What does Japan's $42 billion investment mean for India?

When the Prime Ministers of India and Japan met in Delhi last week, the talks veered towards China also. Prime Minister Fumio Kishida was in India to attend the 14th India-Japan Annual Summit, held after a gap of three-and-a-half years.

Prime Minister Narendra Modi briefed PM Kishida on the situation at the Line of Actual Control (LAC) with China. And he also stressed on PLA’s attempts at “multiple transgression” on the LAC.

Foreign secretary Harsh Shringla too said that any normalcy in the India–China relationship will depend on LAC de–escalation.

While China’s overseas investments have attracted enormous attention, Japan is still the leader when it comes to infrastructure in South-East Asia.

According to Fitch Solutions, as of August 2021, Japan had 259 billion dollars invested in unfinished projects in Malaysia, the Philippines, Indonesia, Thailand and Vietnam, compared with China’s $157 billion.

Japan is also playing an increasingly larger role in South Asia, a region where China’s influence has grown rapidly. Apart from India, Japan is also focusing on countries like Bangladesh and Nepal.

As The Diplomat reported, Japan already enjoys a positive image in Bangladesh thanks to millions of dollars of direct investments. Bangladesh’s Matarbari deep sea port is also being developed by a Japanese consortium. As of January 2019, Japan had been the largest donor to Bangladesh, having given almost $1.8 billion in loan support in 2018.

Japan is the third largest investor in the Indian economy with cumulative FDI inflows of $30.27 billion during 2000–2019’. The country contributed 7.2% to India's total FDI inflows during the same period.

Meanwhile, last week’s summit is sure to take the India-Japan trade ties to the next level.  After the summit, Prime Minister Modi announced that both the countries have set an investment target of five trillion yen, or about 42 billion dollars, in the next five years.

Both the leaders acknowledged that the investment target of 3.5 trillion Japanese yen, announced in 2014, has been achieved.

The public and private investment and financing from Japan to India in the next five years, which will amount to 5 trillion Japanese yen, will be used to finance both public and private projects of mutual interest.

The new target follows and exceeds the 3.5 trillion yen in investments and financing that then Japanese Prime Minister Shinzo Abe had announced for the five years between 2014 and 2019 during his 2014 visit to India.  

The agreements and MoUs signed during the 14th India-Japan Annual Summit include seven JICA loans, amounting to 20,400 crore rupees. These are meant for projects in connectivity, water supply and sewerage, healthcare, horticulture, and biodiversity conservation across various states in India.

JICA, or Japan International Cooperation Agency, is involved in at least 27 recent and on-going activities in India. These projects stretch across sectors such as health and medical care, transportation, power and energy, urban environment management, and agricultural and rural development, among others.

In particular, the transportation projects include Phase 2 of the Delhi Mass Rapid Transport System Project, Hyderabad Outer Ring Road Project, Visakhapatnam Port Expansion Project, and Dedicated Freight Corridor Project.

On March 16, a financial daily reported that JICA expects to fund $3 billion worth of projects in India in 2022-23. JICA is also financing other big infrastructure projects such as the Mumbai-Ahmadabad High Speed Rail and the Mumbai Trans Harbour Link.

Other announcements during the summit included the Clean Energy Partnership and the Sustainable Development Initiative for the North Eastern Region of India.

Japan’s new investment target re-affirms the special strategic partnership between India and Japan. The latest meeting between the prime ministers of the two countries marks another step towards deepening regional cooperation amid an increasingly assertive China.