India's prime minister Narendra Modi’s visit to Japan in early September marked a defining moment in bilateral relations between the two countries. During his trip to Japan, Mr Modi held extensive talks with his Japanese counterpart, Shinzo Abe, which resulted in a number of potentially lucrative agreements.

Japan has agreed to invest a total of $33.5bn – of both public and private capital, including overseas development assistance funds – over the next five years in next generation infrastructure in India such as bullet trains, connectivity, transport systems, 'smart cities', the rejuvenation of the rivers, including the Ganga, manufacturing, clean energy, agricultural cold chains, and rural development. 


The Japan-India investment promotion partnership also aims to double Japanese FDI and the number of companies operating in India over the next five years. Japan’s investment inflows into India amounted to $2.1bn in 2013, according to the Japan External Trade Organisation. A significant proportion of Japanese FDI is accounted for by Chinese investments, with the amount of FDI into the country four times that going into India. But, with Japan seeking to reduce its investment in China, due to political tensions that have erupted in recent years, India is well placed to benefit. Currently, 1072 Japanese companies operate in India.

Like other investors, Japanese companies have historically faced problems when trying to operate in India. Poor infrastructure, labour market regulation and the slow pace of reform have dented India’s attractiveness as an investment destination, and so it is essential that the country's business environment improves. Mr Modi has already taken steps to this end, having committed to develop a special fast-track mechanism in the prime minister's office to facilitate proposals from Japanese investors.

N Chandra Mohan is an economics and business commentator based in New Delhi