India‐Japan Economic Partnership:
Potentials, Promises and Prospects
Shamshad Ahmad Khan, PhD
Assistant Professor
Department of Humanities and Social Sciences
BITS Pilani University, Dubai Campus
And Visiting Research Fellow, PRI• Background• Beginning of 2000, India launches negotiation ofFTAs, RTAs
• Departure from WTO centered multilateralism• “Spaghetti Bowl” syndrome hits India• Signs FTAs with ROK, Malaysia, Singapore andJapan• With Japan, political objective to strengthen“strategic partnership”

India‐Japan JSG• Constituted in 2005, gave report in 2006
• “Highly complementary in terms of factor
endowments, capabilities, demographic
profiles, convergences and specializations”• Complementarities in India’s software
prowess and Japan’s strong capacity in IThardware• “Enormous potential” between the twocountries in “trade in services”

India‐Japan JSG• Lack of human exchange between the two countries
and• Suggested governments to enhance “people‐to‐peopleexchanges” hoping that it will provide a basis for“stronger bilateral economic ties”• Suggested conclusion of a Comprehensive Economic
Partnership Agreement which will provide a “properarchitecture for bilateral economic engagement”
between the two countries• Hoped “an EPA/CEPA will also serve as a building block
for an even larger regional economic integration”

IJCEPA• Concluded in 2010, came into effect on Aug 1,2011• “The bilateral relationship will be enhanced byforging mutually beneficial economic partnership
through liberalization and facilitation of trade andinvestment.”• “Open new era of relationship”• “Contribute to expanding trade and investment
not only between the two parties but also theregion”

IJCEPA: Objectives• To liberalise and facilitate trade in goods andservices• To increase investment opportunities andstrengthen protection for investment andinvestment activities• To ensure protection of intellectual property• To promote cooperation for the effective
enforcement of competition laws
• To improve business environmentPolitical Expectations• Both Indian and Japanese leaderships haveattached high hopes to the bilateral economic
partnership engagement.
• The bilateral agreement “will develop areas ofpotential mutual complementarity, further
strengthen the bilateral economic relationship,
and promote economic development byincreasing the cross‐border flows of goods,persons, investment and services.” ( Kan‐Monmohan joint Statement 2010)

Expectations by various sections• “Tariff reduction will increase India’s export toJapan by 18.25 percent, while for Japan it will be
only 4.65 percent.” (Simulation study by Biswa
Nath Bhattacharya and Kakali Mukhopadhyay, )• “Japan’s Sanitary and Photosanitary Measures(SPS) standards are major barriers of Indian
exports of poultry, meat, tuna, shrimp, marine
products and fruits.” (PRI Study by Nataraj)• Growth in trade can take place when “behind theborder” constraints are eliminated (Kaliappa
Kalirajan and Swapan Bhattacharya)Positive impacts• The CEPA has certainly
boosted bilateral trade
which was well below
potential.
• It touched USD 18.3
billion.
• After decelerating innext few years it has
started acceleratingagain.

Positive impacts• As CEPA promises lots ofprotections and dividends
to investors, surveys
shows positive
sentiments vis‐à‐vis India.
• India maintains second
most favoured
destination by Japanese
investors in the medium
term followed by China.
• The gap between the two,
however, remains only sixper cent.

Positive impacts• Long term destination• India becomes top mostdestination, surpassing
China.
• Gap between India andChina as a long term
destination also
remains high.
• It is more than 12 percent.

Positive impacts• The JBIC survey seems
consistent with theactual investment andnumber of growing
presence of Japanesecompanies in India.

Mixed Impact• Despite the fluctuationin Japanese FDI towards
India, Japan continues
to maintain a top
investor position of FDIin India.
• But still India would
have to compete with
ASEAN countries inattracting Japanese FDI.

Negative impacts• “It has advantaged Tokyo
in India‐Japan economicpact” (Financial Express)• Japanese exports to India
grew by 40.96% while
India’s exports to Japan
managed to grow only
18.39%.
• A year before CEPA Indian
exports to Japan had
grown by 43% andimports had grown by
only 28%.

Concerns at political level• India’s trade share in bilateral trade remains low.
• Both Anan Sharma and Nirmala Sitharaman(Minister of Trade and Commerce in UPA andNDA govts) have attributed to “NTBs” as a reason
for India’s low trade share.
• “Projected gains for India… have not materialised
to the extent expected.” It also points towards
NTBs being applied by Japan.
• “Access to the Japanese market remains
constrained by NTBs. (Foreign Trade Policy
Statement 2015,)

Why there is negative optimism?
Source: VS Saraswat/NITI Ayog

Computed by author

How will it impact on forthcoming
FTAs/RTAs• Various sections
including NITI Ayog andPHD Chambers ofCommerce in India aredemanding to review
the existing FTAs…
• Give pause to RCEP
• Promote export of highvalue products

Conclusion and Suggestions• The analysis above suggests that economic
and trade ties between the two countries
have deepened.
• But the CEPA has yet to achievecomplementarities as was envisioned by thepolitical leadership.
• Moreover, as a result of CEPA, the tradebalance has grown in Japan’s favour.
• This has become cause of concerns in India.

• Keeping these concerns in mind, both thegovernments should find ways to make the CEPA
much more relevant.
• One of the options could be to activate various
sub‐committees that the CEPA document
mentions.
• In addition to this form a select core group whichshould analyse shortcomings of CEPA and suggest
remedial measures to both the governments.

• Give a rethinking of “inconclusive” parts of theCEPA signed in 2010
• Reconsider the entry of Indian careworkers (eventhough 3yrs stipulation in IJCEPA has elapsed)• A study finds that a lot of complementarity inIndia and Japan service sectors• Japan should pay attention to India’s youth bulge
and allow access to them as it is “opening up”• The gain by India through trade in services willcomplement the loss in trade in goods• SPS standards and other TBT remain perceived
barriers checking the flow of entry of Indian
goods in Japan• Here technology could be a great enabler.
• Japan should share the technologies to raise
SPS standards of Indian products.

• Japan has acknowledged that “a strong,prosperous and dynamic India is in the interest ofJapan and vice versa.”• Both the governments have undertaken various
measures to upgrade their economic relations.
• However, there are vast potential andopportunities, some of them cited above, which
remain untapped.
• Collaboration in these fields between the twocountries will certainly impart momentum totheir economic growth and prosperity.

Thank you for attending the seminar• Special thanks to many people who helped mein different ways in this research project• Mr. Kohei Shiino• Prof. Makoto Kojima• Dr. Norio Kondo• Ambassador Arjun Asrani• METI, JBIC, JETRO staff• Shashank Patel and Muqbil Ahmar