Leading India’s biggest-ever business delegation to Japan, Piyush Goyal, the country’s commerce minister, has put renewed emphasis on boosting economic ties between India and Japan. This initiative reflects a surge in major Japanese investments in India’s retail, finance, and innovation spheres, as Japan hunts for opportunities beyond its aging population and declining market at home.
Japanese Investments Gain Ground in India
Japanese retail brands are increasingly visible across prominent shopping centers in Mumbai, Delhi, and Bengaluru. While established brands like Uniqlo, Muji, and Onitsuka Tiger continue expanding, newcomers such as Nitori have entered the Indian market. The Japanese convenience store giant Lawson is preparing for a major launch in Mumbai, aiming for 10,000 stores by 2050.
In finance, Japanese banks are seizing substantial stakes in Indian companies. Last year, MUFG Bank—Japan’s largest lender—made a landmark purchase of a 20% stake in Shriram Finance for $4.4 billion, which stands as India’s biggest foreign investment in the financial sector. Another major acquisition occurred when Sumitomo Mitsui Banking Corporation (SMBC) secured a 24.22% share in Yes Bank, becoming its top shareholder.
Additionally, Japanese enterprises are intensifying their presence through global capability centres (GCCs) in India. A Deloitte report notes that over 100 Japanese companies run these R&D and technology hubs in India, focusing on areas like artificial intelligence, research, and strategic planning.
Major Strategic Shifts and Investments
Vipul Nath Jindal, founder of Next Bharat Ventures (an impact fund in partnership with Suzuki Motor Corporation), highlights that Japanese firms are turning outward as their domestic prospects shrink. “Sharp drops in investments into China due to geopolitical strains and slower growth, coupled with higher tariffs and tougher competition in the US, have narrowed options,” Jindal said, identifying India as a prime destination for Japanese companies looking to expand.
Economic cooperation between India and Japan gathered steam following a trade liberalisation deal nearly 15 years ago. Since Prime Minister Narendra Modi took office in 2014, the alliance has been elevated to a “special strategic and global partnership,” with goals such as doubling the Japanese business footprint in India and initiating joint ventures—most notably, India’s first bullet train connecting Mumbai and Ahmedabad, leveraging Shinkansen technologies.
A July summit in Delhi, attended by Japanese Prime Minister Sanae Takaichi during her debut India trip, saw Japanese firms commit $12.5 billion in new investments through some 120 agreements spanning semiconductors to green energy sectors. Commerce minister Goyal has suggested that Japan could deliver on its promise of 10 trillion yen in investments ahead of the planned timeframe.
Japanese SMEs are becoming increasingly proactive, too. In Hamamatsu City, known as the home of Suzuki, Honda, and Yamaha, the Hamamatsu India Committee has begun supporting manufacturing SMEs as they explore business opportunities in India.
Barriers and Complexities in Economic Relations
Significant investments notwithstanding, challenges persist. Academician Toshiro Nishizaewa from the University of Tokyo points out, in a recent analysis, that these deeper ties stem from company decision-making aimed at market diversification, rather than a coordinated policy shift. Nevertheless, Japanese companies remain invested in China, aiming to reduce “concentration risk” after recent disruptions in supply chains and politics, according to Shruti Pandalai of the Lowy Institute, who also notes that India acts as a partial safeguard against such risks. Initiatives have been shaped as much by bureaucracy and corporations as by top leaders in both countries.
India’s expanding relationship with Japan is viewed as an opportunity to address the widening trade deficit with China and potentially reduce reliance on Chinese-manufactured advanced goods and minerals. However, as Pratnashree Basu of the Observer Research Foundation notes, Japanese supply networks are still heavily interlinked with China, making the India-Japan economic balance precarious. Both countries remain cautious to avoid any steps that could prompt commercial retaliation from Beijing. (Further analysis at Scroll.)
Foreign investors, including Japanese companies, still face hurdles like ambiguous regulations, delays in land and environmental permissions, and bureaucratic obstacles when operating in India. A recent episode involved criticism by a former Japanese minister over delays in the bullet train project, which evoked a strong response from Indian officials, and Chinese state media spotlighted the incident to question India’s adherence to investment deals.
Sustaining Progress Despite Challenges
As India seeks to draw more international investment for continued growth, the influx of Japanese capital is increasingly important. Even with current obstacles, the evolving partnership is now fueled by a broad mix of government officials and private entities in both nations, rather than just high-level diplomatic negotiations. Keeping the momentum alive will be critical for both New Delhi and Tokyo if they are to achieve lasting economic development and security through more integrated commercial cooperation.