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India, Japan eye closer ties

Japan will look to boost both business and political ties during Indian PM's visit this week, with aim to counterbalance China's growing influence in the region.

india Updated: Dec 12, 2006 11:49 IST

Japan will welcome Prime Minister Manmohan Singh with open arms when he visits the country this week, looking to boost both business ties and political relations to counterbalance China's growing influence in the region.

After years of doling out development aid to India, Japan is eyeing the world's second most-populous country as a business opportunity, lured by its potential as a low-cost production centre and a market for its exports.

Trade and investment flows between the two countries have been unspectacular so far because Japanese companies have focused on markets such as China, Thailand and Vietnam.

Japan's trade with India in 2005 amounted to 740 billion yen ($6 billion), less than four per cent of that with China. Its foreign investment in India was just 11 billion yen in the April-June quarter compared with 173 billion yen for China.

Seeking to build on those figures, prime ministers Shinzo Abe and Manmohan Singh are likely to end the visit with an agreement to begin talks for a free trade pact.

Singh arrives in Tokyo on Wednesday and is due to leave on Saturday.

"India's fast growth in recent years is making it a market that companies here can no longer ignore," said Kiyoshi Yamada, general manager of the international division at the Japan Chamber of Commerce and Industry.

"India is eager to tap Japanese technology in manufacturing industries such as autos and chemicals, and Japanese firms, on the other hand, could benefit from India's strengths in areas such as software development and pharmaceuticals," he said.

But analysts say growth in business ties could be slow, given worries over India's infrastructure and administrative red tape.

India's plans to create special economic zones were also being clouded by controversy over farmers being forced to give up land and by concern that tax breaks will deepen the government's fiscal deficit, analysts said.

"Japanese companies may find it easier to simply increase capacity at factories in Thailand and export goods to India from there," said Tetsuji Sano, senior economist at Nomura Securities.

While Singh will have a chance to promote his economy when he meets Japanese business executives on Friday, his meetings with government officials will likely focus on tightening diplomatic and security ties.

Nuclear tests by India in 1998 strained relations and prompted Japan to impose economic sanctions until 2001, but tensions have since thawed and Japan is now seen keen to court India to counter the rising dominance of China in the region.

Abe has called for Japan, India, the United States and Australia to hold regular talks in a grouping of countries sharing "basic values" of freedom and democracy.

"Both India and Japan have historical suspicions of China so there is an overlap of interests," said Professor Lalima Varma of the Centre for East Asian Studies at New Delhi's Jawaharlal Nehru University.

"For its part, Tokyo feels with India's rising economic power, it could look to an Asia that is not totally dominated by China," she said.

But experts doubt that security cooperation, which could include measures such as friendly joint exercises of its naval forces, would advance to a point of upsetting China.

"Japan is keen to strengthen ties with India, but India will probably take a cautious stance because it is trying to rebuild trust with China, as exemplified by the Chinese President Hu Jintao's visit there recently," said Takako Hirose, a professor at Senshu University in Tokyo.