A yen for Japan

The prime minister Manmohan Singh’s visit to Japan later this month will mark an important step forward in our engagement with East Asia. This is his third trip to Japan in four years and it underlines the growing salience of relations with Japan in Indian foreign policy. The centrepiece of this visit will be the signing of the Comprehensive Economic Partnership Agreement (CEPA). The agreement is aimed at significantly enhancing levels of investment and trade. These have substantially increased in the last four years, but the numbers remain low and earlier projections have proved rather optimistic.
The conclusion of the Economic Partnership Agreement bet­ween India and South Korea earlier this year has given fillip to the negotiations between Tokyo and New Delhi. Japanese manufacturers are keen to level the playing field with their South Korean competitors. Last year, India and Japan concluded agreements for an ambitious $77 billion Delhi-Mumbai industrial corridor project. The corridor spanning six states is projected as a global manufacturing and trading hub — one that will foster closer economic and commercial relations between the two countries. Other areas of emerging cooperation include renewable energy and ecologically sustainable urban spaces.
The state of the two economies — one a massive economy in prolonged stagnation with an ageing workforce, and the other a swiftly growing economy with a projected youth “bulge” — is propelling much of this forward. But the wider political and str­ategic context needs to be noted as well. Indeed, the relationship with Japan highlights the tightening nexus between India’s economic and foreign policies.
For much of the last six decades, the political and economic relationship between India and Japan was rather crimped. Japan’s alliance with the United States precluded the possibility of meaningful ties with a non-aligned India. This was clear almost from the outset. Jawaharlal Nehru refused to sign the San Francisco Treaty of 1951 which officially ended the state of hostilities between Japan and the Allied powers. The Indian government held that certain provisions of the treaty, such as continued presence of American troops and US trusteeship over Ryukyu and Bonin Islands, limited Japanese sovereignty and independence. Although New Delhi signed a separate peace treaty with Tokyo the next year, Washington believed that India sought to detach Japan from its ties with the US. In consequence, relations between India and Japan never really took off during the Cold War. During these years, Japan focused on economic development led by exports while India opted for import substitution policies. Until the joint venture between Maruti Udyog Limited and Suzuki Motor Corporation in 1982, Japanese industry had practically no presence in India.
The implosion of the Soviet Union and the opening up of India’s economy cleared the ground for better relations. But the Indian nuclear tests of 1998 incited a strong response from Japan. Tokyo suspended economic aid and assistance for three years, and put on hold political contacts as well. The rapid strides taken in bilateral relations during the last decade stemmed from two related factors. First, the transformation of Indo-US relations led Japan to reconsider the state of its ties with India. Further, the rise of China prompted Tokyo to regard India in a more benign light.
The growing economic and political muscle of China presents a tricky challenge for Japan. China has been the favoured destination of Japanese investment and exports. But deepening economic relations have not always worked in Japan’s strategic interests. Consider two recent examples. In early September, the Japanese arrested the personnel of a Chinese fisher trawler for allegedly ramming into their coast guard vessel near the disputed Daio­yu/Senkaku Islands in East Ch­ina Sea. Beijing demanded the immediate release of detainees. When the Japanese dug their heels in, the Chinese responded by quietly placing an embargo on exports of rare earth minerals to Japan — minerals that are essential for production of key electronic components. Doing so openly would be a violation of World Trade Organisation rules, but Tokyo got the message and duly released the detainees. Around the same time, the Japanese were also worried by the surge in China’s purchases of Japanese bonds. These strengthened the Yen and could undercut Japanese exports. As the Japanese finance minister noted, China’s “intentions” needed to be probed.
In dealing with China, Japan is seeking to diversify and strengthen its portfolio of economic and political relationships. From this standpoint, India seems an increasingly attractive partner. India, too, sees better ties with Japan as important both in its own terms and in increasing India’s room for manoeuvre in Asia. The two countries announced a strategic and global partnership in De­c­e­­mber 2006. This was upgraded last year to include closer security cooperation and military exc­h­anges. Negotiations for civilian nuclear cooperation are also underway. New Delhi’s interest here is obvious, but Japan’s position is still evolving. Tokyo did not object to the waiver to India by the Nuclear Supplier’s Group and the Japanese nuclear industry is keen on entering the Indian market. Yet Japan’s historical legacy as a victim of nuclear weapons makes nuclear commerce with non-NPT signatories like India politically difficult. An agreement seems unlikely to be ready in time for Dr Singh’s visit.
Apart from Japan, Dr Singh will also be visiting Malaysia and Vietnam. The latter is hosting the ASEAN-India summit. The focus in all places will be on economic issues particularly trade and connectivity. Yet the mood music will be provided by China’s seemingly increased assertiveness — be it in the Pacific or the South China Sea. As the smaller Asian powers grow edgy about China’s capabilities and intentions, New Delhi will have to craft a nuanced approach. The incipient changes afford more scope for India to participate in and shape the security architecture in Asia. These will have an influence on our bilateral relations with China. At the very least, China will begin to see India as more than a subcontinental player. But we must not over-estimate these pay-offs. For China will remain a lot more important to Japan and other East Asian powers in the years ahead.

Srinath Raghavan is a Senior Fellow at the Centre for Policy Research, New Delhi