India-Japan Economic Relations at a Crossroads: Insights from an Interaction with JETRO New Delhi

India-Japan​‍​‌‍​‍‌ economic relations are often referred to as a model of stability and long-term focus, based on mutual trust and deep institutional ties. However, the reason behind this characterisation is a quietly evolving partnership. The bilateral engagement is being reshaped by sectoral diversification, renewable energy cooperation, digital industries, and growing strategic convergence. With changes in global supply chains and intensifying dynamics of the Indo-Pacific region, economic cooperation between India and Japan is increasingly seen as a source of both resilience and strategic advantage.

These evolving dimensions were discussed during a recent academic interaction with senior representatives of JETRO New Delhi, including Takashi Suzuki, Chief Director General; Hiroki Kawasaki, Senior Director; and Jenica Kalra from the Media and Entertainment Business Development Department. Based on the professional observations shared during the interaction, the article considers how Japanese companies view India today, what limitations shape the bilateral engagement, and which new areas might define the next stage of India-Japan economic ​‍​‌‍​‍‌relations.

1. How have India-Japan economic Relations Evolved Over the Last Decade?

Over​‍​‌‍​‍‌ the last ten years, economic relations between India and Japan have scaled steadily in scale and institutional maturity. More than 1,400 Japanese companies operate in India, with the automotive sector at the heart of this engagement. But gradually, this concentration has been changing. Japanese business interests still fuel the automobile industry, but now it is also diversifying and venturing into the new areas of the Indian market. This shift can be attributed to India's evolving market demands and Japan's broader efforts to reduce concentration in specific sectors and regions of its overseas investments. The change implies that the relationship is progressively achieving a more balanced economic ​‍​‌‍​‍‌footprint.

2. Why Does Japan’s Economic Presence Remain Stronger Elsewhere in Asia?

​‌‍​‍‌Although we see growing engagement with India, Japan's economic influence is much more significant in ASEAN, China, and Bangladesh. This difference here is not necessarily a reflection of preference but rather of the historical sequencing. Japanese companies entered these markets earlier, now benefitting from the decades of deep-rooted familiarity with regulatory systems, business customs and local supply chains.

On the other hand, India's interaction with Japanese businesses has been increasing at a slower pace. The variations in the business environment from one region to another-especially in terms of infrastructure readiness, investment procedures, and regulatory predictability, tax system, and labour relations, continue to shape where and how Japanese companies carry out their investments. Hence, India's problem is not that there is little interest, but rather the necessity to convert long-term potential into more convenient operational ​‍​‌‍​‍‌realities.

Japanese​‍​‌‍​‍‌ investors well acknowledge India as a huge market with bright growth prospects. However, structural problems still hamper the flow of investments. For example, poor infrastructure in certain regions, high capital requirements, and limited suitability for small and medium enterprises (SMEs) remain major issues. India often requires large-scale, long-term commitments. For Japanese firms, this necessitates patience, risk tolerance, and confidence in policy continuity. These factors partly explain why Japanese investment in India, though stable, has not expanded as rapidly as in some neighbouring regions.

3. How Are Economic Ties Intersecting with Strategic and Security Concerns?

The​‍​‌‍​‍‌ delineation between economic cooperation and strategic alignment has been blurred considerably over the past years and is one of the significant changes that can be seen in India-Japan relations. The bilateral relations between the two countries are not limited to trade and investment, as in the shared adherence to a Free and Open Indo-Pacific (FOIP), a concept that is most closely related to Shinzo Abe, continues to influence the scope of bilateral engagement. The partnership in security and defence is on the way to becoming one of the most significant and fresh aspects of the relationship. Although it is still in its infancy, this convergence mirrors the shared concerns about regional stability and supply-chain resilience and therefore, is an excellent demonstration of how economic trust, along with other factors, is increasingly becoming a strategic cooperation enabler.

4. What Explains the Rising Trade Deficit Between India and Japan?

There is a growing trade deficit between India and Japan, where Indian imports are much more than what it exports to Japan. In 2024, bilateral trade figures reveal a marked imbalance, with India exporting goods worth US$ 5159.21 million to Japan while importing US$ 17697.67 million, leading to a trade deficit of over US$ 12538.46 million. The bilateral trade composition reflects this structural imbalance. Most of the exports from Japan to India are in the areas of high-value capital goods, advanced machinery, and technology-intensive products, while India’s export basket is characterized as being comparatively limited. Addressing this imbalance requires specific focus on quality improvements and export diversification. Indian companies getting more integrated in the supply chains of Japanese businesses, local production of value-added goods, and targeted promotion of the electronics and manufacturing industries for exports could help gradually rebalance trade without undermining the partnership.

Despite these challenges, cooperation is increasing in emerging areas such as next-generation mobility. Electric vehicles, advanced transportation technologies, and sustainable mobility solutions are increasingly seen as natural areas for collaboration, aligning Japanese technological expertise with India’s developmental priorities and expanding market. Renewable energy represents another promising new pillar of India-Japan economic cooperation. Large-scale initiatives such as the Dholera Special Investment Region in Gujarat (India’s First Greenfield Smart City) demonstrate how India’s clean energy ambitions intersect with Japanese investment models and technological strengths.

Such projects signal a broader shift in the partnership from traditional manufacturing toward energy transition and sustainability-driven cooperation. This transition not only responds to climate imperatives but also reflects Japan’s emphasis on quality infrastructure and long-term project viability. In addition to renewables, two other areas stand out as future growth drivers: local production initiatives and real estate. Together, all three sectors suggest a move toward deeper economic integration rather than mere transactional investment.

5. How do Cultural and Business Practices Shape Economic Outcomes?

Beyond economic challenges, differences in culture and management style continue to affect business relations and outcomes. Language barriers, differences in work culture, communication styles and even food habits can pose subtle but real challenges. Cross-cultural training programmes are essential for bridging business gaps by enhancing mutual understanding between Indian and Japanese business partners.

The case of Maruti Suzuki sets an example. This is because it managed to thoroughly immerse itself in the Indian market using a multi-faceted strategy- targeted channel expansion, rural market development, tailored product innovation and tailoring management techniques, researching local consumer behaviour to fuel demand, and integrating Japanese operational norms in the Indian production system. This example demonstrates that successful cooperation cannot be limited to the injection of capital and technology and also includes localisation and cultural adaptation.

6. Can India’s Digital Strengths help in rebalancing the Economic Partnership?

One​‍​‌‍​‍‌ of the most promising avenues of cooperation is India's expanding digital capabilities. India, with its strong digital infrastructure and robust electronics manufacturing and IT services sectors, is an attractive partner for Japanese companies that are in the quest for innovation-led growth. The combination of digital industries and smart technologies with new sectors such as local production, real estate, and renewable-linked infrastructure offers a glimpse of a deeply integrated and future-oriented partnership.  

Recent high-level engagement, including the August 2025 meeting in New Delhi between India’s Minister for Electronics and IT, Ashwini Vaishnaw, and Japan’s Minister for Digital Transformation, Taira Masaaki, reinforces this trend. Discussions on artificial intelligence, cybersecurity, and trusted data governance highlight how India’s expanding digital capabilities align with Japan’s emphasis on secure and responsible technological collaboration.

7. Does Leadership Change Alter the Direction of India–Japan Relations?

Even with changes in the leadership in Japan, the core values that guide India-Japan relations remain unchanged. Despite the unpredictable global situation, Japan increasingly sees India as one of its most suitable partners in the long run- economically, strategically, and politically. The fact that the partnership’s vision has been carried from the Shinzo Abe era to the present day is the main evidence of the relationship’s strength and resilience. Rather than sudden policy changes, continuity in terms of stability still characterizes bilateral engagement.

8. What Lies Ahead for the India-Japan Economic Partnership?

India-Japan economic relations are actually transitioning to a deeper, multi-faceted level of cooperation well beyond symbolism. Infrastructure-related, trade imbalance, and business adaptation challenges still exist, but expanded collaboration in mobility, renewable energy, digital industries, and security provides ground for cautious optimism.

Importantly, this trajectory reflects a strong continuity of vision across political leadership in Japan, from the Shinzo Abe era to the current Prime Ministership of Sanae Takaichi. The foundational principles of trust, long-term engagement, and strategic alignment that characterised Abe’s approach continue to shape Japan’s economic partnership with India, even as the global environment becomes more dynamic and uncertain.

The India-Japan partnership, therefore, rests on mutual trust, patience, and foresight as global supply chains are revamped and strategic alignments are adjusted. The main question is no longer whether the relationship will deepen but rather how effectively both sides can adapt to make it ​‍​‌‍​‍‌future-ready.