India-Japan Trade Relations

India-Japan Economic Relations

 The economic relations between India and Japan exist given the complementarities
between two Asian economies. The signing of Comprehensive Economic Partnership
Agreement (CEPA) and its implementation from August 2011 has accelerated economic
and commercial relations between the two countries.
 Japan’s bilateral trade with India totaled to US$17.63 billion during FY 2018-19. Exports
from Japan to India during this period were US$12.77 billion and imports were $4.86
billion.
 India’s primary exports to Japan have been petroleum products, chemicals, mon-metallic
mineral ware, fish and fish preparations, etc. Whereas, India’s primary exports to Japan
are Machinery, plastic materials, parts of motor vehicles, organic chemicals,
manufactures of metals, etc.
 India has been ranked as one of the most attractive investment destinations in recent
years’ survey of Japanese manufacturing companies conducted by Japan Bank for
International Cooperation (JBC).
 Japanese FDI into India has mainly been in automobile, electrical equipment,
telecommunications, chemical, financial and pharmaceutical sectors.
 According to Embassy of Japan in India and the Japan External Trade Organization
(JETRO), the number of companies registered in India increased by 5.2% in 2018 with the
number reaching 1441.

Steel Imports to India from Japan: (Case Study of Steel)

India turned a net importer of steel in 2018-19, the first time in 3 years, with shipments
rising from countries like Japan, South Korea and China. Imports of various grades of steel
into India rose by around 8% in April- December 2018, compared with a year earlier
government data. During the same period, exports from India fell by more than 17%,
making the country a net importer of steel, mainly because the US, India’s markets, imposed
additional duties on coming from Asian countries like India. As a result, the nation’s steel
imports from countries such as Japan, South Korea surged with around 35% increase in
Japanese imports.

Considering the above increase of imports, the local producers including India’s top 4
steelmakers- JSW Steel Ltd, Tata Steel Ltd, State Owned Steel Authority of India Ltd and
Jindal Steel have stated that the local producers are suffering from the double whammy of a
rise in cheap imports and low domestic steel prices, which threatens to wipeout the healthy
profits made in the past couple of years.

Exiti ng Measures:

In a bid to support the use of locally made steel, the ministry has urged automakers to cut
imports from Japan and Korea. Also, India has already imposed stricter quality controls on
more than 85% of steel products and it is expanding the list of locally made steel that must
be used in government infrastructure projects.
Major imported goods
After US and Germany, Japan has been a major source of India’s imports wherein the
country’s major imports have been in Machinery constituting of 31% of the total imports in
2010.

The amount of imports has been growing at an increasing rate over the years and the graph
below shows the growth of imports in the year 2016:

Also, for the same year, the good that was imported the most was- Electrical Machinery.

(The code 8708 represents the parts of the electrical machinery)

Given the fact that Electrical Machinery was the most imported good to India from Japan,
recently, based on various initiatives like Make in India, Skill Development Mission India,
India has gained some comparative advantage.
 The Indian electrical equipment industry comprises of two broad segments – generation
equipment (boilers, turbines, generators) and transmission & distribution (T&D) and
allied equipment like transformers, cables, transmission lines etc.
 Electrical equipment market production is estimated to touch USD 100 billion by 2022.
 The sector contributes about 8% to the manufacturing sector in terms of value, and 1.5%
to overall GDP.
 The sector is projected to provide employment, both directly and indirectly, to 3.5
million people by 2022.

Current statistics for development of electrical machinery in India:

 The Total FDI Equity Inflows in the Electrical Equipment sector stood at USD 8.5 billion
from April 2000 till December 2019.
 By 2022, the installed power capacity in India is expected to reach 350 gigawatts (GW)
from 243 GW in 2014.
 The heavy industry sub-sector provides direct employment to 0.5 million people,
indirect employment to 1 million, and over 5 million across the entire value chain.

Vision for financial support under the sector:

STATE INCENTIVES
Each state in India offers additional incentives for industrial projects. Incentives are in areas
like subsidized land cost, relaxation in stamp duty, exemption on the sale/lease of land,
patent subsidy, power tariff incentives, a concessional rate of interest on loans, investment
subsidies/tax incentives, backward areas subsidies, special incentive packages for mega
projects, etc.
EXPORT INCENTIVES
Various incentives are provided under Export Promotion Capital Goods scheme, Duty
Remission scheme, Focus Product scheme, Special Focus Product scheme, Focus Market
scheme.
SKILL DEVELOPMENT
Steps taken for Skill Development, such as setting up of Electrical Equipment Skill
Development Council (EESDC), would help to bridge the skill gap required for critical
manufacturing. It has a clear objective to enhance exports.
AREA-BASED INCENTIVES
The government approved 15 SEZs for the engineering sector, and electrical machinery is a
part of the sector. Further, development of Delhi –Mumbai Industrial sector is expected to
provide a big boost to the engineering sector.

Conclusion
Given the above stats, with many bilateral agreements in place, India is expected to become
a major hub for manufacturing nuclear reactors and associated electrical components.
Foreign participation in the development and financing of generation and transmission
assets, engineering services, equipment supply and technology collaboration in nuclear and
electrical equipment technologies is also expected to increase.