August 29, 2014
TOKYO (AP) — Japan and India both have much to gain from a visit by Prime Minister Narendra Modi and more than a dozen Indian steel, energy and IT tycoons that begins Saturday in the ancient capital of Kyoto.
The two countries have complementary economies, given Japan’s wealth and technological prowess and India’s natural resources and drive to modernize its economy. So far, though, they have failed to capitalize much on those mutual interests. The two countries signed an economic cooperation agreement in 2011 that is gradually dismantling tariffs, but trade between the two — despite gains — remains a tiny fraction of their overall import and export flows. That’s partly because of India’s restrictive policies toward foreign investment and partly because Japanese companies have been so focused on China.
Analysts expect Modi’s visit with Prime Minister Shinzo Abe to yield some substantial agreements, and possibly a long-awaited deal on cooperation in nuclear power generation technology. But in the long run, Modi must deliver on promises to improve his country’s investment environment while balancing India’s growing engagement with both Japan and rival China.
“I think there’ll be some very big agreements, on the energy side also, not just nuclear but also renewable energy. India has been lagging on that and needs help from Japan,” said Rajiv Biswas, chief Asia-Pacific economist at IHS Economics.
In the run-up to their meeting, Abe and Modi have been exchanging endearments on Twitter. “I deeply respect his leadership & enjoy a warm relationship with him from previous meetings,” Modi wrote of Abe, adding that he hoped to take to take the relationship “to a new level.”
“India has a special place in my heart. I am eagerly waiting for your arrival in Kyoto this weekend,” tweeted back Abe, who is taking the unusually cordial step of traveling to Kyoto to escort Modi and his delegation before they fly to Tokyo late Sunday.
Since taking office in late 2012, Abe has been trotting the globe to help clinch big contracts for Japanese industrial giants like Hitachi and Mitsubishi Heavy Industries, as part of his “Abenomics” agenda to help restore the country’s economic dynamism. India, which plans to spend some $1 trillion on roads, railways and other infrastructure in 2012-2017, is a VIP customer.
And Modi will be trying to woo Japanese investment in three of his favorite projects, including railway modernization, an industrial corridor between New Delhi and Mumbai, and a plan to build 100 “smart cities” with high-tech communication facilities and modern infrastructure.
“Who is a better expert in bullet train technology than Japan?” said Kunal Singh, a researcher at the Center for Policy Research, a New Delhi think tank. The financial newspaper Nikkei reported Thursday that the two sides may also expand cooperation on India’s mining of rare earths, as Tokyo diversifies away from a longstanding reliance on China for the minerals used in many high-tech applications.
To help move things along, India needs to attract investment by slashing red tape, experts say. Yet it remains unclear if Japan would proceed with sales of nuclear technology and related equipment to India. Such exports have been hampered by sensitivity in Japan over India’s atomic tests and its refusal to sign the Nuclear Non-Proliferation Treaty.
“It is not an easy ride, definitely,” Singh said. But he added that while India is balking at limits Japan wants to impose, the personal camaraderie between Abe and Modi might help, adding “the personal equations have to kick in, and we know they share a good bonhomie.”
So far, Japan’s investments have been concentrated mainly in India’s thriving pharmaceuticals sector and auto industry — Maruti-Suzuki, a subsidiary of Japan’s Suzuki Motor Corp., is India’s biggest carmaker. In the energy sector, the Japan Bank for International Cooperation and other Japanese banks agreed earlier this year to co-finance a $550 million loan for Reliance Industries Ltd.’s expansion of petrochemical and gasification plants and a refinery.
And Abe’s moves to ease restrictions on exports of defense-related equipment dovetails with Modi’s goal of refurbishing India’s military. During a visit by Abe to India in January, the two sides agreed on closer cooperation in the energy and telecom sectors. The two sides also agreed to hold regular consultations between their national security councils on security issues. India invited Japan’s Maritime Self-Defense Force to participate in this year’s India-U.S. naval exercises off India’s western coast, and it wants to buy an amphibian aircraft called the US-2 and to participate in its production.
Japan’s exports to India, especially of electronics, iron and steel, have jumped in the past decade. From India, Japan imports mostly refined petroleum products, gems and seafood. Yet Japanese brokerage Nomura said in a recent research report that noted that despite a 15 percent annual rate of increase in two-way trade between the two countries in recent years India accounts for only 1 percent of Japan’s total trade, and Japan only 2 percent of India’s.
Despite his keenness on Abe and Japanese investment to help support his economic agenda, Modi can only go so far. Shortly after his return home, he will be playing host to visiting Chinese President Xi Jinping.
“He’s going to have to play a balancing act,” said Biswas at IHS Economics. “He will be playing it relatively even-handedly. Both are important economies and he won’t want to be seen as playing favorites.”
Associated Press writers Mari Yamaguchi in Tokyo and Tim Sullivan and Vineeta Deepak in New Delhi contributed to this report.