The Next Phase of India-Japan Economic Relations

What Piyush Goyal’s Japan Visit Means for India Japan Economic Ties

More than 200 Indian business representatives accompanied  the Minister of Commerce and Industry Piyush Goyal to Tokyo, Nagoya and Osaka between 24 and 27 August 2026, forming India’s largest business delegation to Japan. The latter met Japan’s economy minister, Akazawa Ryosei, chaired a semiconductor and artificial intelligence roundtable with around 21 Japanese companies and addressed Keidanren.

The visit followed the annual summit in New Delhi in July, which produced 16 listed outcomes. At the accompanying forum, 129 private sector cooperation projects were announced, with business opportunities valued by Japan’s prime minister at more than ¥2 trillion. They were not all fresh investment pledges, but the scale was considerable.

The trade figures are less encouraging. Bilateral merchandise trade reached $27.47 billion in 2025 to 2026, but India imported $21.43 billion from Japan and exported $6.04 billion, leaving a deficit of about $15.4 billion. A decade earlier, the deficit was $5.18 billion. Indian exports to Japan also fell by 3.36 per cent last year.

This does not mean the relationship was stronger ten years ago. Trade is larger and cooperation covers more sectors. Many Japanese imports also strengthen India’s productive capacity. The real question before us is whether India can use Japanese capital and technology to expand manufacturing and exports.

What the visit changed

Three shifts stand out. First, the agenda is moving beyond automobiles and infrastructure into semiconductors, artificial intelligence, robotics, clean energy and advanced machinery. These sectors fit Japan’s strengths in precision manufacturing, equipment and materials. India is also putting substantial public money behind them. The first Semicon India programme had an outlay of ₹76,000 crore, while Semicon 2.0 was approved with ₹1,27,500 crore. Goyal said Indian semiconductor demand could reach $150 billion by 2032. Demand and public support do not guarantee production, but they give Japanese firms a commercial reason to manufacture in India rather than treat it only as a market.

Second, economic security has become part of the relationship. A new joint declaration identifies semiconductors, critical minerals, artificial intelligence, clean energy and pharmaceuticals as priorities. A separate statement covers cooperation on artificial intelligence. Both countries want to reduce their exposure to concentrated supply chains, particularly those linked to China. This gives the partnership a purpose beyond quarterly trade figures.

Third, the visit produced signs of faster problem solving. Goyal said rules affecting semiconductor and automobile component manufacturers would be amended within two months. Separately, he said the government was developing a framework for possible BIS exemptions on equipment and components needed to establish high technology factories.He also cited a robotics company that moved from a Tokyo conversation on Monday to identifying an Indian partner by Thursday. Hence, the signs of speed are encouraging. 

These are promising but early examples. The rule change must appear within the promised period, while the robotics partnership still needs an investment figure and production plan.

Where progress still needs to deepen

Investment figures show momentum but require careful comparison. India received $3.2 billion in Japanese FDI between April and December 2025. The ¥10 trillion ten year target is broader and can include transactions beyond FDI. The commerce minister said about 14 per cent of the target by his calculation, had already been invested. A detailed breakdown would make that progress easier to assess.

India also has room to attract a greater share of Japanese regional investment. An analysis of JETRO data found that India received $5.3 billion in 2024, compared with $28.7 billion across the ten ASEAN economies. Comparing one country with a ten member bloc exaggerates the contrast, but the gap remains significant.

The more immediate challenge is the supplier base. A JETRO survey found that 76.4 per cent of Japanese companies in India reported difficulty finding suppliers that met their quality and technical requirements, against an ASEAN average of 52.2 per cent. Ministerial engagement can bring companies to the table, but sustained investment also depends on stronger Tier 2 and Tier 3 vendors.

Regulation also needs attention. Press Note 3  of 2020 can delay Japanese controlled ventures involving Chinese equity or beneficial ownership, though it does not apply simply because a company sources from China. Trade remedies can create further uncertainty for manufacturers dependent on Chinese inputs. The security rationale is understandable, but clearer rules and faster decisions would help.

CEPA offers another opportunity. Goyal and Akazawa agreed to accelerate a review, although its terms of reference have not yet been settled. The suspension of Indian mango imports for the 2026 season also shows that access depends on standard work on both sides. Japan’s requirements are demanding, while Indian treatment and certification systems must meet them consistently.

What should happen next

The first priority is to turn political agreement on CEPA into a defined review. Its terms should be settled by the next ministerial or Joint Committee meeting, with attention to qualifications, professional mobility, pharmaceutical registration and goods access.

Changes approved in March 2026 permit investments with up to 10 per cent non controlling beneficial ownership linked to a land bordering country through the automatic route, subject to reporting requirements. They also set a 60 day decision period for proposals in capital goods, electronic capital goods, electronic components, polysilicon and ingot and wafer manufacturing. India should now clarify how the revised rules apply to more complicated Japanese investment structures and consider extending predictable timelines to other sectors.

Supplier development must become part of investment policy. In the Delhi Mumbai and Chennai Bengaluru corridors, Japanese companies could set standards while Indian MSMEs receive support for testing, tooling and process improvements. Cooperation should also include specific audit plans for mangoes, marine products and pharmaceuticals.

Finally, the 129 projects announced in July need a public conversion tracker showing their category, value, stage of implementation and amount disbursed. That would separate genuine investment from research, training and procurement, while showing whether the regulatory commitments made during the visit were delivered.

Goyal did the demand generation part of the job well. He brought an unusually large delegation, expanded the discussion into new industries and attached deadlines to some company concerns. The next test is whether the rest of government and industry can carry that momentum forward.

Japan has capital, technology and a strategic reason to diversify. India has scale, demand and a stronger industrial policy than it did a decade ago. The results will be decided in government approvals, testing laboratories and supplier workshops, where political intent must become commercial activity.