PM Takaichi Visit Highlights Massive Trade Deficit Amid Surging Strategic Cooperation in India-Japan Ties

PM Takaichi Visit Highlights Massive Trade Deficit Amid Surging Strategic Cooperation in India-Japan Ties​

Japanese Prime Minister Sanae Takaichi’s arrival in India on July 1 has centered attention on the deepening strategic relationship between the two nations. The three-day annual summit underscores a partnership that has expanded significantly across infrastructure, defence, clean energy, and technology sectors. However, the economic picture remains mixed, as bilateral trade in goods continues to lag behind high-level investment commitments and strategic collaborations.

Assessing the State of Bilateral Trade​

The current state of goods trade reveals a wide deficit between India and Japan. In FY26, total bilateral trade stood at $27.48 billion. This figure details India’s exports amounting to $6.04 billion, against goods shipped from Japan valued at $21.44 billion. The resulting trade imbalance registers at a deficit of $15.40 billion.

A Decade of Stagnation Amid Export Transformation​

A comprehensive analysis of trade data indicates that India’s overall exports to Japan have remained largely unchanged since 2012, despite the existence of the 2011 India-Japan Comprehensive Economic Partnership Agreement. While quantity has stagnated, the composition of Indian exports has undergone a sharp transformation.

Machinery and electronics now constitute 16.3 percent of India’s exports to Japan in 2025, a massive jump from 4.5 percent in 2005. Similarly, transportation goods climbed significantly to 15.6 percent from just 0.5% during the same period. The share of chemicals also rose sharply to 20 percent compared to 8.3 percent in 2005.

Conversely, several traditional export sectors have seen decline. Minerals, once a major component of India’s basket, plummeted to 1.7 percent in 2025 from 17.6 percent in 2005. Agriculture and food-linked exports also saw drops; animal products fell to 6.5 percent from 9.4 percent (2005), while vegetable products declined to 3.1 percent from 5 percent.

Evolution of Export End Use and Investment Landscape​

The shift is evident when examining the end-use classification of these exports. Intermediate goods remain the largest category, accounting for 36.6 percent of India’s exports to Japan in 2025. Capital goods saw a significant rise, growing to 19.1 percent from 5.8 percent in 2005. Raw materials fell sharply to 9 percent from 29.4 percent during the period under review.

While investment ties are reportedly strengthening, Japan’s position within India's FDI landscape has seen a slight shift. Japanese investment into India stood at $3.75 billion in FY26, which is an increase from $2.48 billion in FY25. This represents 6.4 percent of the total FDI inflows recorded in India for that year. Since FY15, Japan has invested $31.85 billion into India, representing around 5.6 percent of total inflows.

Future Focus Areas and Strategic Partnerships​

The summit is expected to focus intensely on areas where commercial priorities align with strategic goals. The two nations have established a semiconductor supply-chain cooperation agreement, signed in July 2023. Furthermore, the India-Japan Clean Energy Partnership actively covers critical areas including green hydrogen, electric vehicles, storage systems, and carbon capture technology.

A joint NIIF-JBIC fund was launched in October 2023 specifically for climate and environmental projects between the two countries. Beyond this, reports confirm that both nations are planning to increase ammonia production, signaling a clear path toward deeper industrial collaboration.