RESOURCE PAPER - 2

FUTURE OF
INDIA-JAPANRELATIONS
byArjun Asrani

FUTURE OF INDIA-JAPAN RELATIONS

byArjun AsraniPREFACE
Mr. A.J. Asrani, a former Ambassador of India to Japan,is a veteran diplomat of the Indian Foreign Service for over three
decades. He is an acclaimed authority on Japan both during his
service in office and after retirement.
Mr. Asrani is a strong believer in India and Japan getting
closer in the international arena. He is associated with IJCCIalmost since its inception in 1989. IJCCI can well claim him to beits mentor, for we in IJCCI look up to him for guidance at alltimes. IJCCI is grateful to Mr. Asrani for this Resource Paper on
the Future of India-Japan Relations.

29-07-2015

N. Krishnaswami

Future of India-Japan Relations

I may not be the most qualified person to talk about future
relations with any country. I spent my entire diplomatic career inthe last century - a century of colonialism, two World Wars, aglobal Cold War, a Non-Aligned Movement, a dominating role ofODA (Official Development Assistance), and clever economic
warfare or economic dominance replacing the military one.
Yet, by the sheer fact of having been associated withJapan over the last 55 years, I do have a vision of the future basedon a huge mutuality of interests between our two major countries
on the basis of a rare complementarity in terms of geography,
financial and natural resources, demography, naval power,technology, educational and social development, knowledge of
the English language, work habits, homogeneity of population
versus stupendous diversity and so on. All these factors make mehighly optimistic about our economic and strategic relations
while facing some difficulties on the way.
5Economic Cooperation
In the simplest terms, notwithstanding the decelerated rateof growth in Japan's economy over the last two decades, Japan
will remain for India a most important source of financeand technology at least for the next two decades. For Japan,
especially after the souring of its relations with China, India
is a large market with a rapidly rising middle class, young
enough to indulge in consumerism. The huge gaps in ourinfrastructure also provide opportunities for Japanese equipment
and finance.
While opinion, even within Japan, may be divided on'Abenomics', one important element which I appreciate is thedevaluation of the Yen over the last couple of years by about 50%.
This has to some extent corrected the mistake made by Japanin allowing USA to browbeat it in the late 1980s to ratchet up
the yen from Y240 to Y80 (rough figures) to a US dollar
during the 'lost decade' of 1990s. While this alone may not
result in another Japanese economic miracle, it does give theremaining Japanese high-end industries a chance to compete inthe world.
Most Indian commentators make the mistake of judging
India-Japan economic relations only by the size of bilateral tradeas compared to our trade with China, UAE or USA. However, if
you include FDI (direct from Japan or via Singapore), ODA, FII
investments in our stock and bond markets with yen funding,technology joint ventures & third country trades handled by6

Japanese trading companies in India, Japan may come out as ourmost important partner or at least one of the top two.
Japan's trade is often related to FDI. In India's case theFDI has been mostly for the domestic market as our manufactures
have not been competitive enough for export. However, Japanese
auto ventures in India are showing the way to exports. Earlier,Japanese companies, especially in electronics, failed to invest
in India because they found an inadequate domestic market
for sophisticated, high-priced products. Others like Koreans
had adjusted to the Indian 'value for money' market. I think
the Japanese have now learnt to adjust their products toIndian needs.
Japanese FDI will multiply IF we are able to sort out ourland acquisition, infrastructure and labour laws. It is especiallyencouraging that scores of Japanese SMEs have started
coming to India. With the increasing knowledge of theEnglish language in Japan, I see more of these SMEs
venturing out to India. Some of them may be moving from China
to India for reasons of political uncertainty in Sino-Japaneserelations.
We have a CEPA with Japan in place. For the Japanesemanufacturers located in ASEAN countries, it is equallyimportant that we have also signed an FTA with ASEAN.
At present their chief gain is by way of exports from their
ASEAN factories to India. I am hopeful that, with some success7

with our “Make in India” efforts, they will develop chain
like linkages between their production facilities in India andASEAN.
The Japanese are moving on to higher value-addedindustries like nano-technology, space navigation, civil aviation,
ocean development, bio-engineering, super-conduction,
magnetic suspension, fibre optics, high-definition television,mobile Internet and fifth generation computers etc.
This is creating a shortage of qualified manpower, especiallyin the IT-related sector. India has shown that it is precisely
in the scientific and professional areas that it can produce
manpower of a world standard with Indian salaries. Apartfrom IT services, computer software and scientific research,
Indians have a good track record in management consultancy,
media and entertainment, fashion designing and haute couture(high quality fashion cloths designing), advertising andpublic relations, languages and literature, as well as all financerelated activities like banking, accounting, insurance and thecapital markets.
The beauty of this kind of use of our manpower is thatmuch of the work can be done without the Japanese having toliberalize their immigration rules - something they are allergic todoing. The kind of work envisaged above could largely be
executed from India. Japan already has an aging society
accompanied by a diminishing birth rate. India's manpower willcontinue to be relatively young in the foreseeable future. Another8

feature of this kind of collaboration is that it is increasingly
located in Bengaluru, Chennai, Hyderabad and Gujarat instead ofbeing centered on Delhi and Maharashtra.

Strategic Partnership
Our Prime Ministers now meet every year and issue a jointstatement as well as a Security Cooperation Agreement everytime. Last year, during Prime Minister Modi's visit to Japan, ourrelations were further upgraded to 'Special' Global StrategicPartnership. This word 'Special' needs to be given some meaning.
I understand that apart from its defense alliance with USA, Japan
has such 'special' relations with only two other countries - UKand Australia.
Last year the Abe Government managed to relax the old
self-imposed prohibition on export of defense equipment &technologies. This took some courage and effort because it was
not popular with the general public. A majority of Japanese, after
their terrible experiences during World War II, have becomeallergic even to having normal defense capabilities andoperations of a sovereign country.
I would look forward to the day when we could importsome of their defense equipment and have R & D collaboration.
With the Indian Government's decision to open up our defense
industry to the private sector, I foresee eventual participation by
Japanese companies in this field - which would also enhance our9bilateral strategic cooperation, especially in the naval sector.
(One recalls that the Cochin Shipyard in India was modernizedwith Japanese ODA and know-how in the last century).
Japan needs a safe passage for its oil tankers plying fromthe Gulf to Japan through the Indian Ocean sea-lanes. A friendly
Indian navy and Coast Guard have a credible capability forassisting in this regard. This has already been evinced in recent
cases of piracy against Japanese vessels.
India has been holding annual joint naval exercises with
USA every year in the Indo-Pacific area. I understand that thisyear Japan has also been invited to join these exercises.
Until recently India and Japan used to post just oneDefense Attache in their respective Embassies in Tokyo andDelhi. The Army, Navy and Air Force used to take turns in filling
this single post. Now Japan has not only all three Attaches
representing the three Forces but also a Coast Guard Attache inDelhi. India is yet to reciprocate.

Socio-economic Complementarities
It would be desirable to substantially increase the numberof Indian students learning the Japanese language. With theshortage of Japanese manpower, the increasing number ofJapanese companies in India will have to rely on local Indianrecruits. I see this happening even at the Embassy of Japan in10Delhi where, increasingly, administrative functions and jobs likepersonal assistants to Japanese Diplomats are being passed on tolocal Indian recruits.
Although there are obvious differences in the behavioral
patterns of Indians and the Japanese, the middle class has
similar attributes in both countries - well-educated, frugal,savings-oriented, giving high priority to family and education ofchildren, looking after aged parents etc. However, India's middle
class may be about 20% of its population while the corresponding
figure is likely to be 80% in Japan. That is perhaps the chief reason
why the differences are more noticeable.
Both are democracies where often shaky coalition
governments have replaced long single party rule but where therule of law is well established. What is more, our relations havecontinued to grow from strength to strength, irrespective of theparty or Prime Minister in power.
History, geography, economics, demographics, evendifferent strengths and weaknesses - all converge to make India
and Japan natural partners. Both have a value system that respects
nature and strives for harmony between man and his environment.
In a world threatened by Climate Change, it is these values
that must be revived and India and Japan can lead the world inthis regard.
Precisely because the two countries have come so close,
they must avoid taking each other for granted. The negotiations

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between the officials of the two countries have been going on far
too long on the subjects of peaceful nuclear energy cooperation
and Japanese supply of the US-2 amphibian naval aircraft. It ishoped that agreement will be reached on these subjects by thetime Prime Minister Abe carries out his expected visit to India
towards the end of this year.

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