The Indo-Japan relationship, which is recognised as Asia’s fastest-growing bilateral relationship, goes back a long way. The relationship started with building cars and has come a long way with both countries collaborating to build the first bullet train in India. The number of Japanese companies in India has seen a steady increase over the years and will only strengthen with India aiming to become a USD5 trillion economy in the next five years. There is no doubt that Japan has played an important role in India’s economic development and now with the upcoming INR 1 trillion high-speed rail project between Mumbai and Ahmedabad, this relationship is set to strengthen further. Ensuring sizeable investments and technological expertise from Japan is likely to have a multiplier effect on the Indian economy.
FDI from Japan forms up to 8 per cent of India’s total FDI (2000 to 2017). The number of Japanese companies operating in India went up to nearly 1,370 in 2017 from a mere 550 in 2008. Furthermore, Japanese investments have grown from USD266 million in 2005 to USD4,709 million in 2017. This is a testimony to the increasing Japanese investments in the Indian market.
Going back to how it all began, India and Japan have had a long and enduring strategic and economic partnership that first started in the 1950s through bilateral loans and grant assistance.
India’s growing economic prosperity and Japan’s investment-friendly policies have led to several projects being financed by Japanese organisations. In terms of investment, the automobile sector has seen the maximum contribution by Japanese investors, followed by the pharmaceutical sector. Both sectors have witnessed significant investments over the years.
India’s need to improve connectivity across the nation for economic and social development has been paramount and this formed the basis for the high-speed rail project between Mumbai and Ahmedabad. In terms of adaptation, Japan’s Shinkansen has transformed the way its citizens perceive commuter rail network and India will benefit greatly from this technology that will revolutionise public transportation in the country.
A strategic collaboration between the nations is critical to the success of the project. The technology behind the high-speed rail is new in India and Japanese companies can play a significant role in filling this gap. Most of the required assets, from rolling stocks, other small and meticulous parts to electrical signalling, are expected to come from Japan. Large manufacturing companies as well as multinational trading houses, which will lead the consortiums of medium and small manufacturing companies, are expected to be involved in delivering the technology required for the high-speed rail in India. In addition, training on operations of the high-speed rail will be facilitated by Japanese experts with experience and knowledge in the space.
To meet the technological requirements, it is also expected that the products will initially be manufactured in Japan and then brought to India while local companies are expected to play a role in the India-level requirements such as fitting the trucks in the lanes. Going forward, Japanese companies may even consider setting up manufacturing facilities for the bullet trains in India itself. This would further give an impetus to the ‘Make in India’ initiative and a major economic boost to the Indian economy.
The high-speed rail project can spur growth and create many employment opportunities in India with up to 20,000 construction jobs, 4,000 direct employment for operations and 20,000 indirect jobs. More than 80 per cent of the high-speed rail project’s cost is funded by Japan through a loan at 0.1 per cent per annum for a period of fifty years. With speeds over 300 kmph, this project is likely to bring about a paradigm shift for the Indian Railways. Improved connectivity will be the biggest outcome of the project and there are at least six more high-speed rail corridors in the offing.
Such high-speed rail projects have been implemented in more than 20 countries across the globe, including China, Japan, Korea, the U.K. and France. India has the fourth-largest rail network in the world after the U.S., China and Russia. This — combined with India’s surging population, a significant section of which depends on the Indian Railways for public transport — makes India a highly lucrative investment market for high-speed rail.
There is no denying that high-speed rail has several economic benefits for India but challenges, including land acquisition, need to be addressed by the Indian government on an urgent basis. Currently, approximately only 40 per cent of the required land for the project has been acquired.
A strong economic partnership, buttressed by the high-speed rail network, between India and Japan will prove beneficial for both economies in an uncertain global environment.
(A version of this article appeared in The Financial Express on November 26, 2019)