A free-trade agreement between Japan and India entered into force Monday, ending tariffs on goods that account for 94 percent of their trade flow over 10 years.
The FTA, which the two officially cemented last October, is Tokyo’s 12th bilateral FTA and offers Japanese firms a chance to gain a better footing in the rapidly emerging economy, which has a population of 1.2 billion.
Tariffs on goods exported to India, including auto parts, steel products, peaches and persimmons, will be scrapped over the next five to 10 years.
Tariffs on goods imported from India will be eliminated, including those on nearly all manufactured products, curry powder and tea leaves, but tariffs on wheat, beef and pork will stay in place.
South Korea and others have already made inroads into the vast South Asian market. This made raising Japan’s corporate profile in India a priority. India’s economic growth is expected to climb through increased trade and investment.
India has sustained an annual economic growth rate of between 6 percent and 9 percent since 2005.
But India accounted for less than 1 percent of Japan’s total trade figure in fiscal 2008.
Experts say the reasons behind such small trade with India include Japanese companies’ reluctance to advance into India’s market, where high-priced Japanese products are unpopular.
Japanese firms have also been busy making investments in China and Southeast Asian countries, they said.
Joichi Kimura, chief at Japan Bank for International Cooperation’s office in New Delhi, said India’s less developed infrastructure and distribution system compared with Southeast Asian countries has been one of the main reasons behind Japan’s slow advance into the market.
But he pointed out that India and Japan are working together to improve the industrial infrastructure to help increase businesses between the two countries.
“If India eases regulations, Japanese investments in retail and other fields may increase. And if the two countries deepen their economic relationship, Japanese businesses may even be able to expand into Africa, utilizing India as a transfer point,” he said.
The negotiations for concluding an FTA between the two countries began in 2007. The agreement was officially endorsed by Prime Minister Naoto Kan and his Indian counterpart, Manmohan Singh, last October and signed in February.