The Comprehensive Economic Partnership Agreement (CEPA) between India and Japan was signed on 16 February 2011 and entered into force on 1 August 2011. In addition to accelerating trade activities, the agreement aimed to eliminate tariffs on 90 percent of Japanese exports to India, such as auto parts and electrical appliances, and on 97 percent of imports from India, including agricultural and fishery products, by 2021. Since the introduction of CEPA, merchandise trade between India and Japan has increased by 38%, with total bilateral trade expected to reach $24 billion by March 2013. Mukhopadhyay and Bhattacharyay (2011) assessed the macroeconomic impact of Trade Integration between Japan and India using the Analysis of the World Trade Analysis Project (GTAP) analysis. It was noted that production from India and Japan will increase slightly in 2020 after tariff reductions compared to the status quo. The results expected marginal export growth, adequate trade creation and an improvement in the well-being of both countries by 2020 with the successful implementation of CEPA. The agreement had two main concerns, namely: infrastructure in India and non-tariff barriers in Japan. On the infrastructure front, the two countries agreed in 2006 to collaborate on the massive $90 billion Delhi-Mumbai Industrial Corridor (DMIC) project. The main agenda of the DMIC project includes the development of nine industrial zones; a high-speed freight line; three ports; six airports; a six-lane highway with no intersection; and a 4,000-megawatt power plant. The project agreement looks very promising in the context of the new manufacturing policy, according to which India aims to increase the share of manufacturing industry in GDP to 25% within a decade and possibly create 100 million jobs.
New Delhi is keen to review CEPA with Japan, as it has resulted in disproportionate gains for Japanese industry compared to its Indian counterparts since the agreement was implemented in 2011. This paper attempts to analyse the initial impact of the India-Japan Comprehensive Economic Partnership Agreement on trade and investment relations as well as other areas of cooperation. Although it is still too early for a thorough impact assessment, the study seeks to identify some facts related to the effectiveness of the agreement. India, for its part, has also expressed its own concerns about the agreement. New Delhi called on Japan to remove all non-tariff barriers to trade in order to realize the real benefits under CEPA, particularly those that would be obtained in the Japanese pharmaceutical market. It is mutually recognized that Japan`s strong demand for generics can potentially be met by India, which is a win-win situation for both countries. „Japan suggested that instead of undergoing scrutiny, both sides could express their concerns related to the agreement and try to resolve them within the existing framework,“ the source said. Japan and India are two major economies in Asia.
According to the 2012 World Development Indicators, Japan`s gross national income (GNI, estimated on the basis of purchasing power parity) for 2010 was $4.43 trillion, while GNI (PPP) per capita was $34,790. Japan`s GDP grew by 5.3% in 2009-2010, after recording an average growth rate of 0.9% over the period 2000-2010. The comparative figures for India were $4.17 trillion, $3,560, 8.3% and 8.0%, respectively. India has requested a review of the Comprehensive Economic Partnership Agreement (CEFTA) between India and Japan to improve market access for Indian products and reduce the growing bilateral trade imbalance. However, Japan is not in favor of a full-fledged revision and has proposed corrections within the existing framework, sources close to the development said. There are; some problems, but they are an obstacle to the full success of the project. These include: (i) the lack of clarity in decision-making and ownership of operations due to a lack of consensus among many stakeholders, such as the DMIC Development Corporation and central and state governments in India; Japan believes that these issues could be addressed through ongoing interaction without a review of CEPA. Japanese officials took note of the issues raised by Indian officials and said they would try to address concerns about items such as mangoes, fish paste and shrimp. They said it might be possible to make changes within the existing CEPA to solve many problems,“ the source said. India`s exports to Japan increased from $6.3 billion in 2011-2012 to $4.5 billion in 2019-20, while imports from the country rose from $11.96 billion during the same period to $12.43 billion, according to figures from the Ministry of Commerce.
The trade balance widened to $7.91 billion in favour of Japan. At the same time, India`s infrastructure deficit remains a serious problem for Japanese investors. According to the Japan External Trade Organization survey for FY2011, the biggest trade problems in India are power outages or power outages and inadequate logistics infrastructure (identified by the companies surveyed at 71.6% and 64.8%, respectively). The Indian government itself has acknowledged the deficit and estimates that $1 trillion in infrastructure investment is needed to achieve a nine percent growth rate. „It is true that Japan has recently taken steps to facilitate the export of black tiger shrimp from India by relaxing inspection standards, but there is still much to be done as Indian seafood exports to the country have been limited by additional inspections and auditing standards implemented by food safety authorities,“ said an Indian official. The Japanese side acknowledged this problem and said that solutions can be worked out amicably. But India, which wants tangible market access in other areas such as textiles, leather and footwear, would be more comfortable with a full review, the official said. „It has also been acknowledged by Japan that Indian mango exports to the country have been affected by Covid-19-related travel restrictions that have affected inspections,“ the Indian official said.
India and Japan therefore have a similar structure, particularly with regard to their dependence on the services sector. In recent years, the two countries have strengthened their bilateral ties through new initiatives and programs ranging from economic and cultural ties to defense and security ties. The year 2007 was also officially celebrated as the year of friendship between the two countries. Japan gives 30% of its official development assistance (ODA) to India and has remained engaged even during the period of global economic slowdown. .