Last week, India’s Commerce Minister Piyush Goyal led the largest business delegation from India to Japan, aiming to strengthen trade and investment connections between the two countries. This initiative comes amid Japan’s growing influence in India’s economy, which is the third largest in Asia.
Expansion of Japanese Presence in India
In major Indian cities like Mumbai, Delhi, and Bengaluru, Japanese consumer brands are increasingly visible. Companies such as Uniqlo, Muji, and Onitsuka Tiger are not only present but expanding rapidly. Newcomers like furniture maker Nitori have recently entered the market, while convenience store chain Lawson plans to open 10,000 stores in India by 2050, beginning in Mumbai.
Japanese Financial Investments
The financial sector also sees significant Japanese involvement. While other foreign banks withdraw, Japanese banks are investing actively in Indian financial assets. Notably, MUFG Bank, Japan’s largest, purchased a 20% stake in Shriram Finance for $4.4 billion last year, marking the biggest foreign investment in Indian finance to date. Sumitomo Mitsui Banking Corporation also became the largest stakeholder in Yes Bank with a 24.22% stake last year.
Enhancing Global Capability Centres
Japanese influence extends to India’s global capability centres (GCCs). According to a Deloitte report, over 100 Japanese companies have established GCCs in India. These hubs focus on critical business operations, including R&D, corporate strategy, and AI development.
Strategic Shift to India
Vipul Nath Jindal, of Next Bharat Ventures, suggests that Japanese companies view India as key to future growth due to Japan’s shrinking domestic market over the past 16-17 years. Investment in China has decreased amid geopolitical tensions and changing economic situations, while the US market poses challenges due to tariffs and competition.
Japan’s relationship with India strengthened following the 2009 trade liberalisation agreement and was further elevated when Indian Prime Minister Narendra Modi declared a “special strategic and global partnership” in 2014. This partnership includes projects such as India’s first bullet train, utilising Japanese technology, between Mumbai and Ahmedabad.
Recent Developments in Japanese Investment
Japanese private sector initiatives are currently driving investment. In July, during Japanese Prime Minister Sanae Takaichi’s visit to Delhi, Japanese companies committed $12.5 billion in investments across various sectors like semiconductors and green energy, through 120 agreements. According to Goyal, Japan is on track to meet its 10 trillion yen investment target in India sooner than expected.
Sustained Investment Amid Challenges
Despite the promising trends, India must address several challenges to sustain Japanese investment momentum. Bureaucratic hurdles, tax issues, and regulatory delays are well-documented obstacles for foreign companies. Additionally, there are complications in completing initiatives like the bullet train project, as highlighted by past criticisms from a former Japanese minister.
Nevertheless, Japan sees India as a counterbalance to risks associated with China while aligning with India’s manufacturing goals. However, both nations must continue to navigate economic interdependence with China and manage tensions that could impact their partnership.
Reporting based on coverage first published by bbc.co.uk.