PM's visit to Japan likely to push bilateral trade to $12bn by 2010

08 Dec '06

4 min read

The Paper says India's export of software to Japan has grown dramatically in recent years, marking a 60 percent increase in the year 2004 alone.

At the same time, there has been no changes in the traditional structure making diversification of the trade structure a challenge.

India-Japan bilateral trade is highly concentrated in a narrow range of products with India's exports dominated by raw materials and minerals and Japan's exports dominated by highly capital- and knowledge-intensive manufactured goods.

The top five exports from India to Japan are gems & jewellery (25 percent share), marine products (13 percent), iron ore (12 percent), cotton yarn, fabrics and made-ups (6 percent), and petroleum products (4 percent). Electronic goods, non-electrical machinery and transport equipment alone account for nearly half of India's imports from Japan.

The United States, China, and the Republic of Korea, accounting for about 45 percent of Japan's exports and imports collectively, are Japan's most important trading partners. The EU, USA, China, UAE, Switzerland, and Korea are India's most important trading partners.

The services sector is an important part of both the Japanese and Indian economies. Trade in services confers benefits not only to the services sector itself, but to both the primary and secondary production sectors as well. Expanded services trade accordingly stands to improve the living standards and international competitiveness of both India and Japan.

Japan is a significant global player in services, often linked with overseas investment, yet the presence of Japanese services and firms in the Indian market is much less than in other parts of Asia.

Global investors view India as the world's business process and IT services provider with longer-term market potential. India leads in IT, business processing and R&D investments. Investors favour India for highly educated workforce, management talent, rule of law, transparency, cultural affinity, and regulatory environment as highly favorable factors.

Since 1991, Japan's cumulative direct investment to India totaled approximately US$2.01 billion, making Japan the third largest provider of direct investment to India. Nonetheless, considering India's potential as an investment destination and Japan's economic size, the current situation is not entirely satisfactory.

Also, the current investment concentrates on machinery and transport equipment. Thus, it is desirable that investment structure is diversified to cover sectors such as electricity and electronics, steel, infrastructure, pharmaceutical products, and development of urban infrastructure.

The situation of Indian companies operating in indicate that they are not making the most of their potential, although major IT companies are operating in Japan.

The Associated Chamber of Commerce & Industry of India

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