An agreement on the India-Japan Comprehensive Economic Partnership Agreement (Cepa) concluded during the Prime Minister?s visit to Tokyo this week will give a major boost to the bilateral economic relationship. It is widely believed that the bilateral economic relationship between India and Japan has been operating at below potential levels. Bilateral trade between India and Japan in 2007-08, the year before the onset of the global financial crisis, was just over $10 billion. This was significantly less than India?s bilateral trade with China in the same year, which was nearly $38 billion. Of course, Japan?s bilateral trade with China was worth a massive $237 billion. Japanese investment in India in 2007-08 stood at just $815 million compared to nearly $2 billion in China. Japan, of course, has a solid record of overseas development assistance to India?35% of Japan?s ODA goes to India, including a grant of $4 billion for the Delhi-Mumbai Industrial Corridor. This form of assistance may be extended to other such corridors across India. But for a really meaningful deepening of the economic engagement, trade and investment needed a boost.
The Cepa, when it comes into effect, will do just that. The agreement is far-reaching and covers trade in goods and significantly services. It also covers investment and other areas of potential cooperation like intellectual property. Under the agreement, there will be a significant dilution (and in some cases complete removal) of tariff barriers on some 9,000 goods that are traded between the two countries. Only a small percentage of goods (less than 10%) will be on a negative list that are not subject to reduction in barriers. Importantly for India, the agreement will allow India?s IT industry greater access to the Japanese market?visas for IT professionals are set to become easier. India?s other sunrise sector, pharma, is also set to gain, with a relaxation of the many regulatory non-tariff barriers that prevent the entry of Indian medicines into the Japanese market. This agreement has been reached at a time when both Japan and India are facing unprecedented and serious challenges from China. Closer economic engagement between Japan and India can help in countering China?s growing economic, and indeed political, might in the region.