Indo-Japanese Relations on an Upward Trend

The outstandingly positive relationship between India and Japan is a product of the new millennium and a bright spot in the Asia-Pacific, the geopolitics of which region has become increasingly uncertain. A primary reason behind the regional tensions is China’s growing economic and military power combined with her aspiration for dominance over the Indo-Pacific arena. India and Japan both have stakes in maintaining regional stability and creating a truly multi-polar Asia. The booming relationship between the two is thus fuelled by the converging strategic interest to contain China’s assertive behaviour. The security and diplomatic aspects of the Indo-Japanese ties, however, are only one side of the coin. The other is the economic relations which starting from a very low base are now on an upward trajectory as well. This paper analyses several fields of economic interactions. Official development aid (ODA) provided by Japan has been the most successful area of cooperation and was beneficial not only for India’s infrastructure development but also for Japanese companies seeking new opportunities. Foreign direct investments from Japan to India has been growing also steadily but they keep lagging behind those to China and Southeast Asian countries. There are still numerous issues that hold back the dynamics of Indo-Japanese economic relations. Once the ongoing reforms succeed in diminishing the hindering factors, the potential becomes huge given the complementary nature of the two economies. In the medium run, however, the economic relations with China remain more important for both India and Japan.