Strengthening ties

India and Japan bolster economic and defence partnership

Prime Minister Narendra Modi completed a successful visit to Japan this week as part of the Annual Summit schedule. The talks between Mr Modi and his Japanese counterpart, Shinzo Abe, were described as "fruitful and extensive" and covered a wide range of issues that concern both the countries. Mr Modi reiterated that Japan was the cornerstone of India’s Look East policy, while Mr Abe expressed his determination towards advancing the “new era in India-Japan relations”. Both leaders also stressed the need to work together for a rules-based and inclusive world order. The two leaders reviewed the progress of several initiatives in the recent past such as enhancing connectivity and ecological management in India’s north-eastern region through the India-Japan Act East Forum and the progress made on the Mumbai-Ahmedabad high-speed railway project. While the two countries signed several agreements, the two issues most worthy of highlighting pertain to economic and security matters.

 

The first big development was the signing of a $75 billion currency-swap agreement — one of the largest swap arrangements in the world. A currency-swap agreement allows India to avail itself of $75 billion from Japan in exchange for rupees in case the need arises. This arrangement makes eminent sense since the rupee has lost around 13 per cent of its value against the dollar this year; indeed, the Indian rupee has been the worst-performing Asian currency. Rising interest rates in the United States, higher crude oil prices, and a widening current account deficit, which is nearing the crucial level of 3 per cent of gross domestic product, have put the rupee under tremendous pressure. The Reserve Bank of India has been intervening in the markets to ensure that the rupee’s fall is not any more precipitous. But that has meant that India has used its foreign exchange reserves. The on-tap availability of $75 billion thus not only calms the frayed nerves in the markets but also makes it decidedly cheaper for Indian businesses to borrow funds. To be sure, this is not the first time India has had such an agreement with Japan; in 2008 and 2013, Indian signed up for similar swaps valued at $3 billion and $50 billion, respectively. This swap arrangement also means that bilateral trade between the two countries — which has been far below expectations despite the two countries having a comprehensive economic partnership agreement — will likely get a boost, especially as it dials down its dependence on the dollar.

Enhancing the strategic dimension of the relationship between India and Japan, both countries reaffirmed their desire to further deepen bilateral security and defence cooperation and institute Foreign and Defence Ministerial Dialogue (2+2); at present, India has this arrangement only with the US. Building on the existing maritime security cooperation, the Indian Army is now conducting its first joint exercise with Japan’s Self-Defence Forces. Cooperative research in the area of the unmanned ground vehicle (UGV) and robotics was also announced. And there was encouragement for technological collaboration between the respective agencies of the two countries in the Joint Lunar Polar Exploration Mission. While China was not mentioned explicitly anywhere in the joint statement, there is no guessing what the prime motivator for both India and Japan was. The call for a “free and open Indo-Pacific” makes it clear that this partnership is aimed at countering the biggest regional power.