India-Japan Economic Partnership: Bilateral Trade, Infrastructure Projects, and Semiconductor Collaboration

India and Japan enjoy a strong economic partnership, marked by extensive trade, investment, and industrial collaboration. The 2011 CEPA trade agreement has played a pivotal role in boosting their bilateral trade, which reached US$21.96 billion in FY 2022-23. Japan remains a significant investor in India, with substantial investments in key sectors, such as automobiles and electrical appliances. Both countries are also collaborating in critical areas like semiconductor technology and steel sector decarbonization. Additionally, Japan has made significant contributions to India's infrastructure projects under its overseas development assistance program.

India and Japan have forged a robust and enduring economic partnership, characterized by extensive trade, investment, and industrial cooperation. At the heart of this collaboration is the Comprehensive Economic Partnership Agreement (CEPA), implemented from August 1, 2011. The agreement covers trade in goods and services, the movement of natural persons, investments, intellectual property rights (IPR), customs procedures, and other trade-related issues. By reducing tariffs on a wide range of goods and facilitating business activities, both countries have seen their bilateral trade reach new heights, totaling US$21.95 billion in the financial year (FY) 2022-23.

As of FY 2023, Japan was India's fifth largest foreign investor, with significant investments across the automobiles, infrastructure, and telecom sectors.

Critical sectors, such as semiconductor technology, financial markets, and digital transformation, are now new frontier areas for joint endeavors, underscoring the value India places on its partnership with Japan. Both countries are also keen to drive innovation in the Indo-Pacific region and strengthen their strategic presence.

India-Japan relations were elevated from a 'Global Partnership' in 2000 to a 'Strategic and Global Partnership' in 2006, and ultimately to a 'Special Strategic and Global Partnership' in 2014. In 2022, both India and Japan celebrated the 70th anniversary of the establishment of diplomatic relations between their nations.

During an official visit to India in March 2022, Japanese Prime Minister Fumio Kishida announced an ambitious investment target of US$37 billion (JP¥ 5 trillion) in India over the next five years, demonstrating Japan's strong commitment to deepening economic collaboration with India.

India-Japan investor cooperation in semiconductor industry

In a significant move, India and Japan signed a memorandum of cooperation (MoC) on July 20, 2023, to collaborate in the fields of semiconductor design, manufacturing, research, talent development, and strengthening the chip supply chain. The agreement aims to foster government-to-government as well as industry-to-industry collaboration, with the establishment of an implementation organization to facilitate these efforts.

A key player in this collaboration is the Rapidus Corporation of Japan, a semiconductor manufacturer formed in August 2022 with the backing of prominent Japanese companies, such as Denso, Kioxia, MUFG Bank, NEC, NTT, SoftBank, Sony, and Toyota. India is currently in advanced discussions with Rapidus to expand their presence in the country, creating a direct channel of communication at the government level between India and Japan.

This cooperation is expected to resolve any confusion that Japanese companies may have regarding the Indian Semiconductor Mission (ISM), offering clarity to investors about where and how to invest in India’s semiconductor sector. Both countries possess complementary strengths, with Rapidus focusing on advanced nodes of semiconductor fabrication in Japan while there is a robust demand for legacy nodes in India. By tapping into the legacy node space, India can cater to both the Indian and Japanese markets.

This agreement is the second major country-level collaboration for India in the semiconductor industry. Just prior, India and the US signed multiple agreements to collaborate on semiconductor design, manufacturing, packaging, and supply chain resilience. While US companies excel in manufacturing and packaging, Japanese companies are leaders in peripheral industries that produce the necessary chemicals and gases for semiconductor chip manufacturing.

Cooperation in the steel sector and decarbonization goals

In recent bilateral talks, India and Japan have focused on enhancing cooperation in the steel sector and addressing decarbonization challenges while striving for a balance between economic growth and a low-carbon transition within the industry.

India is keen to leverage Japan's expertise in safety training for its steel plants, while Japan hopes to benefit on knowledge sharing on steel decarbonization. Both nations recognize the importance of collaboration in achieving their respective net zero (carbon emissions) goals, understanding that the pathways to decarbonizing the steel industry may vary.

Additional discussions have now been scheduled under a 'Steel Dialogue' and other cooperation programs for November 2023. These will prioritize the adoption of innovative technologies to enhance energy efficiency and promote decarbonization in steel production.

India's rapidly growing steel sector is projected to reach a capacity of 300 million tons by 2030, up from the current 160 million tons. Both nations are aligned on the 'Make in India' program and joint efforts in areas like green steel production and improved energy efficiency.

India-Japan bilateral trade and investment profile

Bilateral trade trends

During FY 2022-23, bilateral trade between Japan and India amounted to US$21.96 billion. Notably, Japan's exports to India accounted for US$16.49 billion, while imports from India stood at US$5.46 billion. It is worth mentioning that Japan's exports constituted 2.31 percent of India's total imports, and India's exports to Japan represented 1.21 percent of India's overall exports. These figures indicate that there remains significant untapped potential in bilateral trade relations.

Trade composition

India's imports from Japan have experienced a remarkable growth rate of nearly 160 percent over a 15-year period, reaching US$16.4 billion in FY 2022-23, up from US$6.3 billion in FY 2007-08. Key imported items from Japan encompass a diverse range of products, such as nuclear reactors; electrical machinery and equipment; copper articles; plastic articles; inorganic chemicals; rare earth metals; and compounds of precious metals.

India's exports to Japan similarly demonstrated substantial growth over a 15-year period of 58 percent, surging from US$3.85 billion in FY 2007-08 to US$6.1 billion in FY 2021-22. India’s export basket to Japan comprises a range of products, with the key items being organic chemicals; nuclear reactors, boilers, and machinery; mineral fuels and mineral oils; fish and other aquatic invertebrates; natural or cultured pearls; and precious or semiprecious stones.

Japanese investment in India

In FY 2021-22, India emerged as the second most favored destination for Japanese outward foreign direct investment (FDI) in the medium-term, closely following China, according to the Japan Bank of International Cooperation (JBIC) Survey Report. While Japanese FDI in India has seen growth in recent years, it still constitutes a relatively small portion compared to Japan's overall outward FDI. Notably, Japanese FDI in India reached US$1.95 billion in FY 2020-21 and US$1.49 billion in FY 2021-22.

Cumulatively, between 2000 and June 2023, Japan's investments in India amounted to around US$38.74 billion, ranking Japan fifth among the source countries for FDI.

The major sectors that have attracted Japanese FDI in India include electrical system design and manufacturing (EDSM), general machinery, chemicals and pharmaceuticals, medical devices, financial and insurance, construction, automobiles, wholesale and retail, and services.

As of June 2022, there were 1,439 Japanese companies registered in India, with manufacturing firms accounting for half of the total. These companies have a combined total of 4,790 business establishments in India, including liaison and branch offices, as well as local subsidiaries.

Major Japanese Companies in India




Maruti Suzuki, Toyota Kirloskar Motors, Honda




Mitsubishi Group, Hitachi, Mitsui


Mizuho Corporate Bank Ltd.


Sony, Panasonic


Major Japanese Financial Institutions in India (as of June 2022)


General insurance companies

Securities companies

Life insurance companies


Tokio Marine & Nichido Fire Insurance

Nomura Holdings

Nippon Life Insurance

Sumitomo Mitsui Banking Corporation

Mitsui Sumitomo Insurance Company

Daiwa Securities Group

Dai-ichi Life Holdings

Mizuho Bank

Sompo Japan Insurance

Mizuho Securities

Japanese Official Development Assistance (ODA) to India

Japanese Official Development Assistance (ODA) has been a significant source of bilateral loan and grant assistance for India since 1958, making Japan the largest donor country to India. The ODA provided by Japan has been instrumental in supporting India's efforts to achieve accelerated economic development, with a focus on crucial areas such as power, transportation, and environmental projects, and projects related to basic human needs.

As per the latest available data, the cumulative commitment of Japanese ODA to India stands at over US$48.98 billion. Presently, there are 77 ongoing projects being funded by Japan in India.

Under technical cooperation, Japan has invested US$776.46 million, and as part of this cooperation, 11,600 Japanese experts have traveled to India to share their knowledge and expertise. Additionally, 8500 trainees from India have been provided with opportunities to visit Japan for training and capacity-building purposes.

For the development of India's north-eastern region, the Japan International Cooperation Agency (JICA) has committed approximately US$2.24 billion to support various developmental initiatives in this region.

Indian investment in Japan

During FY 2020-21, India's net FDI in Japan amounted to US$91 million. The number of Indian companies operating in Japan is also on the rise, with the current count surpassing 100.

Major Indian companies in Japan



IT services

Infosys, Tata Consultancy Services Japan, HCL Technologies




State Bank of India


Quick Heal


Sun Pharma

Key pillars of the India-Japan bilateral relationship

  1. India-Japan digital partnership (IJDP) and start-up hub: Launched in 2018, this partnership is focused on fostering cooperation in science, technology, and ICT, particularly in "digital ICT technologies." The start-up hub in Bengaluru (Karnataka) aims to connect Indian start-ups with the Japanese market and potential investors, promoting innovation and supporting sustainable development goals.
  2. Supply Chain Resilience Initiative (SCRI): A trilateral initiative involving India, Japan, and Australia, it was established in 2020 to ensure supply chain resilience in the Indo-Pacific region. The initiative aims to diversify supply chains and share best practices to address vulnerabilities exposed during the COVID-19 pandemic.
  3. India-Japan industrial competitiveness partnership: Established in 2021, this partnership aims to enhance India's industrial competitiveness and strengthen the special strategic and global partnership between the two countries. Joint Working Groups have been formed in various sectors to promote collaboration and industrial growth.
  4. India-Japan dialogue on finance: Established in 2015 and upgraded in 2022, this dialogue fosters cooperation on financial matters, including financial markets, banking, insurance, and regulations. It facilitates discussions on macroeconomic situations, digitalization, and investment environments in both countries.
  5. Advance Pricing Agreement (APA): In FY 2022-23, India and Japan entered into a new bilateral Advance Pricing Agreement (BAPA). Prior to this, in 2014, India's Central Board of Direct Taxes (CBDT) signed the first bilateral APA with Mitsui Co. Ltd., Japan, which remained effective for five years. The APA scheme was introduced to foster certainty and consistency in transfer pricing matters for multinational companies, aiming to minimize legal disputes and promote a favorable business environment.

Major infrastructure projects under India-Japan cooperation

  1. Patna Metro Rail Construction Project (I): In March 2023, Japan committed a total of approximately US$1.01 billion to India for three infrastructure projects, out of which Japan will provide funding of approximately US$776 million for the construction of the Patna Metro Rail, which includes the development of new metro corridors 1 and 2. The project aims to address the growing traffic demand in Bihar's capital city, Patna, leading to improved urban conditions, economic development, and climate change mitigation.
  2. Delhi-Mumbai Industrial Corridor (DMIC): This is a flagship project of India-Japan cooperation aimed at developing industrial infrastructure and smart cities across six Indian states. The project includes the creation of new manufacturing hubs and infrastructure linkages like power plants, water supply, transportation, and logistics facilities. Skill development programs are also being implemented to provide employment opportunities for the youth.
  3. Chennai-Bengaluru Industrial Corridor (CBIC): This corridor is focused on industrial development between Chennai and Bengaluru. The perspective plan for the CBIC region has been finalized, indicating progress in its implementation.
  4. Dedicated Freight Corridor Project (Western DFC): The Western DFC is a dedicated freight corridor spanning 1504 km from Dadri to JNPT, aimed at reducing congestion on the Delhi-Mumbai route.
  5. Mumbai-Ahmedabad High-Speed Railway (MAHSR): The MAHSR is a significant cooperation project between India and Japan in the railway sector. The National High-Speed Rail Corporation Limited (NHSRCL) is implementing the project, which involves the construction of a high-speed rail line between Mumbai and Ahmedabad. Civil work has commenced on the ground, with tenders awarded for various civil work packages. This project aims to revolutionize rail travel in India by providing a high-speed connection between the two major cities.

Recent investments   

Mitsubishi Electric Corp's investment in Tamil Nadu

  • Mitsubishi Electric Corp announced an investment of US$231.2 million to set up a manufacturing facility for air-conditioners and compressors in Tamil Nadu.
  • The facility will be for room air conditioners and compressors and is expected to come up on 52 acres of land owned by Origins by Mahindra in Peruvoyal village in the neighboring Thiruvallur district.
  • The project is expected to create over 2,000 jobs, with 60 percent of the workforce comprised of women.
  • Mitsubishi Electric India will focus on carbon neutrality by implementing initiatives to minimize carbon dioxide emissions through enhanced thermal insulation.

Daikin India's growth

  • In May 2023, Daikin India became a billion-dollar company.
  • The air conditioner maker aims to double its business in the next three years, with a target of becoming a US$2 billion company.

Nissan and Renault's investment in India

  • In February 2023, Nissan Motor and Renault announced plans to invest US$600 million to make six new models in India.
  • The investment is part of a revamped alliance between the two automakers.
  • The move aims to address falling market shares for the Japanese and French companies in a market with rising global importance.

Credit Saison Company's investment in India

  • In January 2023, Japan's leading financial services player, Credit Saison Company, invested US$6.58 million in its wholly owned Indian subsidiary, Credit Saison India.
  • The investment signals the company's intent to enhance its exposure in the world's fastest-expanding major economy.

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