India and Japan share long-standing economic ties, which have significantly progressed over the years. The signing of the historic Comprehensive Economic Partnership Agreement (CEPA) between India and Japan in 2011 gave an impetus to the bilateral relationship and expanded economic and commercial relations between the two sides.
With multiple changes impacting the current global environment, the latest being the Coronavirus pandemic which has had unprecedented impacts on the world economy, there is a need for businesses to restructure their present strategies.
Given this context and covering current investment and trading environment in India and Japan, the Confederation of Indian Industry’s (CII) recent report ‘Building India-Japan Business Cooperation: Investing in India, Sourcing from India’ provides a detailed guide to Indian and Japanese companies doing business with each other.
Using an innovative tool developed by CII, the report identifies products of high potential for sourcing from India at the HS 6-digit level that would best align with Japan’s import profile. The identification of these products is a key offering of the report.
The report employs the Export Specialization Index (ES index) in determining Indian exports with high potential to Japan. While more conventional measures such as the Revealed Comparative Advantage index is frequently used in international trade to assess competitiveness of specific commodities, the main advantage of the ES index is that it factors in market specific characteristics of the partner. Thus, products are identified relevant to the specific market under consideration, that is Japan in this context, rendering the analysis particularly useful.
Measured as the ratio of the share of a product in a country’s total exports to the share of the product in imports of the partner country, the ES index is calculated for all products for which Japan’s world imports exceed US$ 500 million and India’s world exports exceed US$ 250 million. All products for which the ratio of the ES index is greater than unity are then retained, as a value greater than one indicates comparative advantage of a product in the market.
A total of 42 products are identified for Japan’s market. The top products identified feature in the broader HS 2-digit level categories of mineral fuels and oils (HS 27); pharmaceutical products (HS 30); aluminium and articles (HS 76) and machinery and products (HS 84).
The report also outlines sectors in India which would be of most interest to Japanese investors. Further, it provides details on sectors of new and emerging technologies and the areas where Japanese businesses can participate in India. These sectors are matched with strengths relevant to the Japanese economy. These are based on the outcomes of the India-Japan Business Leaders’ Forum, a platform of top industry leaders from India and Japan which regularly provides inputs to Governmental summit-level meetings.
The report also includes a section on how Indian and Japanese companies can collaborate on investments in third countries, particularly Africa.
The CII report further elaborates on the states of India which are best suited for Japanese business participation, providing details of the investment climate in 7 Indian states along with the state industrial policies and incentives for investors.
The report also covers other important aspects that would be of interest for companies conducting business such as economic conditions and prospects in both countries, the Comprehensive Economic Partnership Agreement, global value chain integration, CII services for supporting trade and investment, among others.
The CII report would serve as a useful guide to Indian and Japanese businesses as it provides new information and insights to develop opportunities in and with each other.