Column: A bigger bite of the Japanese pie

Nov 30 2013, 04:56 IST
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SummaryBesides investing in automobile and machinery, Japan can play a major role in India’s infrastructure development

Japan and India, the second- and third-largest economies of Asia, share universal values such as freedom, democracy and rule of law, and enjoy a very close and wide-ranging relationship. Their relationship has gradually grown into a strategic and global partnership and the two countries are endeavouring to further strengthen the same through cooperation in areas like politics, defence, trade and commerce.

Over the last 15 years, the two countries are engaged in regular political exchanges, dialogue and policy coordination at all levels. The “2 plus 2” dialogue, the foreign-secretary-level dialogue, the foreign office consultations, the defence policy dialogue, maritime affairs dialogue, the trilateral dialogue between India, Japan and the US, as well as other key interactions in various areas including counter-terrorism, maritime security and economic partnership are progressing steadily.

Over the last five years, bilateral trade between India and Japan has increased by over 80% to $18.5 billion in 2012-13, with exports to Japan accounting for $6.1 billion and imports $12.4 billion. However, India cannot be considered as an important market for Japan in any of Japan’s major export verticals. Indian imports from Japan are dominated by capital and knowledge-intensive, high value technology products like electronic goods, non-electrical machinery, transport equipment etc. And Indian exports to Japan mainly include mineral fuels, mineral oils, marine products, raw materials, iron and steel, natural and cultured pearls, precious stones and imitation jewellery and intermediate inputs like minerals and chemicals.

One important factor that explains India’s modest shares in Japanese imports, especially in products such as auto and auto-components, precision instruments, electrical and electronic goods, and organic chemicals is the lack of supply-chain linkages and off-shore production arrangements between the two countries. Intra-industry trade based on off-shoring of production by major Japanese firms forms the basis of much of the trade between Japan and other major Asian economies such as Malaysia, Thailand and Taiwan. Besides, there are also high costs of doing business and logistics that have prevented India from emerging as a major destination for off-shore manufacturing.

The Comprehensive Economic Partnership Agreement (CEPA) between India and Japan has given a fillip to economic and trade relations. It covers trade in goods, services and investment. India stands to gain significantly through this agreement as it has reduced tariff on 90% of the tariff lines, while Japan has reduced tariff on 95%. When CEPA becomes operational, we expect market access would be provided to the Indian pharmaceutical products to

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