India’s commerce minister Piyush Goyal led the country’s largest-ever business delegation to Japan last week in a bid to expand trade and investment ties between the two countries. His visit came as Japan’s deepening push into Asia’s third largest economy has become increasingly more apparent.
If you visit a shopping mall or a high street in Mumbai, Delhi or Bengaluru, it’s hard to miss the growing number of Japanese consumer brands that have set up shop across India.
Apparel giants Uniqlo and Muji and premium sneakers company Onitsuka Tiger have been around for a while, but are rapidly expanding.
Niche players are also here – Nitori, a Japanese furniture maker, entered the market recently, while convenience store chain Lawson is on its way, with a plan to reportedly open 10,000 stores by 2050 in India, starting with Mumbai.
It’s not just retail. At a time when foreign lenders have been exiting their Indian bank portfolios, Japanese banks are aggressively bidding for Indian financial assets.
MUFG Bank – Japan’s largest bank – closed a deal to buy 20% of Indian shadow lender Shriram Finance for $4.4bn last year in what was the biggest ever foreign investment in India’s financial sector.
Last year also saw Sumitomo Mitsui Banking Corporation (SMBC) becoming the largest shareholder in India’s Yes Bank with a 24.22% stake.
Japan Inc is now the largest contributor to India’s booming ecosystem of global capability centres (GCCs) in the Asia Pacific.
More than 100 Japanese firms operate these GCCs in the country, according to a recent Deloitte report. GCCs are offshore innovation hubs of multinationals that perform business critical functions such as R&D, corporate strategy and artificial intelligence development among a plethora of other key jobs.
“Japanese companies are having to look to India for growth. With the local population declining for the past 16-17 years there isn’t just a slowdown in domestic demand, but a permanent shrinking of the market,” Vipul Nath Jindal, Founder of Next Bharat Ventures, an impact fund backed by Suzuki Motor Corporation, which recently announced a $200mn fund in India, told the BBC.
At the same time, Japan’s traditional markets for expansion have become increasingly less attractive, he says.
“Investment into China has fallen sharply amid geopolitical tensions and changing economic dynamics, the US market is more challenging because of tariffs and domestic competition, and the market size of other Southeast Asian economies is limited.”
Against this backdrop, India has become a natural target market for Japanese companies to drive long-term business growth.
Economic ties between the countries gathered pace at a government-to-government level when they signed an agreement to liberalise trade nearly a decade-and-a-half ago.
After Prime Minister Narendra Modi came to power in 2014, he elevated the relationship to a “special strategic and global partnership”, setting a target of doubling the number of Japanese companies in India and launching marquee projects like India’s first bullet train between Mumbai and Ahmedabad, built using Japanese Shinkansen technology.
But now, it is Japanese private firms that are driving business expansion in this latest investment up-cycle.
At a landmark summit in July held during Japanese Prime Minister Sanae Takaichi’s first official visit to Delhi, Japanese companies announced $12.5bn in investments through some 120 agreements in sectors ranging from semiconductors to green energy. And Goyal has said Japan could prematurely meet its target of investing 10 trillion yen in the country.
Beyond the large corporations, several Japanese small and medium-sized companies (SMEs) are also actively looking at tapping the Indian market, says Jindal.
Hamamatsu City – where companies like Suzuki, Honda and Yamaha were founded and which has one of the highest concentrations of manufacturing SMEs in Japan – recently set up the Hamamatsu India Committee to explore how the city’s small companies could expand into India.
The rising interest in India has accompanied a fall in net Japanese investment in China which, as Toshiro Nishizaewa of the University of Tokyo wrote recently, is a reflection of “Japanese firms’ autonomous market diversification strategies – a commercially driven reallocation of capital rather than a policymaker-led geopolitical shift from China to India”.
But Japanese firms aren’t abandoning China en masse. What they are doing is “reducing concentration risk after several years of supply chain disruptions and geopolitical tensions”, Shruti Pandalai, India Chair at the Sydney-based Lowy Institute think tank, told the BBC.
India acts as a hedge against China-related risks, but there is also a growing overlap between Tokyo’s economic security priorities and Delhi’s manufacturing ambitions, which has strengthened the relationship despite significant political turnover in Tokyo, she says.
“With each successive government the targets have risen rather than fallen. That suggests the relationship has moved beyond leader-level diplomacy and become embedded in bureaucratic, corporate and strategic planning on both sides.”
