India-Japan ties blossom at the confluence of Modi-Abenomics

  • NK Singh
  • Updated: Sep 11, 2014 02:23 IST

I was in Tokyo for the ‘Indo-Japan Strategic Dialogue’, which coincided with Prime Minister Narendra Modi’s visit to Japan. India-Japan relations have come a long way. The confluence of Modinomics and Abenomics is now a common refrain. They (Modi and Japanese Prime Minister Shinzo Abe) are decisive leaders aiming at accelerating faltering growth momentum.

Abenomics revolves around his ‘Three Arrows’. The first arrow is dependent on quantitative easing, leading to a competitive exchange rate and higher exports; the second is pursuing a fiscal stimulus and the third entails structural reforms, particularly in labour and agriculture. The increase in domestic consumption tax has temporarily dented Abe’s popularity rating and the contemplated increase from 8% to 10% will do so further. But there is a general expectation that this is transient.

Modinomics is centred around enhanced confidence in the governance matrix, improved human skills, higher quality of infrastructure, inclusive banking, improved connectivity with faster trains, and smarter cities providing gainful employment. Making Indian cities, rivers and homes cleaner and healthier is something whose time has arrived. The economy has signalled its confidence with a higher GDP number of 5.7% in the last quarter and slight easing of inflationary pressures that could enhance monetary flexibility. Hopefully a continuation of this trend will improve tax buoyancy and, given the realisation from disinvestments, there is a hope of meeting the daunting fiscal target of 4.1% of GDP. As in the case of Abe, people will accept Modi’s unpopular steps during the transition.

My interaction with Japan commenced in 1962, when I was there for an International Public Speaking Competition and Youth Exchange Programme. It was a different Japan and the train journey in the pre-Shinkansen days from Tokyo to Osaka was arduous. Post-war reconstruction was underway. Thereafter, I served in Japan at the Indian Mission from 1980 to 1985, when important automobile agreements like Maruti-Suzuki were concluded. Japan had become a developed economy. It was exploring the frontiers of technological innovation with competitive manufacturing. The optimism of that period was, at times, awesome. Few realised that Japan would soon enter a phase of what analysts describe as its lost decade. However, India had become a major recipient of Japanese assistance in infrastructure but direct foreign investment was reticent and negligible. This was notwithstanding the innate Japanese respect inherited through Buddhism and the exchange of scholars beginning in the sixth century, visits of religious leaders like Swami Vivekananda and the respect attained by the dissenting judgment of Justice Radha Binod Pal in the war tribunal case.

India had come to be regarded as a satellite of the Soviet Union. Japan and India had not coalesced as natural Asian partners. Japanese manufacturing companies looked to India as a good sales market rather than as an investment destination. Large investments continued to flow to China, the Philippines and other Asian countries. The tenuous India-US relations did not help, either. However, things began to change after 1991, with the commencement of economic liberalisation policy in India. India has made repeated efforts to address the concerns of Japanese investors but progress has remained modest. Japanese investment accounts for just 7% of India’s FDI and trade 18.51% during 2012-13.

Having watched Japan carefully over the past three decades, there was something qualitatively different in the recent Modi-Abe summit. What are the key ingredients of the confluence of Modi-Abenomics?

First, it is the geopolitical considerations, given the rising hegemony of China. The coming together of the two largest democracies of Asia — one with a highly developed economy and exploring the frontiers of technology and the other presenting a growing economic opportunity and having large unsatiated demand and a huge young population — provides obvious synergy. The continued slowdown in the West, with rising labour cost in China, accentuates this convergence. The growing unease of Japanese companies in China seeking an orderly exit and alternative location could make India an obvious choice.

Second, rarely has personal chemistry been as transformative as the one between Modi and Abe. The expectation of harnessing past heritage and civilisational links for building a modern economic architecture underpins their friendship.

Third, Japan is entering a new, assertive phase. The realisation that the US could not in perpetuity meet its defence obligations has induced the Japanese to re-think their defence and security architecture. The current debate in Japan on what is possible in the administrative domain and subsequently through constitutional changes has far-reaching significance, no matter what the outcome is. The opening up of India’s defence and railway sectors and the increased co-operation in maritime security are opportunities not contemplated earlier. India is one of the world’s largest arms importers, and Japanese exports and joint production in India would be mutually beneficial.

How do we take the implementation forward? Modi’s fabled implementational capabilities in Gujarat have excited Japanese investors. At the PM’s banquet last week, what Osamu Suzuki told me — that Suzuki’s investments in Gujarat had fructified in record time — was an anecdotal example of what the Japanese believe could be replicated elsewhere. There is an expectation that a special Japanese cell in the Prime Minister’s Office will catalyse ongoing and future investments. A lot would depend on how quickly structural reforms are undertaken in India in labour laws, land acquisition, environmental clearance, speedier roads and port development programme, and a non-adversarial tax regime is created.

The Modi visit has created a new paradigm of co-operation. The personal trust between these two leaders holds great expectations. I, for one, believe that it is for real this time and not a false dawn.

NK Singh is a member of the BJP and a former Rajya Sabha MP
The views expressed by the author are personal

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