pointed out that “We have to make the northeast a gateway for Southeast Asia.”

President Pranab Mukherjee has also emphasized, “There is little time to be lost. Considering the huge pool of natural resources and the quality of its human resources, northeast of India has the potential of being an important investment destination and a center for trade and business.”

Japan is also playing important role in infrastructure development in the northeast. In April 2017, the Japan International Cooperation Agency (JICA) signed an agreement with the Union government in New Delhi to provide over 67 billion yen ($610 million) for Phase I of the North East Road Network Connectivity Improvement Project, which will see the enhancement of important projects in Meghalaya and Mizoram.

But there is still huge demand for infrastructure development and investment in range of sectors. As per a report from Price Waterhouse Coopers (PwC), investment of Rs 3.06 trillion ($48 billion) is required to develop the road networks in the region.

Of late, northeastern states like Assam have been engaging with Japan directly. The Japanese ambassador to India, Kenji Hiramatsu, visited Manipur in May 2017, to commemorate the 73rd anniversary of the battle of Imphal. Between the battles of Imphal and Kohima, 70,000 Japanese soldiers lost their lives. The ambassador said that his country will build a war museum in the state.

Japan should look at increasing its presence in the northeast by investing in its infrastructure. Greater Japanese cooperation with India to develop infrastructure and enhance connectivity with Southeast Asia through Myanmar will also send a clear message to China — that New Delhi’s approach toward its northeast can not be dictated by Beijing, which pays scant respect to New Delhi’s concerns regarding the China-Pakistan Economic Corridor.

Tridivesh Singh Maini is a New Delhi based policy analyst associated with the Jindal School of International Affairs, OP Jindal Global University, Sonipat.

Sandeep Sachdeva is an Independent Policy Analyst.