The rising Japanese Official Development Assistance (ODA) into India for several projects including high-speed railway could widen trade deficit between the two countries, says a report.
“With increase in Japanese ODA for several projects including for the Shinkasen bullet train project and expected further FDI from Japan in the coming years, imports from Japan could see a rise that can widen the trade deficit,” said the report — ‘India-Japan CEPA: An Appraisal’.
The report by Research and Information System for Developing Countries, released today, is authored by V S Seshadri.
The Rs 98,000 crore Mumbai-Ahmedabad high-speed rail project is being financed by Japan International Cooperation Agency (JICA), which is providing a soft loan of about Rs 79,380 crore, amounting to 81 per cent of the project cost.
Sustained increase in India’s export to Japan, the report said, will come about only if greater attention is given to increasing competitiveness, strengthening compliance with standards, enhancing export capacity, and moving beyond traditional areas of export.
It pointed out that the utilisation of India-Japan Comprehensive Economic Partnership Agreement (CEPA) for trade in goods is steadily increasing in both directions.
“While CEPA concessions are not relevant for about 75 per cent of India’s export to Japan, since duties on them are zero even on MFN basis, India has benefited from CEPA concessions towards increasing exports in the seafood pharma, garments, leather, dyes and pigments and a few other sectors and products,” the report said.
According to the report, Japan’s utilisation has also been rising judging from the number of certificates of origin issued annually by the authorized agency from Japan.
“It would be very important to ensure immediate ratification of the Totalisation Agreement signed by the two countries in 2012,” it noted.
Referring to Japanese FDI trend in India, the report pointed out that India presents a mixed picture post CEPA with significant fresh investment inflows but also with two large investments, Daiichi Sankyo’s investment in Ranbaxy and NTT Docomo’s investment in Tata Teleservices, seeking to exit their investments.
It further said the ‘Japan Plus’ arrangement to fast track investments from that country and regular engagements between the Japan Chambers of Commerce and Industry in India and DIPP of the government are positive features.
Japan and India are the second and third largest economies in Asia. The economic engagement witnessed significant rise after both countries signed a Comprehensive Economic Partnership Agreement (CEPA) in 2011.
The trade between the two countries pre-CEPA in 2010 was USD 10.4 billion and currently it stands at USD 14.5 billion.
Trade deficit with respect to Japan was USD 3.1 billion pre-CEPA, and now it is USD 5.2 billion.