India and Japan have long enjoyed a robust economic partnership, with Japan standing as India’s fifth-largest source of foreign direct investment (FDI). Between 2000 and 2024, Japanese FDI in India surpassed USD 43 billion, underscoring the depth and strategic nature of this bilateral relationship.
In 2022, Japan pledged an ambitious investment of JPY 5 trillion (approximately INR 3.2 trillion) over five years, focusing on sectors such as clean energy, infrastructure, and manufacturing. Building on that momentum, in 2024, both countries set a new target of USD 42 billion in investment by 2027. Despite these high-level commitments, the pace of Japanese investments in India has not matched the expectations set by these announcements.
In an interview with NHK World, Suzuki, representing the Japanese Chamber of Commerce and Industry in India, offered candid insights into the roadblocks confronting Japanese investors. Chief among them is India’s complex and frequently changing tax regime, which he described as one of the most significant deterrents. Constant adjustments to tax rules, coupled with ambiguity in their interpretation and enforcement, have made it difficult for companies to plan with certainty. Even businesses already operating in India face ongoing challenges in complying with evolving tax requirements, resulting in both operational headaches and financial risk.
This tax uncertainty contributes to a broader climate of regulatory unpredictability. Suzuki noted that many Japanese firms prefer to begin with smaller-scale operations in India—unlike in China or Malaysia, where full-sized factories are often established from the outset. This cautious approach reflects concerns about policy instability and an underlying need to mitigate risk in a complex investment environment.
Infrastructure also remains a critical bottleneck. Suzuki emphasized that shortcomings in logistics and basic services—such as electricity and transport—pose practical challenges for Japanese manufacturers looking to scale operations. Delays in receiving permits and navigating intricate bureaucratic processes further complicate matters, eroding investor confidence.
Despite these headwinds, 2023 offered some encouraging signs. India received over USD 5 billion in FDI from Japan, surpassing Japanese investments in China and Hong Kong for the first time. Still, this upward trajectory remains fragile. In previous years, investment figures have fluctuated significantly—falling to USD 1.9 billion in FY 2020–21 from USD 3.2 billion the year before—highlighting the need for consistency and reform.
If India is to fully capitalize on its economic partnership with Japan, several steps are imperative. Simplifying tax structures and ensuring greater predictability in their application would go a long way in reassuring foreign investors. Streamlining regulatory procedures, improving infrastructure, and strengthening domestic supply chains—particularly in electronics and high-value manufacturing—are also essential.
Strategic initiatives such as the Mumbai–Ahmedabad High-Speed Rail and increasing cooperation in clean energy and semiconductors suggest that the two countries are aligned on long-term goals. But to unlock the next phase of growth, India must address the practical concerns voiced by Japanese businesses. With meaningful reform, the country could transform itself from a challenging market into a preferred investment destination for Japan’s globally oriented industries.