September 8, 2025
BENGALURU/TOKYO – Indian Prime Minister Narendra Modi wants bullet trains from Japan in India, and his Japanese counterpart Shigeru Ishiba would be more than happy to make it happen.
Their beaming smiles in a shinkansen cockpit on Aug 30 as they travelled from Tokyo to Sendai in north-east Japan revealed how the superfast train project was the cherry on top of the partnership between the two countries, which had just held a bilateral summit.
India is only the second shinkansen export destination for Japan, after Taiwan, and confers on the Mumbai-Ahmedabad High Speed Rail the prestige of a flagship project. Symbolically, the two leaders were seen off at Tokyo Station by Indian train drivers who were undergoing training in Japan.
The substantial sundae beneath is made up of two flavours based on each country’s signature strengths, described by Mr Modi as “Japan’s technology and India’s talent” on
his two-day visit to Japan from Aug 29 to 30.
Geopolitical uncertainties have given Japan and India – the world’s fourth- and fifth-largest economies – more impetus to work together closely, and their summit document describes their “shared interest in safeguarding critical economic interests”.
This includes sensitive fields related to economic security, such as semiconductors, steel, critical minerals, artificial intelligence and clean energy, which were described as “next-generation” sectors.
A total of 170 memorandums of understanding (MOUs) were signed between Japanese and Indian entities, including one to collaborate in the defence sector.
That the two countries are part of the Quadrilateral Security Dialogue (Quad), along with Australia and the United States, “gave a fillip to this strategic investment in economic security”, said research analyst Vanshika Saraf of the Indo-Pacific Studies Programme at Takshashila Institution.
Japan pledged 10 trillion yen (S$87 billion) in private investments to India over the next decade – doubling a 5 trillion yen commitment in 2022. India, meanwhile, offers low-cost manufacturing possibilities and a wealth of affordable skilled talent for Japanese firms, which are wrestling with a shrinking domestic market and labour shortage.
The two countries agreed on a two-way exchange of 500,000 students and workers over five years, including 50,000 skilled workers from India to Japan.
Crucially, India will also be the key staging ground for Japan’s mooted “Indian Ocean-Africa Economic Zone”, which seeks to build new trade links and diversify to new markets.
Under the plan, first introduced by Mr Ishiba at an African development summit in Yokohama held a week before Mr Modi’s visit, Japanese companies are encouraged to use India as a base to expand into the untapped market of Africa.
Wooing Japanese firms
Japan has long focused on South-east Asia in part for its proximity, while initial wartime reparations paved the way for foreign direct investment (FDI). There are about 15,000 Japanese companies across all 10 Asean member states.
Comparatively, there were 1,434 Japanese companies operating in India as at October 2024, according to latest available data jointly released by the Japan External Trade Organisation (Jetro) and Embassy of Japan in India.
A sobering reality that clouded the summit was how India has lost substantial Japanese capital over the past two decades to South-east Asia.
In 2008, Japan’s FDI to India and Asean countries was nearly on a par at US$5.6 billion (S$7.2 billion) and US$6.3 billion respectively. By 2024, however, Japanese FDI had surged to US$28.7 billion in Asean, more than five times India’s US$5.3 billion.
The gap highlights “how rapidly Japanese capital can shift towards business-friendly environments and how India’s policy frictions can undermine its market advantage”, wrote research scholar Chandler Compton in a paper for the Delhi-based Centre for Social and Economic Progress.
A major reason for this shift was the “unique vulnerabilities of Japanese firms” to India’s trade restrictions blocking Chinese industrial inputs critical to supply chains, he explained.
Japanese automobile and machinery manufacturers in India produce complex, parts-intensive products reliant on Chinese inputs that local Indian suppliers cannot yet readily provide, Mr Compton said, which results in “a climate of supply chain disruptions and regulatory uncertainty”, as companies find themselves caught between India’s anti-China restrictions and a continued need for Chinese components.
But this is not a deal-breaker for Japanese companies. The Japan External Trade Organisation in 2023 did find that three in four export-oriented Japanese companies in India were keen to expand their presence, and India is thus trying to woo them with business-friendly reforms, institutional collaborations, and more integrated manufacturing ecosystems.
Geopolitics is a big catalyst, with US President Donald Trump and his administration’s hawks imposing a 50 per cent tariff on India for importing Russian oil. US trade uncertainties have also led Japan to focus on diversifying its supply chains.
Delhi-based East Asia historian Brij Tankha told The Straits Times that India-Japan ties could be a “hedging strategy” with India facing tough long-term questions regarding its position amid the tussling between the US, China and Russia.
“In the new geopolitical situation, how does India protect its interests and grow? A lot is uncertain, but what is in its hands is improving its supply chains and manufacturing,” he said. “Stronger ties with Japan do serve that end to some extent, even though Japanese economic interests have not expanded much in India in the last 20 years.”
Mr Modi chose to make Japan his first stop before his talks with Chinese President Xi Jinping on Aug 31, at which both leaders vowed to see each other as partners rather than rivals, and committed to closer cooperation.
Reducing China reliance
While Japanese firms would be relieved to see India mending relations with China, they are also cognisant of the uncomfortable overdependence on China, Ms Saraf said.
It is providing the impetus for India and Japan to build robust capacity and create backup production options, especially in semiconductor chips, critical minerals and components, she noted.
Both India and Japan have massive trade deficits with China, at US$99.2 billion and US$42 billion respectively.
In Tokyo, Ms Asuka Tatebayashi, a senior analyst at Mizuho Bank’s global strategic advisory department, agreed that there were concerns over India’s geopolitical position.
“There was interest in what sectors India would open to Chinese investment, and in this regard, it was reassuring to see that India was not going to compromise in sensitive areas like semiconductors and artificial intelligence,” she said.
“The clear message is that India sees Japan as a trustworthy partner, and wants to work with Japan on economic security issues. And this is where Japan should reciprocate and accelerate partnerships with India.”
Japan wants to keep India engaged as a key partner in the Indo-Pacific. There is also plenty of goodwill towards Japan in India, where companies like Suzuki and Daikin enjoy a large presence.
India’s fast-rising middle class, youthful demographics, and status as a gateway to Africa are also reasons for Japan Inc to expand its presence in the country.
In Sendai, Mr Modi visited Japanese chip equipment maker Tokyo Electron’s (TEL) factory, where he was briefed about the company’s “advanced manufacturing capabilities and its ongoing and planned collaborations with India”, said a statement from India’s Foreign Ministry.
During the visit, India’s semiconductor manufacturer Tata Electronics signed MOUs with three Japanese companies, including a strategic partnership with TEL to “strengthen the semiconductor ecosystem in India”, according to a Japanese government document.
Another pact with chemical exporter Nagase & Co relates to the supply of semiconductor materials, while a third, with Fujifilm, is set to pave the way for cooperation on the production of semiconductor materials and establishment of related supply chains in India.
A spokesman for Fujifilm, which is known for its cameras and photocopiers but has diversified into medical equipment and semiconductor materials, told ST: “We will contribute to accelerating the launch of India’s semiconductor industry by providing a one-stop solution to India, which is building its semiconductor industry from scratch.”
“India’s semiconductor market is a promising market with anticipated future growth,” he said.
He added that Fujifilm plans to acquire land to build a semiconductor materials factory by March 2026 and start manufacturing by 2028, with the company to work with local chemical manufacturers in areas such as raw material procurement.
Apart from semiconductor fabrication, India is focused on becoming a chip design hub through its vast repository of engineers. Global companies like Nvidia, Qualcomm, Intel, Broadcom and MediaTek have already established research and development as well as design centres in Bengaluru, Hyderabad and Noida.
The Indian semiconductor market was valued at around US$52 billion in 2024, and is projected to reach US$104 billion by 2030.
The government’s ambitious Semiconductor Mission with an outlay of 760 billion rupees (S$11 billion) seeks to boost production and design, as chip factories come up in Gujarat, Assam, Odisha and Andhra Pradesh, and design centres in Bengaluru and Noida.
Mitsubishi Electric, meanwhile, has been operating in India since 1957, where it manufactures and assembles elevators and equipment for automotive and factory automation across six factories in the country. It signed two MOUs: one for joint research on autonomous mobility and another for collaboration in the defence sector.
“We consider India to be a crucial market from both production and consumption perspectives,” a spokeswoman told ST, adding that India “also allows us to have a second source outside of Japan, which enables us to have a more resilient supply chain”.
“Despite global economic stagnation, India continues to demonstrate a stable high growth rate, driven by its large population and ambitious aspirations. This makes India an increasingly attractive consumer market.”
On defence, Mitsubishi Electric noted that its partner, aerospace and defence firm Bharat Electronics, is a major state-owned manufacturer under the Indian Ministry of Defence.
“Having a co-manufacturing partner in India allows us to follow the ‘Make in India’ policy that the Indian government requires from international companies,” the spokeswoman said.
Significantly, both countries recognise the potential of Japanese small and medium-sized enterprises, and launched the India-Japan SME Forum to foster visits of Japanese SMEs to India to expand downstream industries.
“Japanese SMEs are known for their advanced manufacturing techniques and technical innovation. Their entry in the Indian market can facilitate transfer of technology and enhance the quality and efficiency of Indian manufacturing processes,” said Mr Siddharth Deshmukh, president of the Indo-Japan Business Council, which helps Indian and Japanese firms collaborate. For example, collaborations in the automotive parts sector can introduce precision engineering methods and improve production standards, he noted.
Mr Modi also met the governors of 16 Japanese prefectures in Tokyo on Aug 30 with the aim of strengthening state-level cooperation, as each sub-region has its own economic and technical strengths.
Japan’s demographic realities of an ageing population and shrinking workforce compel it to seek skilled partners, said Mr Deshmukh.
“Bilateral fellowships, work experience, language training and cultural immersion are surefire ways to deepen technological and trade ties,” added Ms Saraf.
“Given the growing discomfort in some parts of Japanese society towards immigrants or foreign labour, it may take time, but this green light could encourage companies to employ Indians.”