INDIA-JAPAN: GROWING ECONOMIC RELATIONS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90T00114R000700560001-0
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 6
• Document Creation Date: December 23, 2016
• Document Release Date: March 29, 2012
• Sequence Number: 1
• Publication Date: October 9, 1987
• Content Type: MEMO

Declassified in Part - Sanitized Copy Approved for Release 2012/05/09: CIA-RDP90TO0114R000700560001-0 25X1
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DIRECTORATE OF INTELLIGENCE
9 October 1987
India-Japan: Growing Economic Relations
Summary
Indian Prime Minister Rajiv Gandhi made a short stopover in
Tokyo on his way to the Commonwealth Conference in Vancouver.
Japanese Prime Minister Nakasone offered India a $200 million
long-term, low-interest loan to purchase edible oils as a drought
relief measure. The last minute scheduling and the short
duration of the stopover made it unlikely that other major
substantive issues were discussed. The visit is an indication of
India's growing economic ties with Japan. Last year Japan passed
the Soviet Union as India's second leading commercial partner
after the United States and is likely to become the largest in a
few years.
Gandhi might be receptive to discussions about using part of
the Japanese loan for purchases of US edible oil. Although New
Delhi normally wouldlook first to Southeast Asian suppliers,
these countries may not be able to meet the demand caused by the
drought in much of southern Asia.
This memorandum was prepared by
Office of Near
Eastern and
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South Asian Analysis 1:
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Comm
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NESA M 87-20094
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India is looking increasingly to Japan for financial and technical
resources to assist in economic development. New Delhi wants Tokyo to
provide more concessionary economic assistance, direct investment, and
tariff relief for its exports. During a five day visit to the subcontinent
in August, Japanese Foreign Minister Kuranari affirmed Japan's intent to
promote political dialogue and increase economic cooperation with India.
New Delhi, however, is wary of new promises without more action on Tokyo's
part. Many Indians believe that Japan is still primarily interested in
quick sales of manufactured goods and will continue to require lengthy
negotiations before buying more goods from India or engaging in business
ventures that assist the Indian export program.
Prime Minister Gandhi has taken a personal hand in encouraging greater
Japanese participation in his drive to modernize India's economy. He has
sought Indian access to Japanese high technology, greater direct Japanese
investments and exposure to Japanese entrepreneurial expertise. Gandhi
would like the Japanese to compete more actively with the United States and
Western Europe in selling high-technology items to India
Foreign diplomats in New Delhi are predicting that Japan will become
India's largest trading partner in a few years. The total value of trade
between the two countries grew by more than 20 percent in 1986 to almost
$3.4 billion. Last year Japan passed the Soviet Union as Indian's second
leading commercial trading partner after the United States. In volume
terms, Japanese exports to India in 1986 increased by 100 percent from the
level of 1980 and imports from India were up by almost 75 percent.
Direct Japanese investment and industrial collaboration also show signs
of growth. Indo-Japanese joint ventures have increased.from 34 in 1980
with $1.4 million in Japanese investment to 108 in 1986 and $12.6 million
in investment. While total Japanese investment in India still remains
small--less than $100 million over the last 30 years--Japan has become the
second largest foreign investor in India after the United States since the
early 1980s. Japanese direct investment has been oriented toward the
Indian domestic market, especially the automobile industry. India has been
pushing for more new Japanese investment in export-oriented industries and
joint ventures that would provide India assistance in selling goods to
We believe Tokyo's increased bilateral assistance also will facilitate
even greater trade and investment. Japan has become India's largest
Western bilateral aid donor and provided almost $230 million in loans,
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grants, and technical assistance in fiscal year 1986-87.* During his visit
to India, Kuranari pledged a loan of $470 million for the fiscal year
that ends in March 1988 to finance nine industrial projects including the
construction of a fertilizer factory, a telecommunications facility and an
electric power plant.
Pitfalls in the Relationship
Opening the economy to more Japanese high technology is a mixed
blessing for New Delhi. India's trade balance with Japan has gone from a
$100 million trade surplus as recently as 1980 to a $800 million deficit in
1986 as a result of a surge in the volume and cost of imports. New Delhi's
imports from Japan, including major purchases of capital goods for
industrial modernization, have more than doubled in value since 1980.
Another major component, however, is consumer goods, including parts used
in assembling automobiles in India and consumer electronics equipment.
Indian exports to Japan, which are still primarily raw materials (iron ore)
and food (marine products), have grown by less than 30 percent in value.
We believe that several areas of tension persist between the two
countries that are likely to hamper the growth in economic relations.
Tokyo has shown little interest in opening its markets to a wider variety
of Indian goods despite frequent requests from New Delhi. Japanese
businesses continue to drag their feet on the indigenization of the supply
line for Indo-Japanese joint ventures, thus aggravating India's balance of
payments. New Delhi continues to stew over Japanese conditions that
require lengthy negotiations for sales and aid agreements, leaving some
doubt that all the aid promised this year will actually be dispersed.
Outlook and Implications for the United States
We believe Japan will continue to make major economic inroads in India.
The prospect of a large new market opening as a result of liberalization
efforts started by Indira Gandhi and continued by Rajiv has prompted a
major influx of Japanese seeking new business ventures and markets for
exports. Growing aid disbursements, even though not directly tied to sales
of Japanese products, will facilitate Tokyo's activities, possibly at the
expense of the United States. Japanese businessmen, however, are
* Japan might even be India's largest overall bilateral aid' donor. Moscow
has offered India about $3.4 billion in economic assistance since 1985, but
some of the funding is scheduled for long-term projects that have not been
started. We have no reliable information on the actual level of
disbursements.
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apparently still unwilling to relinquish their autonomy in favor of an
equitable partnership with a foreign partner. Many of their business
ventures will serve primarily as markets for Japanese exports.
We expect Japanese companies to remain aggressive in sales of high
technology items to India. The one exception is likely to be
supercomputers; Japanese companies probably will wait until the first US
supercomputer is delivered before resurfacing their own marketing efforts.
India is wary of Japanese business and trade practices, but will seek a
closer economic relationship with Japan. New Delhi will continue to accept
a large trade deficit with Japan because much of it can be balanced by
inflows of capital from Tokyo and a large share of the equipment imported
is important for India's modernization program. Japan is also a
politically palatable supplier of high technology equipment. Some Indians,
for example, are expressing concern that their country has become too
dependent on the United States for high technology equipment.
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JAPANESE ROLE IN INDIA
LARGEST COMMERCIAL EXPORTER TO INDIA AND
WESTERN BILATERAL AID DONOR .
JAPANESE AND UNITED STATES TRADE WITH INDIA
EXPORTS TO INDIA
2200
2000
1800
1600
1400
1200
1000
800
600
400
200
0
United States
Japan
3000
. Japan
IMPORTS FROM INDIA 0
1980 81* 82
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SUBJECT: India-Japan: Growing Economic Relations
NESA M 87- 20094
External Distribution
Ms. Shirin R. Tahir-Kehli
National Security Council
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