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As the second-most-populous country in the world and one of the largest and fastest-growing economies in Asia, India has always offered much to internationally minded Japanese firms. The success of companies like Suzuki and Honda, which formed partnerships with Indian firms so successful their products came to dominate their respective markets, is evidence of this potential. Yet these successes are notable because they have been comparatively rare; it is fair to say that the potential of the overall bilateral trade and investment relationship has been largely—so far—unrealised. India ranks only 20th as a destination for Japanese exports, for instance, and accounts for just 1.5% of Japan’s foreign direct investment. Fewer Japanese businesses operate in India than in Thailand.
The difficulty of doing business in India—dealing with its complex bureaucracy and regulations, numerous jurisdictions, and inadequate infrastructure, among other irritations—has put off many foreign investors. However, the crushing victory in the 2014 general election of Narendra Modi, the reformist and pro-business former chief minister of Gujarat state, was seen as heralding a new dawn. Mr Modi, it was hoped, would usher in investor-friendly reforms and a new focus on infrastructure that would ease the path of foreign investment and fast-track economic growth. Japanese companies should be well-placed to benefit. This paper examines where the opportunities are and what challenges remain for those companies eager to seize them.