From a donor-recipient relationship centred on Overseas Development Assistance (ODA), India's trade and economic ties with Japan are set to embark on a new phase of wide-ranging bilateral cooperation. Last week, Prime Ministers Manmohan Singh and Naoto Kan concluded negotiations and exchanged documents in Tokyo on a bilateral Comprehensive Economic Partnership Agreement. The India-Japan Strategic and Global Partnership, launched in 2006 as part of India's ‘Look East' policy, prepared the ground for this. CEPA, once it comes into force in the first half of 2011 after ratification by the Japanese Diet, is expected to deepen mutual engagement in trade in goods and services, investment, technology, and cooperation. It will also open up new avenues. From the stage of cautious joint venture collaboration in Maruti Udyog in the 1980s, economic ties with Japanese companies have come a long way. Nevertheless, India's trade with the world's second largest economic and technological powerhouse has remained virtually stagnant over the past two decades. Japan is ranked tenth among India's export destinations and sixth among the country's major investors. Perhaps owing to a system of over-cautious decision-making, Japanese companies seemed to lose out to their South Korean counterparts in major sectors such as electronics and automobiles — areas in which Japan once dominated on a global scale.
CEPA should be seen as part of a strategic corrective aimed at strengthening the capabilities of both Asian giants, especially in the aftermath of the global financial crisis and the consequent slowdown and rise of protectionism in the west. India's success in the auto sector has shown that its manufacturing capabilities are up to world standards, as are the capabilities of its software and IT-enabled services. CEPA can help catalyse the advantages of Japanese technology and India's labour cost advantage to emerge as major partners in a slew of sectors such as auto, healthcare and drugs, apparel, farm products and allied machinery on top of increased trade in goods as a result of reduced tariffs on more than 8,000 products. The real stumbling block is India's lack of quality infrastructure across the country. Perhaps aware of this drawback, Japan has been channelling its ODA to development of infrastructure in a major way. Japanese investments already have a major share in the development of freight corridors, apart from Delhi Metro which is regarded as an unqualified success in urban transportation. Tokyo has wisely shown special interest in developing freight corridors in the southern States and building other infrastructure to exploit the hitherto untapped potential for cooperation.
