The diplomatic relations between India and Japan date back to 1952. Both the nations have always been keenly actively in bilateral trade and investment. The existence of various treaties and agreements makes japan an ideal location for Indian investment.

India and Japan are two of the fastest growing economies in the world. With the possibilities of several opportunities both nations try to create the best suited environment for growing businesses. From the year 2000 till September 2019 the investments to India from Japan have been around US$ 32.058 billion.

• Japan ranks third among the top FDI investors in India
• Since 2014 annual summit meetings are being held regularly under the program ‘special strategic and global partnership’ between the Indian and Japanese governments. These summits mark the review of on-going trade policies.
• India’s act east policy has created an ‘Act East Forum’ in 2017 which aims to increase bilateral relations between India and Japan

Sectors that attracted maximum FDI equity inflows from Japan

Data Source: https://dipp.gov.in/

With growth of bilateral trade and investment, it is evident that some specific companies have played a key role in both the nations.  Leading Japanese brands like Honda and Yamaha have acquired leading spots in India’s automobile market. Recently, Japan’s IT industry has opened its gates for Indian recruits and is trying to extend its reach in India.

Leading Japanese companies in India

Leading Indian companies in Japan

• India’s ranked at 63rd position in 2020. The country’s ranking on the World Bank’s Doing Business Report (DBR) of 190 countries, has improved from 142nd position in 2014 to 63rd position. It has earned a place among the world’s top 10 improvers for the third year in a row.
• The Government of India has worked on creating a conducive environment by streamlining the existing regulations and eliminating unnecessary requirements and procedures to help businesses grow.
• The focus is on reduction in compliance burden by using technology, third party assessment and faceless human intervention.
• India has simplified starting a business by incorporating electronic memorandum of association and articles of association. India currently ranks as a substantial nation for cross border trade and business investment by the World Bank.
• Cross border trading has now been simplified with the start of post-clearance audits, upgrading port infrastructures, and enhancing the electronic submission of documents.
• There has been an increase in infrastructure development projects due to reduce in the time and cost of obtaining construction permits.
• These provisions were enabled to ease the process of doing business in India and reaching to investors around the globe.
• Issues like resolving insolvency have been made easier by promoting reorganization proceedings in practice. As a part of Ease of Doing Business in India, the country has strengthened access to credit by amending its insolvency law. Secured creditors are now given absolute priority over other claims within insolvency proceedings.
• To promote ease of doing business, India made paying taxes easier by replacing many indirect taxes with a single indirect tax, the GST, for the entire country. India also made paying taxes less costly by reducing the corporate income tax rate and the employees’ provident funds scheme rate paid by the employer.
• As a part of ease of doing business in India, the country has strengthened minority investor protections by increasing the remedies available in cases of prejudicial transactions between interested parties.
• India made enforcing contracts easier by introducing the National Judicial Data Grid, which makes it possible to generate case measurement reports on local courts.

India’s ranked at 63^rd position in 2020. The country’s ranking on the World Bank’s Doing Business Report (DBR) of 190 countries, has improved from 142nd position in 2014 to 63rd position. It has earned a place among the world’s top 10 improvers for the third year in a row.

Trade across Borders: India has simplified starting a business by incorporating electronic memorandum of association and articles of association. India currently ranks as a substantial nation for cross border trade and business investment by the World Bank Cross border trading has now been simplified with the start of post-clearance audits, upgrading port infrastructures, and enhancing the electronic submission of documents.

Custom Clearances: The Central board for excise in customs (CBEC) has simplified Indian customs single window project to facilitate trade. This enables one step submission of custom clear documents on an online portal. Only three mandatory documents are required for customs purposes. Computerized transactions have reduced risks and created a simplified system wherein, chances of inspections have been reduced.

Infrastructure Development: There has been an increase in infrastructure development projects due to reduction in the time and cost of obtaining construction permits. Various municipal corporations in metro cities of India have developed a fast-track approval permit for building projects. Cost of obtaining construction permits has reduced from 23.2% to 5.4% of the economies per capita. These provisions were enabled to ease the process of doing business in India and reaching out to investors around the globe.

Resolving Insolvency: Issues like resolving insolvency have been made easier by promoting reorganization proceedings in practice. As a part of Ease of Doing Business in India, the country has strengthened access to credit by amending its insolvency law. Secured creditors are now given absolute priority over other claims within insolvency proceedings.

As a part of ease of doing business in India, the country has strengthened minority investor protections by increasing the remedies available in cases of prejudicial transactions between interested parties. India made enforcing contracts easier by introducing the National Judicial Data Grid, which makes it possible to generate case measurement reports on local courts.

Paying Taxes: To promote ease of doing business, India made paying taxes easier by replacing many indirect taxes with a single indirect tax, the GST, for the entire country. India also made paying taxes less costly by reducing the corporate income tax rate and the employees’ provident funds scheme rate paid by the employer.

The Employee State Insurance Corporation (ESIC) has developed a fully online return filing with online payment. Due to the introduction of e-verification system, there is no physical touch point for document submission with the income tax authorities.

Business Reform Action Plan (BRAP) 2019 – 372 new action plans were introduced under the BRAP 2019. It included new sectors such as Healthcare and Hospitality, Central Inspection system, Trade License, Registration under Legal Metrology, and Registration of Partnership Firms & Societies. This reform includes the future plans and growth of previous plans by the states and union territories in India.

The Government of India has worked on creating a conducive environment by streamlining the existing regulations and eliminating unnecessary requirements and procedures to help businesses grow. The focus is on reduction in compliance burden by using technology, third party assessments, and faceless human intervention.

Comprehensive Economic Partnership Agreement (CEPA): The agreement came into force in 2011. The aim of CEPA was to flourish the on-going international trade between the two nations. Approximately 90% of the Japanese export barriers and 97% of Indian export barriers were removed under this agreement. The embassy of Japan has also promoted the ‘Make in India’ program in its various outreach activities.

Various subcommittee meetings were held between India and Japan. Both the countries came together in 2019 to discuss the upcoming changes in the trade policies, and areas that needed more attention.

Agendas of CEPA 2019 Subcommittee meeting

India Japan – Treaty of Peace: The treaty of peace was signed between India and Japan in 1952 post world war. This treaty was a step to end any prevailing differences after the actions of the war between the nations involved. India and Japan agreed to become a part of the peace agreement and start a new phase of international relationships.

Initially the diplomatic relations between the two nations saw a low tide and there were certain differences. But as both the nations realized possibilities of economic growth and investment, the differences were set aside.

Now japan is a top contributor of foreign investment in India in sectors of infrastructure and automobile. This growth has been possible due to the presence and dependence of the peace treaty backing the actions of both nations.

Patent Prosecution Highway (PPH): The Indian and Japanese governments started patent prosecution highway in 2019 in certain identified fields of inventions. Under this program Japanese companies will have access to expedited examinations in India through simple procedures, whose claims have been patented in Japan. This initiative was a step towards increasing Japanese applicants with intellectual property rights in India.

• India-Japan digital partnership was launched in October 2018. This focused on digital ICT technologies and companies that worked with these technologies. This initiative co-operated a start-up hub as well as many upcoming IT companies prefer using the tech covered under this initiative.
• As per latest statistics, Japanese companies have funded more than 105 Indian start-ups between 2014 and 2019. Currently, the Japanese capital is considered the biggest investor for Indian start-ups.
• The embassy of India and Start up India Program under the supervision of Department for Promotion of Industry and Internal Trade (DPIIT) organised various e-pitching events which focused on specific technologies’ and upcoming start-ups for inclusive development in November 2020.
• On 3-4 February, 2021 The National Association of Software and Service Companies (NASSCOM) in an association with Deloitte and support of the embassy of Japan organised a business matching event. This was specifically for the Japanese companies and India IT companies promoting the ‘Co-create’ model. There were more than 30 Indian and Japanese companies participating in this event. 

Double Taxation Avoidance between India and Japan

The double taxation avoidance treaty between India and Japan is a 30 year old agreement to provide trade benefits in matters of export import in both nations. The agreement covers tax residents of Japan and India. It covers income tax earned by the residents of both the nations. The agreement does not apply to shell companies, the shell companies are mere non-operating bodies with no real or contentious business activity records. Any Japan based company that has a permanent establishment in India; the profit attributable to the permanent establishment will be taxed only in India. And the same process will apply to any Indian company established in Japan.

Considering the changing trends of trade and investment the DTAA was amended in 2016. Earlier under article 26 of the agreement, all the information regarding the DTAA was to be kept secret and was to be disclosed to persons or authorities related with collection of taxes. After the amendment, there has been a replacement of article 26 and therefore strengthening of exchange of information.

Export and import between India and Japan have flourished ever since the established diplomatic relations in 1952. Japan has always been one of the top contributors of aid and Indian exports have increased widely in Japan with growth of technology.

Japan India – Top Sectors of Export Import

Two major Indian banks operate in Japan, with various branches.

https://rbidocs.rbi.org.in/rdocs/Content/pdfs/71206.pdf

https://www.indembassy-tokyo.gov.in/eoityo_pages/MTE,

https://mea.gov.in/bilateral-documents.htm?dtl/6309/Agreement+for+Avoidance+of+Double+Taxation

https://www.mea.gov.in/Portal/ForeignRelation/India-Japan_Bilateral_Brief_feb_2020.pdf