Business & Finance

India‑Japan Trade Remains Tiny, but Experts Spot Growth in Rare Earths and Tech

By Bhanu Pratap

India and Japan must deepen trade, technology ties and investment to strengthen supply chains, says Prachi Mishra, economics professor and policy researcher at Ashoka University. Mishra, dean of the Rakesh Jhunjhunwala School of Economics and Finance and director of the Isaac Centre for Public Policy, told LiveMint that despite complementary strengths, the two economies are under‑integrated. She points to untapped potential in semiconductors, rare earths, institutional investment and skilled labour.

In an exclusive interview with LiveMint on Ashoka University’s India‑Japan Economic Corridor report, Mishra noted that Japan’s share of India’s exports and imports has fallen from about 10 % in the 1980s to 1–2 % today, while India supplies less than 1 % of Japan’s imports. "Either way, if you look at this relationship, trade relationship, either Japan’s importance for India and India’s importance for Japan is minuscule," she said.

The report, developed through Ashoka University’s Iron Pillar Initiative in Global Learning, explores opportunities across manufacturing, technology, financial services and infrastructure. It arrives amid a broader partnership that includes infrastructure financing, a 10 trillion‑yen (≈$68 billion) investment target and agreements announced at the 16th India‑Japan Annual Summit in July 2026.

Mishra described the global economy as "walking a tightrope", noting that the West‑Asia conflict and a surge in Asian technology exports shape the outlook. "Yet, global economy has adapted and we've seen lower flows through actually being balanced by switching suppliers and running down inventories," she said.

India aims to become a developed economy over the next two decades, requiring sustained growth. Mishra said India wants to reach Viksit Bharat, an advanced economy, in 20 years, which would mean an average growth rate of 8 %.

She argued that deeper economic integration with Japan could help India diversify partnerships and reduce vulnerabilities in critical supply chains. "Resilience means building buffers in good times and minimising losses in bad times. And this is the concept of resilience. And that’s where I think India‑Japan relationship has particular significance," Mishra added.

Referring to remarks by India’s external affairs minister at the Kautilya Economic Conclave in New Delhi, Mishra described Japan as a "transparent and mature market" that India is opening up to. India’s share in Japan’s outbound foreign direct investment (FDI) has risen from almost zero to about 4 %, but most of that investment is outside manufacturing. Mishra said there is a huge opportunity for deeper manufacturing and technology partnerships.

Japanese institutional capital could also expand investment in India. Japan’s government pension investment fund holds about $2 trillion in assets, while India’s share of the fund’s investments remains below 1 %. Even a modest reallocation could benefit India and give Japanese investors greater exposure to the country’s long‑term growth.

Semiconductors and rare earths are sectors where Japan’s technological expertise could complement India’s efforts to expand domestic manufacturing and diversify critical supply chains. Rare earths, in particular, offer scope for cooperation as countries seek to reduce dependence on concentrated processing capacity in China. One potential model would involve Japanese firms refining rare earths in India, using the country’s engineering talent and exporting the resulting magnets.

Labour mobility could provide another pillar of the corridor, given Japan’s ageing population and India’s demographic dividend. "Japan has an ageing population, India still has a demographic dividend," Mishra said, noting that India’s dependency ratios are expected to decline for at least another decade. "The opportunity is really for both these countries to let trade, capital, and people move freely to build true resilience. And the moment is actually now," she added.

Mishra concluded that leaders have committed to deepening ties, and the task now is to execute.