A new chapter in Indo-Japan relations beckons
Given Japan’s history, a nuclear deal with India was always a stretch, despite Narendra Modi and Shinzo Abe’s special rapport and Modi showing a face he rarely does in public—from playing a Japanese flute to jamming with a Japanese drummer at a TCS function. Modi did well to try and lay the foundation of a new era in India-Japan ties, citing not just the close civilisational ties, but also playing on the China-Japan dispute theme—this reinforced the theme that India was a safe investment zone for Japan—and acknowledging Japan’s leadership role in India’s infrastructure push. Not only is Modi’s diamond quadrilateral modelled upon Japan’s metro, from the Dedicated Freight Corridor to the Delhi metro—with Bangalore and Chennai also thrown in—and many others, the Japanese government has helped with generous aid. That is why Abe had no hesitation in committing another $34 billion towards India’s infrastructure over the next 5 years.
Getting a commitment, and using the money, of course, are two different things. Barring FY12, when the funds disbursed surpassed the R8,303-crore Japanese commitment by a bit, India has made poor use of Japanese loans. While only 31% of the R23,180 crore that was committed could be taken in FY13, this figure was a mere 18% of the R6,812 crore assured till June in FY14. And even during the good years, FY09-FY11, the best that could be achieved was 61%.
In the past, valuable time was wasted debating whether India wanted tied aid, which the Japanese prefer since this ensures job and work orders back home. This is despite the fact that the tied aid has an interest of just 0.1%—it is 1.4% for untied aid—and has a longer repayment period, making it much cheaper. While the Japanese have tried their best to assuage India’s concerns—goods procured from JVs in India with just a 10% Japanese stake are also to be considered as meeting the tied aid conditionalities—it is up to the Indian government to now take a call on how to utilise the funds. Japan is looking for a safe place to invest in, and India is looking for a steady source of funding – it seems a perfect match, especially given Japan’s proven technological edge in many areas—from bullet trains to smart cities—that the Modi government is keen on developing.