Speech

 

The Indo-Japanese relationship towards 2047 and Beyond

Good afternoon ladies and gentlemen. It is my honour and pleasure to address  you on this very special occasion of 70 years of diplomatic relations between India and Japan.

My topic is to describe how the relationship will progress for the next 30 years.

The changed security environment world-wide occasioned by an expansionist and aggressively commercial China has thrown up an urgent need to recast priorities.

This same 30 years will probably see the end of CCP led communism in China and the emergence of independent nations in Xinkiang, Inner Mongolia, and Tibet, as well as a democratic Han China contained within the Great Wall. It is perhaps difficult to imagine at this time. But let us remember the fate of the USSR once its economy no longer worked.

But right now, the Chinese threat is very real. This, particularly in the Indian Ocean, the Pacific Ocean, in the countries of South Asia and the Asia-Pacific.

It is this scenario that has placed both Japan and India in the relatively new QUAD formation, alongside the US and Australia.

In the short term, it is America that is facing the biggest geo-political challenge as China is quite serious in its attempts to dislodge it as the number one power in the world. This will not succeed, it is clear now, at the end of 2022, because the building blocks that China was using have fallen apart.

These were close commercial relationships and supply chain arrangements with America and Europe that drove its economy at double digit growth in GDP for three decades. So much so, that disentanglement is very difficult now because China is a manufacturing hub for many products with a wide array of raw materials and parts.

But gradually China turned unacceptably militarist and imperialist. It bankrupted several small countries around it, such as Sri Lanka, Pakistan and Laos with expensive loans and 19^th century style collaterals of land and assets. It has seized natural resources in Africa and is suffering a backlash there. China has established military bases in the Indian Ocean, attempted a belt and road campaign that is incomplete, another half done project named ‘string of pearls’ designed to encircle countries like India in the oceans, and so on.

China is widely believed to have originated the Covid 19 pandemic out of a bioweapon laboratory in Wuhan that has severely damaged the world economy and killed millions of people around the world. China itself continues to suffer outbreaks, most recently in its capital Beijing. Post-Covid, most of the world has decided to reduce its dependence on and trade with China.

 None of its globe-girdling ambitions can come to fruition now with badly impacted economies all around, including its own. China is now growing at less than 3% per annum and has gargantuan debt from its boom years past. Its people in the interior are literally hungry, and outbreaks of protest are appearing even at its manufacturing plants.

America is also determined to check Chinese ambition, a process started under President Trump, and carried forward by the Biden administration. Most recently America has refused access to its semiconductor technology and machines that make machines, without which Chinese industry and its military cannot function.

China’s copycat industrial base is not good at innovation. It wanted therefore to capture Taiwan for its semiconductor industry. But these too are run on designs by American FABS from the US mainland, and use American personnel in Taiwan, as in China, to  operate them.

Besides, capturing Taiwan will not let China at the designs of present and future chips ever finer in their composition and complexity of manufacture.

Australia, a member of both QUAD and AUKUS, the military alliance with the US and Britain, was for long a substantial trading partner of China.

Today, it is increasingly a Western and NATO Alliance base in the Pacific for US nuclear submarines, fighters, bombers, and military personnel with an eye on China.

America is building nuclear submarines in joint venture with Australia as well. Australia is already protected under the US nuclear weapons umbrella, as is Japan. But can Japan do without its own nuclear weapons in the face of hostility from China, North Korea though not really from Russia despite its shifting alliances.

Nuclear weaponised China, in retaliation to this independent policy, has imposed punitive and some say self-defeating sanctions on Australian exports of raw materials, food, coal etc.. to China.

It seeks to control access to the South China Sea which it claims in its entirety, and through which 80% of Australian trade passes. China has not recognised the International Court of Justice ruling at the Hague to treat the South China Sea as an international waterway.

Similarly, China claims the Japanese Senkaku Islands in the East China Sea as there are indications of rich oil resources in the area. It routinely menaces Japanese civilian shipping and fishing boats in the region with its Navy and has its ally North Korea fire missiles into Japanese waters.

Australia, as part of its new commercial and security reorientation, is well on its way towards a Free Trade Agreement with nuclear weaponised India as a replacement market in Asia. This even as China has attempted a walk back after government changes in Australia.

This FTA with Australia comes years after the one India signed with Japan in 2011, since vastly enhanced in scope by the Strategic and Global Partnership agreement of 2015, which has brought about a paradigm shift.

Nevertheless, the FTA with Japan in 2011 eliminated tariffs on 90% of Japanese exports to India such as electrical appliances, and 97% of imports into Japan from India.

The agreement also allowed Japanese companies to control stakes in Indian companies and set up franchises.

However, because of protection afforded to vulnerable sectors in both countries, the FTA of 2011 has not done any wonders.

In 2010 trade between Japan and India was limited to a modest $15 billion and represented just 1% of Japan’s global trade. By FY22 things were not much better. Indian exports to Japan stood at a paltry $6.2 billion and its imports were a very modest $14.4 billion.

The Indo-Japanese FTA is therefore overdue for a review, though Japanese investment in India’s infrastructure has dwarfed the  bilateral trade figures.

In contrast, even with strained relations with China and several operational bans on Chinese investment, the  Indo-Chinese bilateral trade stands at $ 100 billion per annum now, but  mostly in China’s favour.

India’s largest exports at present are to the US at $ 76 billion in FY22 representing 18% of its total exports.

Perhaps the big change in terms of Indo-Japan trade volumes will come as Japan relocates a substantial portion of its manufacturing from China to India and the domestic and export markets it will open up. India is working fast to remove logistical and infrastructure bottle-necks and is offering incentives in order to facilitate this.

The Japanese government too is offering incentives to Japanese firms who might consider relocating to India or Bangladesh from China. But, it is a lot easier said than done.

Japan has ‘hot’ economic ties with China despite the ever cooling politics, some of the frostiness as a consequence of American persuasion. Japan normalised its diplomatic relations with China in 1972, again at American prompting in the Nixon years, and marks 50 years of business with China this year as well.

Currently the world’s 2^nd and 3^rd largest economies, China is Japan’s biggest trading partner with total volume of trade grown 113 times since 1972, to Yen 38.4 trillion as of 2021.

According to a survey conducted by the Japan External Trade Organisation in 2021 covering 679 Japanese firms with heavy investments in China, only 3.8% plan to shrink their operations in China, or relocate, in the next few years.

Most are more interested in mitigating fallout of US -China trade wars on their own operations.

 Meanwhile, under the Indo-Japanese Special Strategic and Global Partnership 2015, and its vision statement till 2025, the key development has been generous Japanese financing for all sorts of infrastructure projects and joint venture manufacturing. Some of these have come up along specially designated corridors, such as the Delhi-Mumbai Industrial Corridor (DMIC), alongside the NH-8 .

This also provides outlets and a market for Japanese know-how, manufacturing, and technology applied to the establishment and modernisation of Indian railways including rolling stock, metro-rail systems, high-speed trains, roads, ports, dedicated railway freight corridors, and so on.

There is a mechanism for an annual summit between the two prime ministers to review progress, add new dimensions, and maintain momentum. There is a provision for Indo-Japanese participation in the annual Malabar naval military exercises with a view to keeping international shipping sea lanes free and clear.

There are provisions for military-to-military talks, coast guard-to-coast guard cooperation including both security and commercial exploitation of Indian waters in peninsular India, the so called Blue Economy. There are also airforce-to-airforce talks, and scope for comprehensive discussions on defence policy.

There is a provision for joint development of military equipment including amphibian planes. There is a roadmap for cooperation in the development of nuclear power plants.

Japan is, and will continue to participate in Indian initiatives for ‘Make in India’, ‘Digital India’, ‘Skill India’, ‘Clean India’ and the development of ‘Smart Cities’.

India is one of the largest receivers of loans from Japan’s Official Development Assistance (ODA) in addition to other banks and institutional financing over the Shinzo Abe years. This, as the Japanese economy tries to shake off years of domestic recession via its overseas manufacturing, investments and projects.

India is also implementing an FTA with the UAE and is negotiating one with Britain.

The Australian parliament passed its Indo-Australian FTA only this week. It is going to be a Comprehensive Strategic Partnership said Australian Prime Minister Anthony Albanese. The IT sector in India will be the biggest gainer said Indian Commerce Minister Piyush Goyal as the service sector benefits hugely from such FTAs. Indian pharmaceuticals will receive fast track approvals through the Australian regulatory system.

The agreement will provide duty free access to the high per capita income Australian market for over 6,000 broad sectors including textiles, leather, furniture, jewellery and machinery.

India will be able to import cheaper raw materials and intermediate goods. Industrial cooperation will help provide new job opportunities in both countries. Food, beverage, and consumer items from Australia will offer wider choice at attractive prices to the Indian consumer, and give Australia access to India’s massive domestic market.

There are good pointers here on how Japan can revamp aspects of its  domestic economy, in addition to its security policies going forward.

For many years after 1952, when India established diplomatic relations with Japan, there was little going on between the two countries, even though the relationship was always cordial. Indians remember fondly the help extended by Japan to Netaji Subhas Chandra Bose and the INA during WWII.

Japan set course to become one of the fastest growing post-war economies closely allied to the United States. India chose a socialist path post-independence in 1947, and found itself rather closer to the Soviet Union and many countries in the third world coming out from under colonialism.

India tried, in the Nehru- Mao-Chou En Lai era, to forge a close relationship with China, including tamely agreeing to the Chinese annexation of Tibet and pushing China’s claim to become one of the five permanent members with veto powers at the UNSC, but it was not to be. Appeasement of China did not work then, and it does not work now.

Today, India refuses to normalise commercial ties as long as China menaces it along the long LaC.And it stands resolute on the borders determined to defend Indian territory.

The ongoing Russo-Ukranian war in Europe, the first with such wide involvement since WWII, will change many positions and alliances, the longer it goes on.

India is however, like Japan, largely insulated from its effects.

Today, as we speak, India is advancing towards becoming the 3^rd largest economy in the world by 2028 or 2030. This is a massive achievement fuelled by the fastest growth rate amongst major economies at around 7% per annum.

India is adding $400 billion to its GDP every year now according to Morgan Stanley with the best post Covid recovery amongst major economies.

This is happening despite its vast population of nearly 1.5 billion that will grow to 1.7 billion before it begins to decline post 2070. Japan, by way of contrast, has a declining and ageing population. It has therefore somewhat loosened its immigration, visa and citizenship laws recently.

Japan has proved itself adept at developing its gaming industry, and here again it could think of joint venturing with Indian IT professionals.

Today, India is food surplus, and is rapidly developing its industrial base via in-house innovation and joint ventures with many countries such as Japan, France, Israel, the United States, Taiwan and Russia.

Now, every bilateral and multilateral fora wants India and sees it as a reasonable and benign influence. 

India has achieved this stature and growth without threatening any other country or breaking international protocols, even though it is a nuclear triad weapons power. It has not aided illegal nuclear proliferation like Pakistan, North Korea, and China.

In just a few years, the Indian economy which is at 5^th position right now will overtake that of Japan making it a worthy JV partner.

Joint venturing with India for military development and manufacture in India could very well provide the multi-billion dollar answer to consumption in both countries and export. 

India credits Japan for its metro rail systems all over Indian cities, the bullet trains, extensive collaboration in the automotive and auto-components field, starting with India’s first modern car in the 1980s. The Maruti 800 from Maruti-Suzuki came before the arrival of Honda, Toyota and Suzuki on its own.

The Indian Appliances and Consumer Electronic industry (ACE) has already become one of the fastest growing markets in the world. It is slated to double to about $ 20 billion by 2025. It already has a strong Japanese presence which can grow further.

Future engineering collaboration has immense promise in robotics, drones, automation, alternate energy developments including nuclear power generation. India is Thorium rich, but could probably use Japanese help to develop state-of-the-art Thorium reactors.

Today, India offers a vast domestic market, multiple opportunities for joint ventures, research and development, supply chain relocation, great innovation via start-ups and unicorns.

Many other countries besides Australia like South Korea, New Zealand and all the Asia Pacific countries in the littoral need to be protected and cooperate under a QUAD Plus arrangement. Taiwan, Japan, South Korea, Vietnam, Laos, Malaysia, Thailand, Myanmar, Sri Lanka, Singapore, Bangladesh, Nepal are all likely candidates. China has border and territorial disputes with 19 countries.

It seems certain that economic cooperation between Japan and India will prosper, as India grows into a $ 12 trillion economy or more within a decade. With the economic decline of China there is little alternative.

Now Britain and the EU are ranged against China too. The last bastion of Chinese German trade is also wiggling out of Chinese grasp.

There is no way forward for the Chinese economy to strengthen unless the CCP Communist leadership becomes history.

What does India have in common with the Japanese that goes back centuries? Buddhism. There are many Buddhist sects in Japan, as there in Tibet. Bodh Gaya, where Gautama the Buddha attained enlightenment, owes its betterment as a place of pilgrimage, largely contributed to by the Japanese people. It is revered by monks and laity alike.

The Buddhist sect former Prime Minister Shinzo Abe belonged to was not pacifist, and he was an outspoken advocate of rearmament and a repeal of Japan’s pacifist constitution.

However, the bulk of Japanese people in 2022 do not want to see the country take a militarist turn. This is a challenge for Prime Minister Kishida and his successors given the ground realities. 

With India no longer an economic laggard, the time to prove that India and Japan can become an economic powerhouse together has arrived at last.

Thank you.

(2,694 words)

November 24^th, 2022

Gautam Mukherjee