By Geetanjali Kirloskar, Co-chair, CII Japan Council and chairperson & MD, Kirloskar Systems
As India and Japan seek to future-proof their bilateral relationship, one critical yet underexplored frontier is the role of small and medium enterprises (SMEs). These enterprises form the backbone of both economies—driving innovation, generating employment, and enabling inclusive growth. In Japan, SMEs account for over 99% of all companies and employ around 70% of the workforce. India too has over 5.70 crore micro, small, and medium enterprises (MSMEs) that contribute around 30% to its GDP and 46% to its exports. Thus, India-Japan economic conversations must focus on MSMEs.
The evolving global scenario, marked by heightened trade frictions, rising protectionism, and volatility in international commodity and financial markets, has created considerable uncertainty and weighed heavily on economic prospects. Amid this challenging environment, India has continued to demonstrate resilience, underpinned by strong macroeconomic fundamentals, robust domestic demand, and a stable policy framework, reaffirming its position as a reliable and attractive partner in the global economic landscape.
The India-Japan economic relationship has demonstrated strength, with bilateral trade and investment recording significant growth. Bilateral trade has expanded by nearly 48% from $16.95 billion in FY20 to $25.17 billion in FY25. Foreign direct investment (FDI) from Japan has also been significant, totalling $44.40 billion over the past two decades.
Strengthened by the expanding MSME sector in both countries, the India-Japan economic relationship continues to deepen and diversify. The MSME sector in India continues to serve as the backbone of the economy, fostering entrepreneurial talent and generating employment for millions across the country. In both nations, MSMEs play a pivotal role in driving GDP growth, creating jobs, and promoting inclusive socio-economic development. Their contributions to innovation, regional development, and resilient supply chains highlight the strategic importance of deepening MSME cooperation between the two nations.
There is a pressing need to enhance awareness among MSMEs about sectoral complementarities, particularly in areas such as textiles, leather, electronics (including semiconductors), critical and emerging technologies, agro-processing, and others, where both India and Japan possess distinct strengths and competitive advantages.
In addition, fostering collaboration in services such as finance, information technology, construction, and transport is equally important, as these sectors play a critical role in supporting and enabling growth in agriculture and manufacturing. A targeted approach to MSME cooperation in these areas can unlock new value chains and promote sustainable industrial development.
Further, by integrating digital tools into core business processes—such as supply chain management, customer engagement, financial operations, and product innovation—MSMEs can greatly enhance their operational efficiency, market reach, and overall competitiveness. In this context, an Indo-Japanese collaboration can play a transformative role in accelerating digital adoption among MSMEs.
Bilateral cooperation can support initiatives such as affordable digital infrastructure, digital skilling programmes, joint e-commerce platforms, and targeted public-private partnerships. By leveraging Japan’s technological expertise and India’s large MSME base, both countries can co-create scalable models for digital transformation, promoting innovation, inclusivity, and sustainable growth.
Currently, around 1,500 Japanese companies operate in India, primarily led by large corporations with the resources to make swift investments and establish a strong market presence. In contrast, over 30,000 Japanese companies are active in China, highlighting the untapped potential in India.For the number of Japanese companies in India to grow exponentially—from 1,500 to 15,000 in the foreseeable future—the next wave of investment will need to be driven by SMEs. Such a shift would not only broaden the scope of bilateral economic engagement but also build a more diversified, resilient, and inclusive partnership. Skill partnerships that directly engage SMEs can unlock mutual value—Japan gains access to agile, skilled manpower, and India gets exposure to cutting-edge practices, global linkages, and technology transfer.
The recent visit of the Confederation of Indian Industry’s (CII) business delegation to Japan, which observed great interest in India, underscored the momentum behind this shift. India must be viewed as a long-term strategic investment destination, with competitive export potential embedded at its core. India has enhanced its globally competitive manufacturing supply chains, leveraging initiatives like Make in India and Atmanirbhar Bharat. As global supply chains realign, India stands to benefit significantly, with MSME partnerships playing a critical role in enabling the shift.
What’s clear is that the economic future of India and Japan cannot be driven solely by boardroom decisions in multinationals. It will be shaped in SMEs, workshops and labs, vocational training centres, and innovation hubs—spaces where human potential is honed and deployed. India’s robust network of skill development institutions and Japan’s emphasis on quality and precision make them ideal partners in this grassroots transformation.
The time is right. The intent exists. What is now needed is ambition—to scale, diversify, and institutionalise the India-Japan skill partnership in a manner that it becomes a cornerstone of not just bilateral ties, but also of a new global model of inclusive growth.
Let this be the moment when we start treating skill mobility as the heart of international cooperation.