X Executive Summary
India and the World
Go YamadaPrincipal Economist, Japan Center for Economic Research
Shujiro Urata
Professor, Waseda University, Graduate School of Asia-Pacific Studies
Research Fellow, Japan Center for Economic Research
Makoto Kojima
Professor, Takushoku University, Faculty of International Studies
Key Points¾In step with economic growth, India has been shifting to an omnidirectional diplomacythat puts emphasis on the practical benefits resulting from trade, investment, and thelike, without becoming caught up in ideologies or conflicts.

¾Against the backdrop of a high level of growth, India has also come to draw attention
at the WTO, the G20 Summit, and the like. In the WTO, India is actively
participating in discussions in a manner representing the developing countries, but istaking the position of an observer at the G20 Summit, the East Asia Summit, and thelike.

¾In the future, there are high hopes for India—for which a high level of growth ispredicted—actively and constructively contributing to the rebuilding andadministration of international economic institutions such as the WTO and the IMF.

¾Since 1991, India has been increasing the level of activity of external transactions inboth trade and investment, and has been expanding the scale of the economy. Withomnidirectional diplomacy as a given, India has upheld the “Look East” policy forEPAs, and in recent years has been putting effort into improving relations withneighboring South Asian countries.

¾

The community of overseas Indians that spreads across the world not only brings
about remittances and investment, but also forms a valuable network in India’s
economic expansion within globalization.

Timeline of post-independence Indian diplomatic history
1947
1954
1955
19621965
1971
1974
1990
1991
1998
1999
2000
2001
2003
2004
2005
2007
2008

Indian Independence, Indo–Pakistani War of 1947
Nehru and Zhou Enlai Meet, “Five Principles of Peaceful
Co-Existence”
Asian–African (AA) Conference in Bandung, Indonesia
Armed conflict between India and China
Indo–Pakistani War of 1965
Indo–Pakistani War of 1971, Indo–Soviet Treaty of Friendship andCooperation
First nuclear test
US suspends aid to Pakistan
Minister of Finance Manmohan Singh (current Prime Minister) starts
economic reforms
India and Pakistan conduct nuclear tests, economic sanctions
imposed by the West and others
India and Pakistan clash in the region of Kashmir (Kargil Conflict)
President Clinton visits India (the first US president to visit in 22years)
9/11, Lifting of economic sanctions on India by the US and others
Prime Minister Vajpayee visits China (the first visit by an Indian
Prime Minster in 10 years)
India and Pakistan launch comprehensive dialogue
India and Pakistan participate as observers in the Shanghai
Cooperation Organization
US–India Civil Nuclear Agreement is concluded
Mumbai terrorist attacks

X Chapter 2
Indo–Japanese Economic Relations―Japanese Companies Seek to Catch UpMasanori Kondo
Senior Associate Professor, International Christian University College of Liberal Arts

Key Points¾The Japan–India Economic Partnership Agreement (EPA) came into force, andIndo–Japanese economic relations are exhibiting a new surge.

¾Direct investment in particular has increased in recent years, and to Japanesecorporations, India has developed into one of the three largest investment destinations
alongside China and the ASEAN six majors.

¾Business by Japanese corporations in India is diversifying both in terms of investment
field and region.

¾To Japanese corporations, which had a late start in India, mergers and acquisitions(M&A) have been effective for catching up, but it is desired that proper attention bepaid to the corporate governance of the other company.

¾The damage incurred by Japanese corporations in India as a result of the Great EasternJapan Earthquake and the flooding in Thailand was small, India’s importance as a
global risk dispersion base is attention-worthy.

The Trend of Japanese Direct Investment in India, China, and the ASEAN Six Majors

X Chapter 3
Sino-Indian Relations―From Hostility to Mutual Cooperation andComplementation
Yan Zhu
Professor, Takushoku University Faculty of Political Science and Economics

Key Points¾

In the political and diplomatic relations between India and China tensions began toease starting Source:in the 1980s,
visitsPaper
by politicalleaders of bothsidesandbegan
in theMETI and“Whiteon International
EconomyTrade2010”
1990s.

In recent years, the relationship of a “strategic partnership” has been formed,

and the countries have come to cooperate in multilateral frameworks as well.
However, pending issues remain, such as the undemarcated borderline, the Tibetan
government in exile, and border-straddling water resources.
¾

Alongside improved relations, the economic relationship between the two countries
has been rapidly developing.

Behind this is the complementary competitive

advantage between the two countries.

Sino–Indian trade is developing extremely

quickly, China is the largest trade partner for India, and mutual direct investment isexpanding. Also, orders for Chinese firms to engage in Indian infrastructuredevelopment projects are also rising rapidly.

However, trade imbalances, trade

friction, and the like still remain as issues.
¾

The Sino–Indian economic relationship has a great potential for further development.
Promising fields include infrastructure development, IT services and software, thesteel industry, and the pharmaceuticals industry.

The development of Sino–Indian

economic relations will likely actively influence Japanese corporations as well.

The expansion of Exports-Imports between China and India
China

India

Note: The right side is India’s trade with China. China’s numbers are calendar year, while India’s
are fiscal year accounting.
Source: Created by the author based on Chinese Customs statistics, JETRO statistics (originallyfrom India’s DGCI&S) and the like.

X Chapter 4
US–Indian Relations―A Multifaced Partnership Under Construction
Makoto Kojima
Professor, Takushoku University Faculty of International Studies
Key Points¾

While calling for non-aligned diplomacy under the Cold War system, India grewcloser to the USSR, which made US–Indian relations awkward.

However, since the1990s, India and the US came to build a robust strategic and economic partnership.
¾Amidst a rapid expansion of the economic relationship between India and East Asia,
the relative importance of trade with the US is decreasing.
services is included, the US remains the largest partner.

Nevertheless, if trade in

Direct investment is also

developing actively and bi-directionally between the two countries.
¾

The rise of India’s IT industry is closely related to offshoring by US corporations toIndia.

Offshoring to India has been leading to increased competitiveness by UScorporations, but meanwhile is full of problems leading to erosion of the intellectual
foundation and the loss of jobs in the US.
¾

Many Indian-Americans are achieving success as professionals, not only in the ITindustry, but also in academia, medicine, the corporate world, and the like.

They

are increasing their presence in society, and are also deploying active lobbyingactivities.

Breakdown of Indian IT-BPO Export Destinations (%)

Source: NASSCOM, The IT-BPO Sector in India: Strategic Review 2011.

X Chapter 5Relations Between India and Europe, Russia, theMiddle East, and Africa―From Traditional Friendly Countries to theFrontiers
Go YamadaPrincipal Economist, Japan Center for Economic Research
Key Points¾

The European countries, which have historically had a deep relationship with India,
are a balanced trade partner, and are maintaining relations as a favorable economicpartner.

Through the India-EU EPA, which is expected to be resolved soon,cooperation is expected to become yet stronger.
¾An eclectic cooperative relationship is developing with traditional friend Russia fromthe military and science/technology to energy.

In recent years, mutual investment has

started to be implemented.
¾In the economic relationship with the Middle East, which was mainly notable for
migrant work and oil up to now, mutual corporate penetration and investment havebeen increasing in recent years, and there are hopes for further new development in thefuture.

¾India is in the midst of fierce competition with China over acquisition of resources inAfrica, which is a frontier to India.

Indian corporations has been furthering market

opening using their own strategy taking advantage of the network of overseas Indiansand soft-power.

Trade Between India and the Major Countries

X Chapter 6
Relations with Northeast Asia (South Korea andTaiwan)―South Korean Corporations Take the Lead,
Taiwanese Corporations also Start Active
Deployment
Shigesaburo Kabe
Principal Economist, Japan Center for Economic ResearchKey Points¾

South Korean and Taiwanese political and economic relations with India changed
significantly in the 1990s, and are expanding steadily. South Korea moved
particularly rapidly, and the India–Korea Comprehensive Economic Partnership
Agreement (CEPA) came into effect in 2010.

¾

The bidirectional flow of people is active, with that between South Korea and India
being around 70,000 people each way, and with Taiwan being around 20,000 people
each way.

In terms of trade as well, Korean–Indian trade exceeds Japanese–Indiantrade, and Taiwan has reached the level of half of Japan–India trade.
¾The movements of South Korean and Taiwanese firms are also dynamic, andelectrical/electronics, steel, and the like are driving investment in India.

In theconsumer electronics market, Korean corporations have presence, as they look back at
the latecomers from Japan.
¾Korean corporations also succeeded in India by adhering to a high-risk, high-return
strategy of putting importance on emerging markets.

Thus, their future strategy is

being watched, as major overseas companies from Japan, Taiwan, and the like areseriously aiming for Indian business.

Air conditioner unit market share in India

JanuaryDecember
2010

Source: TV Veopar Journal

X Chapter 7
India–ASEAN Relations―The Formation of a Production NetworkRyuichi Ushiyama
Principal Economist, Japan Center for Economic Research
Key Points¾

In India’s Look East policy, the Association of Southeast Asian Nations (ASEAN) is acore presence.

India is pursuing closer relations with ASEAN though active summit

diplomacy and the signing of an FTA.

To India, ASEAN is the third most important

trade partner in terms of exports, and the second most important in terms of imports.
In terms of investment and the movement of people, the flow from India to ASEAN isexpanding.
¾

India’s deficit is rising in India–ASEAN trade. The main factor behind this is anexpanding excess of machine imports, with parts/components being imported in largequantities.

India’s importance to ASEAN as a parts export destination is growing,

and it can be seen that India is being incorporated into the East Asian production
network.
¾

There are more and more examples among Japanese corporations of taking advantageof ASEAN’s production base to export to India.

While taking into consideration theprogress of FTAs, Japanese firms also have the need to strengthen business in India
from ASEAN’s abundant production bases.

In order to propel the wider-area

operations of Japanese companies, the Japanese government should strengthen
political efforts towards an expansive Asian FTA.

India’s imports of machinery from ASEAN, top 10 items (2010)
Rank

SITC

Item Name

Import Value

Share

1776

TRANSISTORS,VALVES,ETC

2,018

19.5%

2759

PARTS,FOR OFFICE MACHINS

1,655

16.0%

3752

AUTOMATC.DATA PROC.EQUIP

986

9.5%

4764

TELECOMM.EQUIP.PARTS NES

612

5.9%

5778

ELECTRIC.MACH.APPART.NES

463

4.5%

6784

PARTS,TRACTORS,MOTOR VEH

370

3.6%

7713

INTRNL COMBUS PSTN ENGIN

3643.5%8761

TELEVISION RECEIVERS ETC

347

3.4%

9723

CIVIL ENGINEERING EQUIPT

328

3.2%

10741

HEATNG,COOLNG EQUIP,PART

320

3.1%

11772

ELECT POWER MACHNY.PARTS

266

2.6%

Total Machinery Imports

10,345100.0%

Note: Import values are in millions of dollars. Highlighted items
correspond to parts/components.
Source: Created from UN trade statistics

X Chapter 8Trade & Investment Relations between India
and the Countries of South Asia—EPAs are Effective in Facilitating
Shujiro UrataProfessor, Waseda University Graduate School of Asia-Pacific Studies
Research Fellow, Japan Center for Economic ResearchKey Points¾

As the Indian economy, which is marking steady economic growth, captures theworld’s attention, interest in neighboring Bangladesh, Pakistan and Sri Lanka isgrowing.

¾In recent years, there has been an upward trend in trade and investment relations
between India and other South Asian countries, and there is ample room for expansion.

¾Expansion in trade and direct investment is important for maintaining steady growth
and achieving economic prosperity, as India and other South Asian countries are still ata low developmental stage.

¾Barriers preventing the expansion of trade and investment include not only
institutional barriers such as tariffs and capitalization limitations, but also thosebarriers that are targets for facilitation of inefficient customs clearance, investment
screening, and the like. FTAs on a regional level are effective as a response to thesebarriers.

South Asian FTAs
Proposed

Framework
AgreementSigned,
Under
Negotiation

Under
Negotiation

SignedIn
EffectTotal

84801333

Bangladesh

021126Pakistan

10532626

Sri Lanka

210

148India

Source: Asian Development Bank, Asian Regional Integration Center