India-Japan Ties Strengthen as Bilateral Investment Surges to $10 Billion

There has no doubt been an uptrend in Indo-Japanese ties since the time Shinzo Abe became Prime Minister of Japan 20 years ago. He shared a warm equation not only with the current PM Narendra Modi but also former premier Manmohan Singh. The India-Japan Special Strategic and Global Partnership was established during his tenure and bolstered by successive PMs including the present one, Sanae Takaichi, who regards Abe as her mentor and made her first visit to India. This partnership envisioned that the economies of both countries would be powered by robust bilateral investment and trade. At the press conference of the 16th India-Japan annual summit, PM Modi noted that the bilateral investment partnership continues to grow stronger; that over the past year, more than 200 business agreements have been concluded, paving the way for over $10 billion of Japanese investments in India. These impressive numbers reflect the fact that Japanese businesses are stepping up their investments in India as it is the world’s fastest-growing large economy. Geopolitical factors, including ongoing tensions with China, are also responsible for their heightened interest in the country. Net foreign direct investment (FDI) inflows from Japan sharply rose to $7.6 billion in 2025 from $3.7 billion in 2021, a period over which their investments have been sharply declining in China, according to the Japan External Trade Organization. India has secured larger investments than China from Japan since 2023. Besides automobiles, Japanese investors have been major investors in financial services with the Mitsubishi UFJ Financial Group making a $4.4-billion investment in Shriram Finance. Japan’s mega banks are stepping up their presence as they search for high-growth and high-return markets like India, argued Toshiro Nishizawa of the University of Tokyo. The uptick in Japanese FDI is indeed a silver lining for India’s ongoing efforts to attract investments to prop up its beleaguered external accounts. Net outflows have been the norm of late. The big question is, what must be done to sustain this uptrend? In this regard, PM Modi highlighted the new reforms in taxation, governance, and ease of doing business, besides a new initiative of the Prime Minister’s Office in organising a dedicated Japan Business Week. Senior officials will engage directly with Japanese business and address their concerns. To be sure, Japanese investors — like other foreign investors — have serious concerns about the complicated legal and tax system, difficult labour issues, inadequate infrastructure, poor contract enforcement, among others in the country. A certain amount of hand-holding will certainly improve comfort levels for Japan, which is India’s fifth-largest investor. India must do whatever it takes to further improve its attractiveness for Japan Inc. Although bullish surveys of the Japan Bank for International Cooperation rank India as the most promising destination, the sentiment of Japanese businesses can change rapidly. If their concerns are not addressed, they will shift to the Association of Southeast Asian Nations where they have invested 3.2 times more than in India last year. Nevertheless, the good news is that Japanese companies that are already operating in India are extremely positive about expanding their business. Maruti Suzuki is setting up a fourth plant at Kharkhoda in Haryana to assemble passenger vehicles. Air-conditioner maker Daikin plans to step up capacities to 5 million units annually by 2030. Japanese mega banks are also eyeing India’s booming market opportunities beyond their mature financial environment back home.