India-Japan trade ‘minuscule’: Expert flags opportunities in rare earths, technology | Exclusive

India and Japan's economic relationship remains under-integrated despite their growing strategic cooperation, with significant untapped potential in sectors such as semiconductors, rare earths, institutional investment and skilled labor, according to Prachi Mishra, an economics professor at Ashoka University. In an exclusive interview, Mishra, who is also the dean of the Rakesh Jhunjhunwala School of Economics and Finance and director of the Isaac Centre for Public Policy at Ashoka University, highlighted the need for deeper trade, technology partnerships and investment to strengthen supply chains and enhance economic resilience in the face of geopolitical uncertainty.

Mishra pointed out that Japan's share in India's exports and imports has dwindled from over 10% in the 1980s to just 1-2% today, indicating a minuscule trade relationship between the two countries. She emphasized that Japan sources less than 1% of its imports from India, highlighting the limited importance of the bilateral economic ties.

The India-Japan Economic Corridor report, being developed through the university's Iron Pillar Initiative in Global Learning, explores opportunities in manufacturing, technology, financial services and infrastructure. Mishra noted that the global economy is "walking a tightrope," with conflicts and shifts in technology exports shaping the economic landscape.

She stressed that the Indian ambition to become a developed economy over the next 20 years necessitates sustained economic growth, with an average growth rate of 8% per annum.

Deeper economic integration with Japan could help India diversify its partnerships and mitigate vulnerabilities in critical supply chains, according to Mishra. She highlighted the potential for resilience in building buffers during good times and minimizing losses during bad times. Japan's transparent and mature market is an attractive partner for India, with India's share in Japan's outbound foreign direct investment increasing from near zero to about 4%.

However, Mishra stressed that the majority of these investments are outside manufacturing, presenting opportunities for deeper manufacturing and technology partnerships. Japanese institutional capital, with a staggering $2 trillion in assets, could provide a substantial avenue for expanding investment in India. Mishra pointed out that even a modest reallocation from Japan's government pension investment fund could benefit India while offering Japanese investors greater exposure to the country's long-term growth.

In the semiconductor and rare earths sectors, Japan's technological expertise could complement India's efforts to expand domestic manufacturing and diversify critical supply chains. Mishra suggested a potential model where Japanese firms refine rare earths in India using local engineering talent, and export the resulting magnets. This would reduce dependence on concentrated processing capacity in China, fostering a more resilient global supply chain.

Lastly, Mishra emphasized the importance of labor mobility, given Japan's ageing population and India's demographic dividend. With India expected to have a declining dependency ratio for at least another decade, the opportunity lies in allowing trade, capital, and people to move freely, ultimately building true resilience between the two nations. Mishra concluded by noting that the moment is now for both countries to execute their commitment to deepen their ties, following the leaders' ambitious vision.