The recently concluded India-Japan summit was significant in more ways than one. It amply underscored the importance of the relationship with Japan for India's own growth story as well as its role in the changing geopolitics of Asia. The Japanese Prime Minister, Mr Yoshihiko Noda's visit to India marked the fifth edition of the annual summit. It is worth noting that Mr Noda is the sixth prime minister of Japan since the launch of the India-Japan strategic partnership in 2006.

Tokyo's continued pursuit of close ties with New Delhi, despite the vicissitudes of domestic politics, shows the support for the relationship across the political spectrum in Japan. This has enabled the strategic partnership to strike firm roots. Indeed, the recent summit showcased the potential for deepening the relationship in both the economic and strategic dimensions.

Infrastructure initiatives

The major development on the economic front is the operationalisation of the Comprehensive Economic Partnership Agreement (CEPA) in August 2011. India-Japan trade in 2010 stood at just about $15 billion. Similarly, investment in India accounts for barely over 1 per cent of Japan's total foreign direct investment outflow. These numbers look all the more bleak when we think of the complementarities between the Japanese and Indian economies: The former a massive economy in prolonged stagnation with an ageing workforce, and the latter a fast growing economy with a projected youth “bulge”. With the CEPA coming into effect, bilateral trade and investment should get a considerable boost.

At the summit, Japan strongly signalled its commitment to infrastructure development in India. Its participation in three initiatives is particularly important. First, Japan has contributed heavily to the development of the 1,500 km Western Dedicated Freight Corridor (DFC) linking Mumbai and Delhi. Eighty per cent of this Rs 42,000 crore project is being financed by Japanese official development assistance. India is already the single largest recipient of Japanese aid. More importantly, Tokyo has assured New Delhi that despite requirements at home owing to the Tsunami and earthquake, the quantum of aid to India will not be scaled down.

Second, building on the DFC project, Japan is working with India to develop the Delhi Mumbai Industrial Corridor (DMIC). The DMIC spans six states and is conceived of as a “global manufacturing and trading hub” undergirded by word-class infrastructure. It is projected to double employment potential, triple industrial output and quadruple exports from the region in five years. The estimated cost of the project is $90 billion.

India and Japan have recently set up a $9 billion facility to fund commercially unviable parts of DMIC. Mr Noda has also announced public and private finance from Japan to the tune of $4.5 billion in the coming five years. The Indian government, for its part, has set aside $3.5 billion for the development of core infrastructure.

It's India's turn

Third, and drawing on the DMIC model, the Japanese are keen to help build a Chennai-Bengaluru industrial corridor. Several Japanese companies have their manufacturing bases and business presence in this region. As a first step, the prime ministers have agreed to undertake joint efforts to improve infrastructure, especially ports, industrial parks and adjoining facilities in Chennai, Ennore and other nearby areas. Japan has offered technical and financial support for these purposes.

Taken together, these projects could present India with the best opportunity to embed itself in the integrated supply chains of East Asia. So far, India has been marginal to these —largely, if not exclusively, because of the state of its infrastructure. Historically, Japanese investment in infrastructure development has played a crucial role in most of the turbo-charged East Asian economies. This may well be India's turn.

From Japan's standpoint, it seems important to spread its investments and avoid putting most of its eggs in the Chinese basket. The recent floods in Thailand have also driven home the importance of geographically diversifying the supply chain in Asia. It is worth noting that despite the labour stand-off in Maruti Udyog Ltd, Japanese firms such as Hitachi and Honda are enhancing their presence in India in a big way.

Further, Japan is eager to promote joint ventures for the development and export of rare earth metals, which are essential for the production of electronic components. This comes in the wake of China's imposition of an informal embargo on export of rare earths to Japan following a stand-off over disputed Daioyu/Senkaku Islands in East China Sea.

Strengthening ties

Seizing these openings provided by the Japanese government and the private sector is important to India not just from an economic but a strategic perspective as well.

India's much-vaunted “Look East” policy can hardly take-off without integrating India with economies of the East Asia. And it is imperative to push forward in this direction now. For the Asia-Pacific region is entering a period of strategic uncertainty.

This stems from a combination of Chinese assertiveness over regional disputes and America's desire to reinforce its presence in the region.

Both India and Japan consider the East Asia Summit to be the ideal forum for creating an “open, inclusive and transparent” regional architecture. They also stand for the resolution of disputes in the South China Sea in accordance with international law. The two countries are looking to strengthen their bilateral cooperation on defence and security. They have also recently begun trilateral meetings with the US at the officials' level. At the same time, both New Delhi and Tokyo are keen to avoid roiling their relations with Beijing, which, despite well-known problems, remain important.

Time, then, is propitious for New Delhi to give real content to its strategic partnership with Japan. The challenge, as always, is in India's ability to deliver on ambitious bilateral undertakings. For instance, questions pertaining to acquisition, clearances and regulation are already casting a shadow over the DMIC project.

The Indian government has agreed to set up an inter-departmental consultation mechanism to speedily address issues raised by Japan. But unless the strategic vision propelling the relationship percolates downwards, the governmental machinery may prove to be insufficiently nimble in exploiting this window of opportunity.

(The author is Senior Fellow, Centre for Policy Research, New Delhi.)

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