Comparing Japan and EU in India

In an increasingly divided world, India’s search for multipolarity often leads it to look at Japan and the EU as two important poles. Both are important for India’s economic development and engagement. They often see India in a comparison with China. The on-going G7 decoupling from China has garnered greater academic interest in India from Japan and the EU.

This comparison with China is misplaced. Both Japan and the EU are important economic partners of India, and they need to recognize the nature of the Indian market. The high growth rate of India, at 6.3% in 2023 compared to 5% in China[1], 1% in Japan[2] and 0.6% in the EU[3], merits attention.

For India, the comparisons with China are odious but for its friends in Japan and the EU, inevitable. Neither Japan nor the EU compare in their engagement with India, but this is altering. In India, it is often a comparison at the back of its mind. Perhaps it is time to bring it to the forefront, for several reasons.

The Indo-Pacific is now a major centre of geopolitical activity. Japan is a primary partner of India in the development of the Indo-Pacific concept, and bilateral collaboration through the Special Strategic and Global Partnership has progressed. The Quad collaboration has enhanced cooperation, though trilateral cooperation between Japan, India and America[4] and Japan, India and Australia through the SCRI[5] are restricted. It is beyond doubt that Japan recognises the importance of India in the quest for a free and open Indo Pacific (FoIP).

The EU is a latecomer to the Indo-Pacific. France was an early adherent[6] due to its direct presence through its 12 overseas territories[7] in the South Pacific and the Indian Ocean. Germany and the Netherlands followed with their own guidelines. The EU guidelines on the Indo-Pacific only came in 2021[8]. These are less of a strategic doctrine and more a regional economic expansion plan, in which often India is stated to be in pole position.

While the Japanese concept of the FoIP specifically mentions principles to keep China on edge, the EU approach to the Indo-Pacific is one of not riling China and keeping its Indo-Pacific and Chinese policies parallel.

With France, the UK and to a lesser extent, Germany, security collaboration with India is growing. Japan scores with having more structured military exercises in the region with India.[9]

On trade the EU is a bigger partner, while the growth of trade with Japan is limited. India was the 18^th largest trading partner for Japan, and Japan was the 13^th largest trading partner for India with trade of $21.96 billion in 2022. The EU, in contrast is India’s third largest trading partner, with $96 billion of trade in goods in 2021 or 10.8% of total Indian trade. India is the EU’s 10^th largest trading partner, with 2.1% of the EU’s total trade in goods. Trade in services between the EU and India was $4.7 billion in 2021[10].

With the EU, getting to an FTA has been an arduous task. Now the political leadership is engaging with greater effort, but so far the results have not been commensurate. The two countries are still talking at each other rather than with each other, which means the strategic dimension of trade between India and the EU is missing. Due to that there is also a lack of strategic intent in the investment aspects and in the EU’s Overseas Development Assistance (ODA).

India and Japan have had a Comprehensive Economic Partnership Agreement since 2011, which India is now keen to review, but which Japan has been slow to agree to. India withdrew from the RCEP despite Japanese entreaties and is not a part of the CPTPP, which Japan is promoting in the region.

However, Japanese ODA to India has been increasing over the years and has stabilized at about $3.5 billion per annum. This is backed by a strategic thrust to support the development of the Indian economy as an important pole in the region. Japanese companies leverage almost $2 billion in annual FDI into India. Between 2000-2023, the investments in India were $39.94 billion. In the last stages of the Abe government, a strategic decision was made to invest $240 billion in India over five years.[11] In addition, Prime Minister Kishida pledged $75 billion for development of the Indo-Pacific when he met PM Modi in March 2023.[12]

This is missing from the European narrative with India. Their trade engagement is governed by Brussels and continues to stammer without conclusion. There is more light visible in the Trade and Technology Council which is taking a strategic view of collaborating with India for critical future technologies. But direct investment or FDI is led by individual countries, and most of them consider climate finance and green energy as strategic from their point of view.

For India, these are important but not strategic in the sense of providing security to the country or its economy. It is not that India held back from collaborating with Europe on green issues. The $10.95 billion sustainability pact with Germany, the green collaboration with Denmark and other Nordic countries and with the EU are important contributors to make the Indian economy sustainable. Japan too has been engaged on these aspects with India through its ODA. But it has complemented that by building India’s competitiveness and making large investments in manufacturing.

Consequently, the new ODA and investments in India over the past decade are more Japanese than European.

A difference is that Japanese companies utilize the growing ODA to leverage new investments; in the case of the Europeans, they do not do so either due to legal restrictions or a lack of understanding of the business model in India. Thanks to financing arrangements through Germany, France and Spain and the European Investment Bank there is considerable heft in creating new metros and green infrastructure in India. The Japanese were the pioneers in metros in India, and the number of Japanese collaborations as suppliers to metros and railways has grown.

The Europeans have expanded their footprint considerably but are restricted to those companies like Siemens which have invested in India decades ago and not expanded much. Siemens India for instance, has undertaken to modernize Indian railways by coinvesting and providing technology upgradation and skills over a period of time.

Finally, trilateral cooperation is another area of difference between Japan and the EU. Both realize that the Indian model of development cooperation in Africa and Latin America is well accepted and lacks the colonial tag. Similar efforts in Southeast Asia and the South Pacific have also succeeded. Though the concept of the Asia-Africa Growth Corridor (AAGC) was created with Japan,[13] its inbuilt inconsistencies meant it failed to take off with the Japanese companies which are the torchbearers of the ODA-led process. As a result, the AAGC was brought under the tag of the FoIP and became a slow, private sector effort. The EU has more success here. The UK contributes with an impact investing fund and Germany has joint projects financed by GIZ and implemented by Indian institutions. With France and the EU, efforts are underway to marry their procurement systems.[14]

In sum, Japan is a stronger economic and development partner for India with robust Indo-Pacific congruity. Europe is a less strategic partner still waking up to Indo-Pacific realities, but is a bigger trading partner for India. Both Japan and Europe can draw lessons from each other in their approaches to India.

Gurjit Singh is a former Indian Ambassador to Germany. He is currently promoting the impact investment movement for implementing SDGs in Africa.

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References

[1] China Economic Outlook: December 2023, BBVA Research, 5 Dec 2023, https://www.bbvaresearch.com/en/publicaciones/china-economic-outlook-december-2023/.

[2] ‘Real GDP growth Annual percent change’, IMF, https://www.imf.org/external/datamapper/NGDP_RPCH@WEO/OEMDC/ADVEC/WEOWORLD.

[3] Autumn 2023 Economic Forecast: A modest recovery ahead after a challenging year, European Commission, https://economy-finance.ec.europa.eu/economic-forecast-and-surveys/economic-forecasts/autumn-2023-economic-forecast-modest-recovery-ahead-after-challenging-year_en.

[4] India-Japan-US Trilateral Meeting, MEA 4 April 2018, https://www.mea.gov.in/press-releases.htm?dtl/29744/IndiaJapanUS+Trilateral+Meeting.

[5] Australia-India-Japan Trade Ministers’ Joint Statement on Launch of Supply Chain Resilience initiative, PIB, 27April 2021, https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1714362.

[6] France’s Indo-Pacific Strategy, France Diplomatise, 2018 https://www.diplomatie.gouv.fr/IMG/pdf/en_a4_indopacifique_synthese_rvb_cle068e51.pdf.

[7] Amrut Godbole, ‘India and France converge in Indo-Pacific,’ Gateway House, 5 Dec 2019, https://www.gatewayhouse.in/india-france-indo-pacific/.

[8] EU Strategy for Cooperation in the Indo-Pacific, European Commission,16 September 2021, https://ec.europa.eu/commission/presscorner/detail/en/qanda_21_4709.

[9] Major Exercises in the Indo-Pacific, Japan MOD, 2021, https://www.mod.go.jp/en/d_architecture/major-exercises/major_exercises_02.html.

[10] First EU-India Trade and Technology Council focused on deepening strategic engagement on trade and technology, EC, 16 May 2023, https://ec.europa.eu/commission/presscorner/detail/en/ip_23_2728.

[11] Gurjit Singh, ‘The Japanese plan for strategic investment in India’, ORF, 31 August 2020, https://www.orfonline.org/expert-speak/japanese-plan-strategic-investment-india.

[12] ‘Kishida pledges $75bn for Indo-Pacific infrastructure on India trip’, Nikkei Asia, 20 Mar 2023, https://asia.nikkei.com/Politics/International-relations/Kishida-pledges-75bn-for-Indo-Pacific-infrastructure-on-India-trip.

[13] Gurjit Singh, ‘India, Japan and the Asia Africa Growth Corridor’, Gateway House, 17 Jan 2019, https://www.gatewayhouse.in/japan-aagc/.

[14] Gurjit Singh, ‘Trilateral Cooperation in Africa gets moving,’ Economic Times, 9 Aug 2022, https://economictimes.indiatimes.com/news/international/world-news/view-trilateral-cooperation-in-africa-gets moving/articleshow/93437754.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst.