Article

Nip in Delhi’s air

Pramit Pal Chaudhuri January 10, 2012

It’s become a tradition for Japanese Prime Ministers to squeeze in their summit visit to India just before year’s end and just before official Tokyo shuts down. It is not that New Delhi requires it, but the Japanese seem determined to show how important the relationship is to them.

Prime Minister Yoshihiko Noda took office only in August and has been tied up with domestic issues since then, including a small nuclear headache. Manmohan Singh hasn’t thought much beyond the madding home crowd himself.

Nonetheless, the agreements the two sides signed were strong indicators of the broad contours of the relationship.

There is a consensus in the Japanese system that the country wants to cozy up a lot more to India. And increasingly they don’t see a real difference between the economic and political drivers of the policy.

Japan wants a closer economic relationship with India for reasons of technology, markets and security.

Putting this into practice has not been easy. Japanese firms are risk-averse, and horrified by Indian infrastructure and tricky regulatory regimes. Hence investment in India has lagged.

These are the key planks in the Indo-Japanese economic relationship. Tokyo has effectively said: We want to build you up. The best way for us to do so is to make you a base for our world-winning corporations. But you are a pretty hostile environment, so what we’ll do is make you more Japanese-friendly.

Noda follows in his predecessors’ footsteps by giving $4.5 billion for the Delhi-Mumbai Industrial Corridor, a project which effectively tries to address India’s yawning infrastructure deficit by having the Japanese build it for them. When it is completed, India will have state-of-the-art infrastructure and a solid platform for export-oriented manufacturing and so on.

There was a re-commitment to the free trade agreement, which is designed to wipe out tariffs on intermediate engineering parts and components – and allow India to be integrated into Japanese global supply chains.

The $15 billion currency swap is designed to ease business and investment between the two countries, and is particularly useful at a time when the rupee is falling and the yen is rising against the dollar. With bilateral finance ever more costly, it is much easier if the middleman is cut out.

The confirmation of the Indo-Japanese bilateral naval exercises is another weather vane. India has shed a lot of its earlier inhibitions about looking anti-Chinese, especially after three years of bickering with Beijing. However, the present Indian ministry of defence is also wary of the US. Being Sino and Americo-skeptic, seeking a close defence relationship with Tokyo fits the ministry’s requirements perfectly.

Japan was even more circumspect about bearding China until recently. However, Tokyo was reportedly unnerved about the idea of bilateral exercises, being accustomed to doing everything in the wake of the US. Washington didn’t object, especially now that the formal Indo-US-Japan trilateral has at last come together.

The announcement by Japan just before Noda’s arrival that it would, for the first time since the 1950s, consider selling military equipment for “humanitarian reasons” was not a coincidence. Nor was the fact Noda was asked about the Japanese search and rescue/fire-fighting Shinmaywa seaplane and whether India could buy one. (He answered, very Japanese and roundabout, by not saying “No.”) But this is the thin edge of the wedge as far as India and Japan arms sales and defence technology relations are concerned.

Much will be made of these two countries being about China. The element of hedge is there. Tokyo would like to spread its economic risks regarding China given the latter’s predilection for going on about World War II and all that. But there is also an element of concern about whether the US can be counted on in the long-term to be an Asian player.

Finally, Japan has noted the slow rise of precision engineering in India in areas like auto components and so on that are competing against Japanese firms. They’ve noticed the number of Alfred Deming prizes Indian firms are winning, and feel they need to tap if not co-opt this budding capability.