In 2000, then-Indian prime minister Vajpayee expanded economic and cultural relations with Japan into dialogue and exchange about geostrategic matters of mutual interest. Mori’s August visit to India reciprocated and extended the relationship dramatically. By the mid-2000s, Indian policymakers positioned the Japan-India relationship at the very top of a growing array of strategically important bilateral relationships evolving across the Indo-Asia-Pacific region.
In November 2014, some six months after his ascension as prime minister, Narendra Modi announced that India would pursue an Act East policy, extending beyond the two-decade-old Look East policy. His announcement—which utilized a phrase first uttered in a policy speech by U.S. Secretary of State Hillary Clinton on her 2011 visit to India—aimed to further invigorate Look East with a wider set of engagements across the Asia-Pacific region. The Modi government called for greater external investment in India to build state infrastructure, smart cities and economic competitiveness (especially in manufacturing).
Since then, India has been pursuing options for external investment as well as strategic interaction in a manner to signal displeasure with China’s increasingly assertive unilateralism. Modi has focused on welcoming Japanese infrastructure investment into India, notably choosing Japanese investment over Chinese offers in critical programs, like the Mumbai Industrial Corridor bullet train between Mumbai and Ahmedabad, and in critical smart cities initiatives on the east coast of India.
Tokyo has become New Delhi's increasingly preferred economic partner. Although Beijing remains India’s primary economic partner when summing all investments and trade activities, Japan is consistently among the top ten states investing in India since 2010 (China has been conspicuously absent in this top ten list). India has been working to extend and expand overall Japanese economic activity across the country.
Japan has averaged about $5 billion of investment a year in India for the past half-decade. This is about 6 percent of Japan’s overall annual overseas investment during those years and about half of Japan’s direct investment in China. However, this sustained level has been a noteworthy increase over the less than $2 billion per year Japan annually invested in India in the decade before 2009. More importantly, the $3 billion increase in Japanese investment into India since 2009 is twice the amount Japanese investment into China over that same period. Announcements in 2014 and 2015 by India of additional Japanese investment tranches planned through the year 2020 remain relatively consistent with the current $5 billion annual investment, adding a bit more in the area of specific projects.
Japan’s government-to-government official development assistance (ODA) is a critical component of its overall economic support for India. Japan initiated its ODA program for India in 1958. In 2003–04, India became the largest single recipient of Japanese ODA. This program has focused on the development of industry-related infrastructure and India’s energy infrastructure (increasing renewable energy capacity and rural electrification). It is noteworthy that Japan exempted India from cuts in its ODA budget in the wake of the tsunami and meltdown of the nuclear reactors in Fukushima in March 2011.
Japanese ODA support for road and water supply construction in India’s northeast merits special comment. For years, India found it difficult to secure outside investment partners for many of these projects. The China-India dispute over rightful ownership of the 90,000 square kilometers of land in India-named Arunachal Pradesh, referred to as South Tibet by China, consistently inhibited outside investor interest in support for infrastructure projects in these areas. Tokyo has resisted Chinese pressure, becoming India’s lone outside-government investment partner in the region. From late 2014, Japan has pledged about $854 million in funding at reduced interest rates for about 1,200 kilometers of roads across India’s northeast, and several hundred million additional in low-cost funding and aid for water and hydro-electric projects in areas near the Chinese border.
Japan has also supported India in financial matters of strategic significance. In 2013, the Indian rupee went into free fall and international worries about India’s ability to finance growth grew significantly. Japan decisively intervened. In September 2013, Japan signed a $50 billion debt swap with a clause allowing the ceiling on the deal to go as high as India wanted. International currency speculators were thrown off the scent, and the Indian rupee stabilized.
In December 2015, Abe and Modi signed documents in New Delhi marking another expansion in the scope of Japanese investment into India. These included an announcement that Japan would fund a $15 billion project to build a high speed “bullet train” between Mumbai and Ahmedabad in India’s northeast, outbidding a Chinese proposal for this same project.
The two strategic partners formalized the hallmark India-Japan Civil Nuclear Agreement during Modi’s November 2016 annual summit meeting in Japan and put it into force in July 2017. Their November 2016 summit statement extended the India-Japan Vision 2025 document signed in New Delhi during the previous annual summit of December 2015, and confirmed the strategic nature of Japan’s economic assistance to India itself and to mutual interests in the wider region that help counter the potential for undesirable Chinese influence. Three Japanese ventures in the Indian Ocean basin stand out.
First, India in 2015 approached Japan with a proposal for economic cooperation on India’s Andaman and Nicobar Islands with a strategic twist. Japanese funding for a fifteen-megawatt diesel power plant to be built on South Andaman will help improve the lives of the population there. Moreover, reliable, robust power on the islands will greatly assist India’s ability to upgrade its evolving maritime and tri-service bases on the islands, expanding its presence in an area where both nations wish to see growing Chinese maritime activities monitored more diligently.
Second, India and Japan have begun collaborating on an extension of economic ties and infrastructure from India to Myanmar. Although China’s influence is pervasive across Myanmar, Japan’s private sector has long been present. Japan made Myanmar its largest recipient of grant aid projects in 2014, including infrastructure projects for a major bridge, railway improvements, customs modernization and gas power plant construction. Japan also approved over $1.5 billion in very favorable ODA loans for Myanmar’s infrastructure projects during 2013–2015. In late 2016, Japan pledged an additional $7.7 billion in public and private support for Myanmar’s development over the coming decade.
For its part, India views Myanmar as its gateway to the East. Modi announced the Act East policy there on a visit to Naypyidaw in late 2014. Although India-Myanmar trade has been paltry, India has begun more deliberate trade and transit interaction with Myanmar. New Delhi continues to support Japan’s robust investments in Myanmar, looking to link those with complementary ones in northeast India and with other traditional Indian economic partners.
Finally, Japan has joined India in a joint project to develop the strategically important port of Charbahar in Iran. India launched a collaborative venture with Iran and Afghanistan in mid-2016 to boost economic ties and access to natural resources and trade routes stretching from Charbahar to Central Asia. The Charbahar project includes construction and operation of port facilities there, the creation of special economic zones nearby and the development of road and rail connections through Iran, Afghanistan and into Central Asia. This infrastructure will be a parallel route and a potential competitor to the Chinese-sponsored Belt and Road Initiative and its key north-south land component through South Asia: the China-Pakistan Economic Corridor.
Unique diplomatic and bureaucratic arrangements now characterize the bilateral relationship between India and Japan. Expanding in scope and depth, these now feature some unique administrative arrangements and activities aimed at working around the most notorious features of India’s often sclerotic bureaucracy and in a manner aimed to assure that a robust bilateral relationship will outlast any one Japanese or Indian prime minister.
Although the close personal relations—and obvious affinity—between Abe and Modi have driven an especially high level of diplomatic engagement since 2014, it is clear that a wide and deepening diplomatic engagement framework preceded them and seems destined to outlast them. This level of diplomatic commitment for New Delhi outside of its immediate neighborhood is unprecedented.
To sustain diplomatic and strategic interaction, both sides have taken steps to overcome frictions inherent in their bureaucratic functions. Of note is the establishment in 2015 of a working-level, joint committee on high-speed railways to expedite progress on the Mumbai to Ahmedabad signature project. Japanese security leaders cite this as a model for successful future interaction. In addition, a number of important adaptations have been institutionalized, many involving defense and security meetings addressed later in this article. At the same time, both prime ministers have taken steps within their respective bureaucracies to facilitate high-level government-to-government interaction.
Abe has made the bilateral partnership with India a national security and diplomatic priority. Since 2014, the Japanese National Security Secretariat has met frequently to discuss the Japan-India relationship, with Japan’s ambassador to India regularly attending when in country.
In India, Modi has enabled Japan unprecedented access within the all-important Indian Ministry of External Affairs (MEA). In 2015, India granted Japan a special ombudsman position directly within the MEA. This representative has special access to the MEA leadership and, as necessary, directly to Modi himself in order to assure that Japanese projects and activities get top priority across the Indian bureaucracy. Combined, these top-level special arrangements aim to institutionalize a special political and bureaucratic relationship before the upcoming 2019 Indian general election.