Japan's commerce minister Piyush Goyal led a significant business delegation to Japan last week to enhance trade and investment ties between India and Japan. This visit highlighted Japan's growing interest in India's economy, particularly as Japanese brands like Uniqlo, Muji, and Onitsuka Tiger expand their presence in Indian markets. Additionally, niche brands such as Nitori and Lawson are entering India, with Lawson planning to open 10,000 stores by 2050, starting in Mumbai.
Japanese banks are also increasing their investments in India, with MUFG Bank acquiring a 20% stake in Shriram Finance for $4.4 billion last year, marking the largest foreign investment in India's financial sector. Sumitomo Mitsui Banking Corporation (SMBC) has also become the largest shareholder in Yes Bank with a 24.22% stake.
According to a recent Deloitte report, Japan is now the largest contributor to India's global capability centers (GCCs), with over 100 Japanese firms operating in this sector, which focuses on business-critical functions like R&D and corporate strategy.
Vipul Nath Jindal, founder of Next Bharat Ventures, noted that Japanese companies are seeking growth in India due to declining domestic demand in Japan. He stated that investment in China has decreased due to geopolitical tensions, making India a more attractive market for long-term growth.
During Japanese Prime Minister Sanae Takaichi's visit in July, Japanese companies announced $12.5 billion in investments through approximately 120 agreements covering various sectors, including semiconductors and green energy. Goyal mentioned that Japan might meet its investment target of 10 trillion yen in India ahead of schedule.
Several small and medium-sized Japanese enterprises are also exploring opportunities in India, with Hamamatsu City establishing the Hamamatsu India Committee to facilitate this expansion.
Despite the growing interest, challenges remain. Japan is still integrated into Chinese manufacturing networks, and India's business environment presents hurdles such as tax uncertainties and bureaucratic delays. An ex-Japanese minister criticized the Indian government for delays in the bullet train project, which the Indian government refuted. This incident was reported by Chinese state media, highlighting concerns about India's ability to enforce contracts.
As India seeks to reduce its trade deficit with China, closer cooperation with Japan could help mitigate China's influence in critical sectors. However, experts warn that significant challenges must be addressed to maintain the momentum of Japanese investment in India.