" I want to tell you not to worry about friendly relations between Japan and India." Manmohan Singh

"In due course, there would be a turnaround in  bilateral business relations commensurate with the strong bonds that existed between the two countries." Shinzo Abe

In quest of strategic global partnership

A ROCK solid relationship structured over half-a-century forms the foundation of Indo-Japanese cooperation today. The relationship has been further cemented with the pledge of the Prime Ministers of both the countries-- Manmohan Singh of India and Shinzo Abe of Japan-- to form Strategic and Global Partnership between the two countries. The major planks of the aspired partnerships reflected in the Joint Statement issued by the two leaders during the Indian Prime Minister's visit to Japan in December , 2006 are: Holding annual Summit-level meetings in respective capitals; Institutionalization of Strategic Dialogue at the Foreign Ministers level; Launching negotiations for the conclusion of a bilateral EPA/CEPA; Setting up of a Business Leaders' Forum; Cooperation in the field of Science and Technology; Expansion of youth exchange, promoting Japanese language education in India, etc.; Cooperation in multilateral framework such as EAS, UN, SAARC, etc.; and Cooperation in the field of energy, environment, anti-piracy, non-proliferation, etc.

"I am convinced that the 21st Century will be the Century of Asia. But to ensure this and to translate this into global prosperity and peace for all, Japan and India must work together", asserted the Indian PM while interacting with the business community during his visit to Japan.

Joint Study Group (JSG), composed of government officials and representatives of business and academia from the two countries, held four meetings after July, 2005. JSG submitted its report to both Prime Ministers when they met in July, 2006, which includes a recommendation for launching EPA negotiations. In December, 2006, the Prime Ministers of the two countries decided to launch immediate negotiations for the conclusion of a bilateral Economic Partnership Agreement/Comprehensive Economic Partnership Agreement aiming to complete in substance as soon as possible in approximately two years.

Japan 's FDI to India will amount to more than $1.8 billion over 3 years. This is reflected in a document of the Japanese Embassy in India. Only by totaling 22 FDI projects reported in Japanese media, Japan's FDI to India will amount to more than $1.8 billion over 3 years from 2005 to 2007, or $600 million per annum. Adding other pipeline projects, including 7 projects reported without specific investment amount, the total amount will very easily exceed $2 billion over 3 years. An annual average of $600 million will far exceed the past peak of $514 million in 1997.

Some  representative projects of the total number of Jap projects in India include: Maruti-Suzuki $700 million); Mitsubishi Chemical's MCC PTA ($370 million); HONDA Group ($250 million); TOYOTA ($130 million); ASAHI India Glass ($130 million).

Japan's FDI concentrated largely in two major sectors: automotive industry (60% of the total) and petrochemicals (20%).

New diversified areas of investment are, however, emerging such as other manufacturing industries, pharmaceuticals, food processing, IT soft-wear, textile among many others.It is also noteworthy that many SMEs (small and medium scaled enterprises) are demonstrating their keen interests in the Indian market along with conventional big enterprises.

 

21ST CENTURY Century of Asia: Indian PM “I have many cherished memories from my long association with Japan, not least the helping hand extended by Japan to India during our very severe balance of payments crisis of 1991. Japan was truly a friend in deed, to an India sorely in need. Those early days of India’s economic reforms process now appear distant. It is important to remember that despite several changes of government in these past 15 years, India has remained on the path of economic reforms and liberalization we started in 1991. The Indian economy is now on a new path of accelerated growth. For two decades our economy grew at around 6.0 per cent per annum. But in the past four years we have recorded 8.0 per cent annual growth. In the first half of the current fiscal year the growth rate recorded a new high of 9.1%. The manufacturing sector is fast catching up with the services sector. These two sectors account for almost 80 per cent of our national income. “This remarkable growth is being led by an investment rate of 31 per cent of GDP, financed almost entirely by a matching savings rate of over 29 per cent. India’s stable macro – economic indicators lead me to believe that we have the potential to achieve double digit growth in the coming years. “Our challenge, however, is not only to sustain high growth rates, but to make this process inclusive of the demands of equity and environmental sustainability. Growth has already helped millions of our citizens to emerge from abject poverty, which is reflected in the decline of the poverty ratio from above 50% in the seventies to below 20% today. This has added large numbers to our booming consumer markets. In this journey of unleashing the creativity and enterprise of the Indian people, and seeking growth with equity, we want Japan to be our active partner. “We are deeply appreciative of the assistance Japan has made available over the years, through its official development assistance programme. Delhi Metro is already a visible symbol of India-Japan collaboration and we look forward to more such projects that can make a tangible difference to the daily lives of our citizens. In the years ahead we wish to focus on building a much deeper and wider relationship with Japan’s business and industry. Our economic relations presently fall far short of the potential. I have been surprised to see Japan lose ground in India during the 1990s to other East Asian and South-east Asian economies, both in terms of foreign investment flows and trade flows. “It is a fact that South Korean consumer brands have moved aggressively into India and their brands have very high recognition value among our consumers. On the trade front, India’s trade with both China and South Korea is booming and grew last year at around 40% with both countries. China’s trade with India is nearly three times India’s trade with Japan and Korea’s trade with India is almost equal to Japan’s trade with India. “The time has come for Japanese companies to reverse this situation. Japan must regain its historic status as our most important business partner in Asia. We cannot forget the critical role Japanese companies have played in the development of India’s automobile and other industries in India. The challenge is before all of us is obvious. I invite Japanese Business Community to take full advantage of opportunities that present themselves in my country. “I am happy that there are indications that the trend is already beginning to change. Since the end of 2004, over $ 5 billion have been invested from Japan in India’s capital markets. This is a ringing endorsement of the potential and profitability of investing in India and will, I hope, set the tone for greater direct investment as well. I am also told that the number of Japanese companies in India have grown by 50% in the last three years. “I do hope that you have noted the results of a JETRO survey conducted in 2005, which concluded that the profit prospects of Japanese manufacturing companies was the best in India as compared to all ASEAN countries. As a consequence, more than 90% of such companies in India were planning to expand their operations in the next couple of years. I urge you to weigh the initial problems of entry against the long-term profitability and stability of doing business in India. An economically resurgent India today offers a variety of investment opportunities, both in traditional and new sectors, in labour-intensive and knowledge-based industries. In bio-technology, nano-technology, information technology, automobiles and aerospace, textiles and leather, marine products and in many other areas Japan and India can come together. I am of course aware of the concerns Japanese investors have about doing business in India. Our government will address all legitimate concerns of investors. We are committed to improving our infrastructure, simplifying our taxation regime, reducing further our tariffs and eliminating bureaucratic delays. We have made substantial progress in each of these areas, but I am aware that there is more to be done. We will do our very best. The focus of our government has been to create world class infrastructure in India. I am personally monitoring all the major infrastructure projects every quarter as head of the Committee on Infrastructure. We have estimated that India’s investment needs in area of infrastructure will be at least $320 billion in the next five years in infrastructure alone. We have estimated that our total investment requirement would be closer to US$ 500 billion. This requires public and private, domestic and foreign participation in our economy . We happily welcome foreign investment and seek to promote public-private partnership on a large scale. As part of such innovative public–private partnerships, we have made provisions for grant assistance through a specially created “viability gap funding” mechanism, and for access to long-term funds through a special purpose vehicle, the Infrastructure Development Finance Company. The qualitative and quantitative expansion of education in India will enable us to sustain a highly productive work force with a wide range of skills. There are already more than 70 Indian software companies and 5,000 Indian engineers operating in Japan and Indian companies are making significant efforts to train software professionals for the Japanese market. Japanese has already been introduced as an optional foreign language in our secondary schools and the government is committed to increasing Japanese language learning opportunities in India. We would urge the Japanese industry to exploit India’s IT advantage the way the US and Europe have done and are doing. India’s fast expanding economy will create a large demand for energy. There are many opportunities for collaboration between Indian and Japanese companies in the area of energy efficient and environmentally friendly technologies. We must exploit this vast latent potential. Prime Minister Abe and I are sincerely and deeply committed to breathing new life into our traditional friendship. We propose to launch negotiations on a Comprehensive Economic Partnership Agreement between India and Japan. I invite all of you to a youthful, dynamic and self confident India, where more than a billion people are seeking socio-economic progress in the framework of a functioning democracy, an open society and an open economy deeply committed to fundamental human rights and respect for rule of law. I invite you to join us in this historic journey of creativity and enterprise. I am convinced that the 21st Century will be the Century of Asia. But to ensure this and to translate this into global prosperity and peace for all, Japan and India must work together. I invite you to join us to build a new India, a new Asia and a new world.” Indian PM’s speech at the Indo- Japan Business Luncheon Meeting Tokyo, December 15, 2006

Against this backdrop, one finds Indo-Japanese trade relations and economic cooperation going stronger by the years. During the former Indian Prime Minister A B Vajpayee's Japan visit in December 2001 on the eve of completion of 50 years of India-Japan diplomatic relations, then Japanese Prime Minister Zunichiro Koizumi had observed "Japan and India have never been at war and have consistently maintained friendly relations" and hoped to strengthen friendship between the countries through economic cooperation, security and other areas of cooperation as future global partners. The Indian Prime Minister in return echoed Koizumi's voice. Their commitment reflected in higher bilateral trade though, if compared with neighbouring China's trade with Japan, India's share in Japan's total trade does not give any impressive look. So also in the field of foreign direct investment. Japan which is the fourth  largest investor in India itself is not happy with this rate. India has to do a lot to create an investor-friendly environment through speedier economic reforms and freeing the country from clutches of deregulation at the earliest. What India should do to promote more FDI?: the question was raised by none else than the Japanese Ambassador to India, Mr. Akira Hayashi during the Joint Meeting of the India-Japan Business Cooperation Committees (IJBCC) in Bangalore on December 19, 2002.  "I think a very comprehensive and convincing answer was given by the Report of the Steering Group on Foreign Direct Investment chaired by Mr. N. K. Singh of Planning Commission.....the answer to the question seems to me the implementation of prescriptions for which a broad-based consensus does exist". Commenting on the country's economic reforms process, the Indian Prime Minister told the Association of South East Asian Nations (ASEAN) summit in October, 2002:"It is in current fashion to compare economies to creatures like dragons, tigers and elephants. Like an elephant, the Indian economy may be somewhat slow to gather momentum but when it does so, it is unstoppable, irreversible". After about two months in December, 2002, at IJBCC meeting The Japanese Ambassador observed: "Indeed this Indian "Elephant" is fast catching with East Asian "Dragons" and "Tigers".

 

Increasing salience of the Indo-Japan Global Partnership "The two leaders affirm that Japan and India are natural partners as the largest and most developed democracies of Asia, with a mutual stake in each other's progress and prosperity. Indeed, a strong, prosperous and dynamic India is in the interest of Japan, and likewise, a strong, prosperous and dynamic Japan is in the interest of India. They have responsibility for, and are capable of, responding to global and regional challenges, and they must play an active role in the promotion of peace and stability in Asia and world at large. Recognising that Asia is emerging as the leading growth center of an increasingly interdependent global economy, the two countries are also keen to pursue a comprehensive economic partnership in the region and nurture sustainable economic growth, social peace and political tolerance in open and cooperative regional frameworks. “The two leaders welcome the Joint Statement issued following talks between the Minister of State for Defense of Japan and the Defence Minister of India in May, 2006 and reiterate their commitment to enhance defence cooperation to achieve the common goal of promoting the security, stability and prosperity in Asia and in the world at large as well as in tackling regional and global security challenges. They urge their concerned agencies to develop an annual calendar of cooperation and exchanges relating to defence and security and to progressively enhance cooperative activities, including highlevel exchanges and consultation between services. The two leaders appreciate the recent developments in service-to-service cooperation, including cooperation in UNDOF. “Recognising that Japan and India have large Exclusive Economic Zones and maritime interests, the two leaders confirm their intention to work closely to enhance cooperation in capacity building, technical assistance and information sharing between their respective agencies and undertake anti-piracy measures. They share the view that Japan and India must cooperate closely to ensure the safety and security of international maritime traffic that are vital for their economic well-being as well as that of the region. “Convinced that comprehensive economic engagement between the two countries must be a core element of their strategic partnership and also recognising that closer economic integration between Japan and India will contribute to further growth and stability in the broader Asian region, the two Prime Ministers have decided to launch immediate negotiations for the conclusion of a bilateral Economic Partnership Agreement/ Comprehensive Economic Partnership Agreement (EPA/CEPA), on the basis of the recommendations submitted by the Joint Study Group. “The two leaders confirm that Japan’s ODA will continue to support India’s efforts at accelerated economic and social development as well as to further strengthen Japan-India partnership. They direct their concerned agencies to intensify cooperation under the ODA, particularly in priority sectors such as infrastructure, environment, social development and human resource development. “In order to widen and deepen economic engagement even as an EPA/ CEPA is negotiated, the two leaders announce an “Japan-India Special Economic Partnership Initiative” (SEPI). This initiative will promote enhancement of investment from Japan to India and help develop India’s infrastructure and manufacturing capacity, taking full advantage of the ample availability of skill and human resources and the public-private partnership policy initiative of the Government of India. “Emphasizing the major role of the private sector in strengthening economic engagement, the two leaders announce the setting up of a Business Leaders’ Forum, comprising ten business leaders from each country. This Forum will have the mandate to develop a roadmap for enhanced partnership and cooperation between the two countries at the business level and generate ideas for furthering the goals of the SEPI and taking forward the negotiations on the EPA/CEPA. “The Japanese side welcomes Indian investments in Japan. The two sides will coordinate to facilitate their location and activities in the country. Recognising the competitive advantage of India in software development and IT-enabled services, the two sides will also work together to facilitate the functioning of Indian companies in this field in Japan. “The two leaders welcome the outcomes of meetings of Working Groups set up under the Japan-India Information and Communication Technology Forum, which include field trials in India for introduction of Japanese wide-band wireless technology i- Burst for field trials in India, joint research on Natural Language Processing by National Institute of Information and Communications Technology (NICT) of Japan and Centre for Development of Advanced Computing (CDAC) of India, and exchange of researchers. "Software experts and other technical personnel. The two leaders urge their Ministries concerned to pursue actively the identified areas of cooperation. The Japanese side will give consideration to the request for assistance in setting up a National Gigabit Backbone Network in India. “The two leaders believe that cooperation in science and technology, including in frontier areas of research and development, constitutes a key element of the strategic partnership between the two countries. The two leaders welcome the holding of the 7th Joint Committee on Science and Technology in November 2005 as well as the Japan- India Science and Technology Initiative Meeting in October 2006. “The two leaders believe that in order to substantiate the Japan-India strategic partnership there must be a quantum increase in cultural, academic and people-topeople exchanges. Such contacts will also build upon the goodwill that exists in the two countries in respect of each other and help raise the profile of India in Japan and of Japan in India. With this larger policy objective in mind, the two leaders endorse a number of initiatives to qualitatively upgrade such contacts. “The two leaders designate the Year 2007 as the “Japan-India Tourism Exchange Year” and direct the Ministries concerned to carry out various activities to promote tourism exchanges. They welcome a Joint Document on expansion of tourism exchanges between the two countries. “Noting that civil aviation links between the two countries are a key element for fostering closer economic and people-to-people contacts, the two leaders welcome the positive outcome of bilateral civil aviation talks and direct their respective authorities to expeditiously implement the agreed measures to expand air links commensurate with the requirements of growing economic relations and enhanced tourist flows. The Indian side invites Japanese participation in the development of airports in India through public private partnership and also under the ODA. The Japanese side will give serious consideration to the idea. “The two leaders share the view on the usefulness of having dialogue among Jaan, India and other like-minded countries in the Asia-Pacific region on themes of mutual interest. The two governments will consult on the modalities. “The two sides reiterate their commitment to disarmament and non-proliferation objectives, and their determination to work as partners against proliferation. “The two leaders express serious concern regarding the threat of proliferation of weapons of mass destruction and their delivery systems, which confront the region and the wider world. They reaffirm that Japan and India need to work in a concerted manner to effectively counter these dangers, which imperil their peaceful societies. The two leaders reaffirm their shared recognition of the importance of strengthening the multilateral trading system. The two countries will make their utmost efforts towards the early conclusion of the WTO Doha Round negotiations as responsible members of the G-6.” * From Text of Joint Statement of Prime Minister Shinzo Abe and Indian Prime Minister Manmohan Singh on Japanese Towards Japan-India Strategic and Global Partnership issued in Tokyo on December 15, 2006

Japan's trade in goods with India in calendar 2006 stood at $ 8.51 billion, according to provisional estimate against $ 6.75 bn in 2005. While exports to India in 2006 stood at $ 4.45 bn against $ 3.53 bn, imports stood at $ 4.05 bn compared with $ 3.21 bn in 2005 leaving a surplus trade balance of $ 399 mn in 2006 with India. According to a provisional estimate of the Indian federal ministry of Commerce, the Indo-Japanese bilateral trade in fiscal 2005-06 stood at $ 6.54 bn signifying around 22 percent growth over 2004-05. So far as foreign direct investment (FDI) is concerned, Japan has now emerged as the third-largest FDI contributor to India. Japan's cumulative FDI inflow in to India between 1991 and July 2006 stood at $ 2.15 bn accounting for approximately 6 percent of the total FDI inflows in to India during this period. The Jap foreign direct investment in last two financial years aggregated at $ 1.8 bn. the Jap equity investments in India now stands at around $ 5 bn.

Japanese investments into India Suzuki plans additional US$ 1.7 billion investments in India in a phased manner up to 2010for its second four-wheeler plant and increase production capacity of car engines. Toyota Motor Corporation plans an assembly plant for low-priced compact cars in southern India by 2010. Zentek Technology, a digital consumer electronics software maker, will set up development facility in Gurgaon. Mitsubishi UFJ Securities company has opened its representative office in Mumbai. Kyushu Electric Power Co. has signed an MOU with NTPC Ltd. to promote technological and environmental expertise exchanges. Nissan  would create production facility of four-wheelers in India jointly with its French partner Renault and Mahindra & Mahindra. The new plant, located at Chennai, is expected to entail an investment of $ 85.7 million.

Closely linked to the prospect of FDI is the improvement of India's economic infrastructure. In this respect too Japan has been helping India since 1958 through its Official Development Assistance (ODA) programme. However, In 1999-2000 India did not get anything due to sanctions imposed by the Japan government for the Nuclear Test carried by India.Over the years, our soft loan assistance to India has expanded to cover a wide range of areas, from economic infrastructure to afforestation and preservation of cultural heritage.

The Government of Japan is  extending a massive package of Official Development Assistance to India, in the form of soft loans totaling ¥184,893 million (approximately Rs.6916 crore) for fiscal 2007-08. FY 2002-2003 was a landmark year for the Japan-India development partnership, as India became the largest recipient of yen loan assistance from Japan that year. Since then, for the last four consecutive years, India has been the top recipient of Japanese soft loan assistance. With the yen loan commitment to India going up this year by 18.9 percent over the previous year’s commitment, the Japanese assistance has attained new peak again.

While the total amount of Japanese soft loan to developing countries is decreasing, that of Japanese soft loan to India, by contrast, is increasing substantially for these years. This reflects how deeply the Japan-India development partnership grows, and how far Japan attaches the importance to India.The 2007-08 loan package covers 11* large-scale projects in the areas of power distribution, transportation, irrigation, water supply, drainage and environment. These concessional loans will be made available through the Japan Bank for International Corporation (JBIC).

A survey of Japanese investors' opinion about Investment Environment in India by the Federation of Indian Chambers of Commerce and Industry (FICCI) survey reveals an encouraging trend that majority of the Japanese companies surveyed said that they are making profits and are "positively considering further expansion of their operations". However, to many of them, the inhibiting factors are differences in business practices, environment and culture etc but at the same time they aware of India's huge market potential, especially in IT and IT-related. On the contrary, FICCI survey points out that numbers of American and European Fortune 500 companies find it comfortable to operate in India in the post-Reform era. The majority of Japanese investors surveyed maintains that availability of skilled manpower is a major advantage enjoyed by India in attracting foreign investment into India but at the same time a healthy market growth is also equally important. there has to be clarity in the policy guidelines.. Most of Japanese investors feel that ground level hassles like labour laws, taxes, legal and regulatory framework are high in India. They consider procedural delays a major discouraging factor for potential investors. The infrastructure forms the backbone of development of any country. According to the majority of the Japanese investors, overall infrastructure facilities are lacking in India. To attract investment, transport infrastructure needs improvement; power facilities are below average. The telecommunication facilities are however rated as "average". The FICCI survey report only corroborates what the Japanese Ambassador stated in the IJBCC meeting. Referring to the Japanese investors he said: "They are here and prepared to increase their investment provided their existing operational environment improves". The Jap companies who have been surveyed have emphasized mainly on environmental improvement. However, in METI surveys of the Japanese manufacturing companies India emerged as a potential future market the major reason being a promising country for investment in long term perspective.

In an interview with indiaonestop.com the Chairman of the Japan External Trade Organization (JETRO), Mr. Osamu Watanabe said that " Japanese investment in India is driven by Indian domestic demand, and that for reasons such as geographical factors, high tariffs and other regulations, it would be difficult to expect the same level of growth as in Sino-Japanese trade." The sectors that attract Japanese investment include transportation (28 percent); telecommunications (18%), fuel (13.5%), chemicals (12.17 percent) and trading (6 percent). Greatly appreciating the consistency of India's economic reforms, the JETRO Chairman said that although investments in IT and automobile industries are increasing, thanks to deregulation, further economic reforms and deregulation are required to attract foreign investment into India. "Specifically, the retail and real estate industries are still closed to foreign investors, and respective deregulation measures are urgently needed. While there have been governmental efforts to reform inflexible labour laws, implementation is still to be seen." The Indian sectors that attracted major Japanese investments include automotive, chemical, electronic and electric goods.

It is relevant to quote Mitsui & Co.'s Sinichi Kimura's observation about India made in his speech at the Standing Committee Meeting of Japan-India Business Cooperation Committee (JIBCC): "It is absolutely necessary for India to take steps to strengthen the competitiveness of Indian products and to improve the comprehensive productivity through revision of the Labour Act, improvement of infrastructure and individual private companies, of self-help improvement.

So far investments in Japan by Indian companies are concerned. JETRO is playing the role of a nodal agency. JETRO has two offices in India-in Mumbai and New Delhi- and an investment advisor in Bangalore, which provide information on direct two-way investment. JETRO has opened its "new" Invest Japan Business Support Center (IBSC) in Tokyo on May 26, 2003 which is a one-stop centre providing investment-related information and services. IBSC is assisted by advisors on IT, biotechnology, industries etc. and offers free of charge office spaces. IBSC provides support to those Businesspeople and non-profit government organizations involved in trade and investment who wish to export to Japan or make investments with Japanese companies. The IBSC services are available in central business districts of major Japanese cities-- Tokyo, Osaka, Yokohoma, Nagoya, Kobe and Fukuoka. Yet another effort to help foreign investors identify potential investment areas, potential joint venture partners is the Trade Tie-up Promotion Program (TTPP), an on-line tool. Apart from gauging business trends in each country, TTPP help find technology partners and a powerful marketing communication tool.

Why invest in Japan? Japan, the business hub of Asia's growing economies, is rated as world's second largest market with the prospect of a high level of personal consumption growth. JETRO claims that with high income levels and with large citites spreading across the country, Japan boasts several major economic regions that exceed in scale the entire national economies of China and other nations. Apart from highly skilled human resources, the country offers innovative technologies. So far as infrastructure back-up is concerned, the transportation network is rated as one world's bests. Other advantages to work with Japan include world class information and communication technology ICT) facility, a highly reliable logistic infrastructure and other investor-friendly facilities. Responding to economic globalization, commercial laws and major elements of country's economic legal framework have been reformed by the Japanese government. It is significant to note that many a foreign companies doing businesses in Japan have posted higher profit even than Japanese companies themselves.

 

INDO-JAP GLOBAL PARTNERSHIP: Eight-fold Initiatives Enhanced dialogue and exchanges The two leaders recognize the importance of regular dialogue and exchanges in increasing mutual understanding. They note with satisfaction in this context that their meeting was the third one between them in a period of one year. They decided to hold annual Prime Minister level meetings, alternately in the two capitals or elsewhere, taking advantage of opportunities at regional and multilateral meetings. They also confirm their intention to promote regular ministerial level exchanges, including those between their Foreign, Defence, Trade, Finance and ICT Ministers. A High Level Strategic Dialogue will also be launched between the two countries. The two sides will fully utilise their existing dialogue mechanisms, and launch an oil and natural gas cooperation dialogue between the Ministry of Petroleum and Natural Gas of India and the Ministry of Economy, Trade and Industry (METI) of Japan. Comprehensive economic engagement The two sides will take several measures for broadening and deepening economic and trade cooperation between India and Japan based on the complementarities of the two economies, and decided to work towards quantum increase of the trade volume as well as for diversifying trade. The two leaders directed the India-Japan Joint Study Group (JSG), which is to be launched by June 2005, to submit its report within a year, focusing on measures required for a comprehensive expansion of trade in goods, trade in services, investment flows and other areas of economic relations between the two countries. The JSG will also consider the feasibility of the two countries moving towards a liberalized and upgraded framework for economic engagement, including an India-Japan economic partnership agreement. The Policy Dialogue, which was recently launched between the Ministry of Commerce and Industry of India and METI, will be utilised to identify and implement on a priority basis measures required to remove impediments and facilitate closer economic relations. The JSG comprising of government ministries, business leaders and academics, may take into account inputs provided by this Policy Dialogue. The Governments of India and Japan will make a special effort, in collaboration with the private sector, to encourage higher levels of investment by Japanese companies in India. They will strengthen technical cooperation to improve the competitiveness of Indian manufacturing industries. The Government of Japan is also prepared to provide every possible support to International Engineering & Technology Fair organized by Confederation of Indian Industry in 2007, exploring the possibility to be a partner country. The Joint Task Force on ICT and the ICT Forum will be utilized to develop a roadmap for increased ICT cooperation, taking into consideration the potential for synergising the advantages of both countries in this field, including the idea of an IT databank. 5. The Government of India highly appreciates the fact that India is the largest recipient of the Japanese Official Development Assistance. The Government of India also notes with appreciation that the Japanese side has committed yen loans of JY 134.5 billion for eight projects in FY 2004, including North Karanpura Super Thermal Power, Delhi Metro and Ganga Action Plan for water purification(Varanasi). It is confirmed that the ODA will continue to be utilised to support India’s efforts at accelerated economic development, particularly in priority sectors like infrastructure, including transportation and power, and environment. The Governments of India and Japan agree in principle to resume the Japan Overseas Cooperation Volunteers (JOCVs) scheme in India. Keeping in view the renewed focus of the global partnership and the goal of bringing about a quantum increase in the level of economic engagement, the two sides shared the view that Japan’s Special Terms for Economic Partnership (STEP) Scheme could be one of the effective means for carrying out large-scale priority projects in infrastructure sector in India. The two sides confirmed their intention to examine the feasibility of proposals for dedicated multimodal high-axle load freight corridors with computerized train control system on Mumbai-Delhi and Delhi-Howrah routes utilising the STEP Scheme and with the inputs of Japanese technology and expertise. The two Governments will work for improved connectivity between the two countries, including through civil aviation links and shipping links. Negotiations to revise the existing tax treaty will be concluded at the earliest possible date. Enhanced security dialogue and cooperation The two leaders recognize the important roles India and Japan play in tackling regional as well as global security challenges. They reaffirm their desire to further develop dialogue and exchanges between the two countries in the security and defence fields, including through full utilisation of the Comprehensive Security Dialogue, Defence Policy Dialogue and Military-to-Military Talks. Service-to-Service exchanges between defence establishments of the two countries will also be strengthened. Recognising the importance of ensuring the safety and security of international maritime traffic, the two leaders directed the Coast Guards and related agencies of both countries to work together on a sustained basis, including the annual Indian Coast Guard- Japan Coast Guard talks, joint exercises against piracy as well as cooperation through means of information sharing and technical assistance. The Indian Coast Guard and the Japan Coast Guard will commence efforts to establish a framework of effective cooperation. The two leaders, in view of the importance of maritime security, also instructed the Indian Navy and the Maritime Self Defence Force of Japan to enhance their cooperation, including through exchange of views, friendship visits and other similar activities. Science and Technology Initiative India and Japan, as two countries seeking to transform into knowledge-based societies, recognize the importance of science and technology cooperation. The two sides note in particular the areas of their respective strength, and will work together to exploit the enormous potential for cooperation in this field, including in the area of high-technology. They will work together to launch a new Science and Technology Initiative, which will explore possible substantial cooperation in areas such as modern biology, biotechnology and health care, agriculture, hydrocarbon fuels, nano-science and technology, environment, information and communication technology, robotics, alternative sources of energy, etc. The Governments of India and Japan will reinvigorate the India-Japan Joint Committee on Science and Technology Cooperation, the next meeting of which will be held later in 2005, and which will discuss the modalities and implementation of this new Science and Technology Initiative. The two Governments will also step up cooperation in high technology, including by exploring ways and means to expand high tech trade. Cultural and academic initiatives and strengthening of people-to-people contacts The two leaders share the view that greater interaction between the peoples, particularly among the youth, provides a stronger basis for the relationship between the two countries. They also recognize the importance of raising the profile of India in Japan and of Japan in India. They firmly believe that cultural and academic initiatives and stronger people-to-people contacts will create the right environment for the leaders of tomorrow to carry forward the vision of the global partnership, and will build upon the goodwill that exists in the two countries in respect of each other. Accordingly, the Governments of India and Japan will work together to promote Japanese language studies in India, with a target of 30,000 learners at different levels in the next five years, and through measures including the introduction of Japanese language as an optional foreign language in Indian secondary school curriculum. In this regard, the Government of Japan welcomes and encourages the Government of India’s initiative to establish Centres of Japanese Studies at Indian universities and institutions where Japanese language is being taught and to set up Japanese language teaching cells in seven Indian Institutes of Technology. The Governments of India and Japan will encourage people-to-people exchanges especially among the younger generation, including through student exchange and the Japan Exchange and Teaching Programme; continue promoting cultural and academic exchanges, which will be regularly reviewed and reinforced through the Mixed Cultural Commissions; develop institutional links between the Indian Council of Cultural Relations and the Japan Foundation; establish a Japan Cultural Centre of the Japan Foundation in New Delhi and an Indian Cultural Centre in Tokyo; develop tourism related infrastructure including the Buddhist pilgrimage circuit in India with Japanese assistance; enhance two-way tourism and in this regard, the Japanese Government will despatch a study mission to India in 2005. The Governments of India and Japan will also introduce a new academic exchange programme involving ten designated educational institutions on either side. The two sides will also make every effort to collaborate towards the development of an Indian Institute of Technology as well as the Indian Institute of Information Technology for Design and Manufacturing, Jabalpur. The two Governments will also hold a Festival of India in Japan and a Festival of Japan in India in 2007/08 to commemorate the 50th anniversary of the Cultural Agreement between India and Japan. Cooperation in ushering a new Asian era The two leaders realize and appreciate the importance of the respective roles and responsibilities of their countries in promoting peace, security and prosperity in Asia. Towards this end, they intend to realise an East Asian Community and work together to promote the vision of an Asian Economic Community as an ‘Arc of Advantage and Prosperity’. The Japanese side conveyed its decision to support India’s membership in the East Asia Summit and the Indian side expressed its appreciation for the Japanese support. The Governments of India and Japan will also cooperate in combating transnational organised crimes, and work together for disaster mitigation, including earthquake, cyclone and tsunami. Cooperation in UN and other international organizations The two leaders acknowledge the vital importance of the role of the United Nations in world peace, stability, and prosperity, and reaffirm their intention to work together for the early realization of U.N. reforms, particularly Security Council reform. They also stress the importance of revitalization of the General Assembly, as it represents the general will of all Member States, as well as the importance of enhancing the efficiency of the U.N. agencies and organs in the social and economic fields in order to effectively address urgent challenges. In this connection, they stress the importance of taking a decision on Security Council reform before the Summit in September 2005, as the Secretary-General recommended. They note with satisfaction the on-going cooperation between India and Japan, including in the G-4 setting, to bring about reform of the U.N. Security Council, by expanding the membership of both permanent and non-permanent categories, to make the U.N. more representative, more credible and more effective. They reiterate their support for each other’s candidature, based on the firmly shared recognition that India and Japan are legitimate candidates for permanent membership in an expanded Security Council. They also stress the importance of moving the process forward through consultation with a wide range of like-minded countries, and decide to strengthen their cooperation for this. The Governments of India and Japan will also expand and enrich their cooperation in other international organizations, including in the WTO. The two Governments will work together to achieve the objectives enshrined in the Doha Work Programme of August 1, 2004. As key players in global economic management, the two Governments support an open, fair, equitable and transparent rule-based multilateral trade system and intend to work together to preserve stability and growth in the global economy. Responding to international challenges Recognizing the threat posed by terrorism and the importance of the international community working unitedly to counter this menace, the Governments of India and Japan will further consolidate their existing cooperation, both bilaterally and in various international fora. The India-Japan Joint Working Group on Counter-Terrorism will hold its first meeting soon to identify possible future areas of cooperation. The Governments of India and Japan will also work as partners against proliferation. While expressing their respective positions on the approaches towards the shared goal of achieving a world free of nuclear weapons, the two Governments affirm that they will seek to promote commonalities and identify areas of convergence for mutual cooperation between them in a constructive manner, contributing to the advancement of overall bilateral relations. The two Governments will also strengthen their energy and environmental cooperation, including on sustainable development and environmentally sound technologies. In doing so, they will ensure increased focus on energy security, energy efficiency, conservation, and pollution-free fuels. They will also cooperate in the hydrocarbons sector in the areas such as exploration and production, and downstream projects including in third countries as well as on improving Asian oil markets and increasing investments in Asian energy infrastructure. SOURCE: Press Information Bureau, Federal Government of India

Japan has identified four major areas of foreign investment, namely, ICT, Biotechnology, Medical Care and Environment. Between 1995-2000 the Japanese ICT market is growing by 7.5%. The market is expected to grow to ¥ 84 trillion by 2010 according to the Ministry of Public Management, Home Affairs, Posts and Telecommunications. By 2005 the market is expected to grow to ¥ 30 trillion. Five prospective growth areas identified include: Electronic Automation, Ides (internal data centre), ASPs (Application service Provider), e-learning, e-commerce. After USA, Japan is the second largest wired population. It is expected to grow to 870 mn by 2005 from 56 mn in 2001. Currently the ratio of Net users to country's population is 44%. Japan aims at growing up as an IT Power House by 2005. Digital Authentication is an area where foreign players have an edge over other. It is estimated that the DA market is likely to get a size of ¥ 41.9 bn by 2006. The ASP market is likely to expand 18-fold by 2006. Small and medium sized players are likely to control 30 percent of the market. The Japanese e-commerce market is the second largest one in the world. The market size in 2001 is estimated at ¥ 34 trillion. The B2B sector boom is attributed to massive and growing requirements of parts by the information equipment and auto industries.

The Japanese biotech market estimated to be ¥ 1.33 trillion in 2001, is world's second largest. The market is expected to grow to ¥ 25 tn by 2010. Investment potential areas identified include Regenerative Medicine; Protein Analysis; and Functional Foods. The deciphering of almost the entire human genetic blueprint in 2000 has triggered off an accelerated race among foreign drug makers to establish operations in Japan. There is no barrier for foreign investors to enter the biotech market.

Medical Care is yet another potential  area that can attract foreign investment into Japan. The welfare device and equipment market for the nursing care which was estimated at ¥ 1.13 bn is likely to grow to ¥ 2.2 bn. The Medical Healthcare Management & Security System is another potential market for foreign investors. By 2010, this market is likely to grow to ¥ 4.5 tn from estimated ¥ 1.3 tn in 2000. In next two years' time, the Nursing Care market is estimated to be ¥ 3.98 mn.

Environment is identified as one of the most potential area of investment by foreign companies. The eco-business in Japan is estimated to grow to ¥ 40.1 tn by 2010, according to the Japanese Ministry of Environment. The waste disposal related market is expected to grow to ¥ 40 tn by 2010. The environment market offers air pollution control business; soil and water purification business; effluent treatment business; and energy saving and alternative energy business.

Updated on June 7, 2007

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