India-Japan Ties Are Set To Grow Stronger Across Security And Trade

India and Japan are strengthening a partnership that has evolved from a post-war trade relationship into one of the Indo-Pacific's most significant strategic and economic alliances. Recent discussions between Prime Minister Narendra Modi and Japanese leader Sanae Takaichi have underscored the growing momentum in bilateral ties. Today, the relationship extends well beyond trade, encompassing infrastructure, manufacturing, technology, finance, defence, and regional security. Bilateral trade reached approximately $27.5 billion in FY26, making Japan India's 10th-largest trading partner, while India ranks as Japan's 14th-largest trading partner.

The foundations of the partnership were laid in the decades after World War II when Japan relied heavily on Indian iron ore to rebuild its steel industry, while India sought Japanese technology and industrial expertise to accelerate its own development. Over time, this relationship expanded into sectors such as automobiles, engineering, electronics, chemicals, and information technology. Analysts say the two economies complement each other, with Japan offering capital, advanced manufacturing capabilities, and research expertise, while India provides a large consumer market, a skilled technology workforce, entrepreneurial talent, and favourable demographic advantages.

Infrastructure has emerged as one of the strongest pillars of cooperation. Japan has financed several major projects in India, helping improve transportation and industrial capacity while generating long-term investment returns. Demographic differences have also created opportunities for collaboration, as Japan faces an ageing population and labour shortages while India has a young workforce seeking employment opportunities. Training centres across India are preparing workers with Japanese language skills, workplace practices, and cultural orientation, enabling greater workforce mobility. Experts believe the combination of India's adaptability and Japan's precision creates strong long-term economic potential for both countries.

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Despite these complementarities, bilateral trade and investment have not expanded as rapidly as many expected. Although the global "China+1" strategy encouraged companies to diversify supply chains, much of Japan's investment shifted towards ASEAN economies rather than India. Industry surveys indicate that Japanese firms continue to face challenges in India, including shortages of high-quality local suppliers, regulatory uncertainty, skill gaps, raw material constraints, and cultural as well as language barriers. India's restrictions on Chinese imports and investments have also indirectly affected several Japanese companies that rely on Chinese supply networks for manufacturing operations.

Geopolitical developments have further reinforced the strategic importance of India-Japan relations. Japan's experience with supply chain disruptions during its territorial dispute with China prompted Tokyo to diversify sourcing and promote its Free and Open Indo-Pacific (FOIP) strategy alongside partners including India, ASEAN, Australia, and the European Union. At the same time, economists note that business fundamentals remain the primary driver of Japanese investment decisions. Surveys by Japanese institutions continue to rank India among the most promising long-term investment destinations, with a majority of Japanese companies already operating in the country planning to expand their presence over the coming years.

The growing confidence is reflected in increasing investments across financial services, semiconductors, artificial intelligence, data centres, manufacturing, and industrial production. Major Japanese corporations have expanded partnerships with Indian firms, while the number of Japanese companies operating in India has continued to rise alongside their combined business turnover. Although the partnership has not always realised its full economic potential, experts believe its scope is broader than ever before. With shared interests in economic growth, resilient supply chains, and a rules-based regional order, India and Japan appear well positioned to deepen cooperation and strengthen one of Asia's most important strategic partnerships in the years ahead.

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