'Suganomics' and India-Japan economic ties: A seven-point plan

One of the foremost challenges awaiting the new Prime Minister of Japan, Yoshihide Suga, is how to bring the Japanese economy — facing a crippling recession spurred in part by the COVID-19 pandemic — back on track.

The debate is focused on the extent to which the new leadership in Tokyo can transition from "Abenomics" to "Suganomics" while building a competitive domestic environment. Shinzo Abe, Japan’s longest serving Prime Minister, invested heavily in the country’s economy.

His influence is reflected greatly in Japan’s foreign policy initiatives concentrated on forging greater trade and economic investment partnerships with Japan’s Indo-Pacific partners, especially India. This begs the question: What are the implications that Suganomics will have on the India-Japan partnership, both bilaterally and regionally?

As Abe’s chief Cabinet secretary, Suga was an instrumental force behind the construction and implementation of Abenomics, leading to widespread speculation that his own economic policies — or Suganomics — will likely mirror that of his predecessor. Fiscal policy may be where Abe and Suga differentiate: While Abe pursued aggressive monetary easing, Suga may adopt a more moderate approach with spending reforms and fiscal tightening. Furthermore, there is going to be a general election come 2021 — an election which the ruling Liberal Democratic Party (LDP) risks losing due to massive discontent among the public over Japan’s handling of the pandemic and economic uncertainty. Hence, it is likely that the LDP will want Suga to focus first on short-term prosperity to reclaim public support.

First, Suga’s primary aim as the new prime minister will be to deal with the ramifications of the pandemic through a more proactive fiscal policy and stimulus packages. With India too undergoing an economic crisis exacerbated by the pandemic (India’s GDP contracted by 23.9 percent in Q1 of 2020-21), both countries can find much room to coordinate domestic strategies. For instance, one of Suga’s key focus areas is strengthening local economies by providing increased support to small- and medium-sized enterprises (MSMEs). With India’s own renewed focus on MSMEs, New Delhi and Tokyo may find a robust area of synergy by which both can coordinate policies that mutually boost this industrial sector, particularly in terms of their stimulus packages to negate the impact of COVID-19.

Second, with greater MSME engagement, Suga can also look towards realizing his aim of supply chain resilience. In an interview in April 2020, Suga affirmed that diversifying manufacturing bases away from China was of critical importance. Abe made significant steps in this direction: earmarking $2.2 billion to incentivize companies to move production to Southeast Asia, and more recently India, as well as proposing to drive a Supply-Chain Resilience Initiative (SCRI) with India and Australia. In the coming months, India should focus on emerging as an attractive destination for Japanese businesses looking to diversify and employ a China+1 strategy. Such efforts align perfectly under India’s own “Make in India” campaign, and the newly announced Aatmanirbhar Bharat (self-reliant India) initiative that Prime Minister Modi has introduced to rejuvenate the Indian economy.

Third, both countries may also find opportunities for greater cooperation in domestic initiatives aimed at boosting digital capabilities. Suga — who also has a background as Minister of Internal Affairs and Communication — proposed the idea of consolidating IT infrastructure at federal and local government levels in order to offer the public streamlined digital services across all ministries and departments. In India too, there is a reassertion of the Digital India campaign, which was launched in 2015 to ensure online provision of governmental services across the country.

Fourth, Japan has an ageing population which, must be countered through a globally situated policy. Suga previously pushed for a program that encouraged more unskilled foreign workers to enter Japan by instituting a policy that offers them wages comparable to Japanese citizens — even overcoming strong resistance within his own party. Suga’s clear global focus can be an advantage for India and Indian talent as it may open more doors for educational and professional exchanges between citizens. A proactive step in this direction was taken on Sept. 25, 2020 when Modi and Suga held their first interaction via a telephone discussion. The two leaders finalized the text of the agreement pertaining to specialized skilled workers. Such an engagement need not be limited to people-to-people exchanges but may expand to a mixed approach that allows closer linkage with other national initiatives of both nations.

Fifth, a regional characterization, if not a global one, of India-Japan economic ties could be forged given Japan’s leadership experience in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Regional Comprehensive Economic Partnership (RCEP). There exists potential for New Delhi and Tokyo to renegotiate the RCEP in favor of a people’s friendly market like India while ensuring a return for India to the RCEP at some point, which Abe was keen for. Abe’s attempts at promoting economic multilateralism, remained unfulfilled with respect to both RCEP and CPTPP; now, Suga must push these initiatives in order to solidify Japan’s post-COVID economic multilateralism aims and aspirations.

Sixth, Suga must not lose the momentum Abe built in terms of multilateral strategies. Under Abe, Japan was instrumental in re-establishing crucial security and economic mechanisms like Quad 2.0, the Expanded Partnership for Quality Infrastructure (EPQI) and the U.S.-Australia-Japan driven Blue Dot Network (BDN). With Chinese revisionism rising further, and Xi Jinping’s Belt and Road Initiative taking a different turn with New Silk Health diplomacy amidst COVID-19, India-Japan ties can reassert their multilateral connectivity and economic ambitions under the aegis of Quad 2.0 and Quad Plus mechanisms. India’s potential inclusion in BDN is also an idea that Suga should invest further in. Over their phone call, Modi and Suga agreed to boost ties based on mutual trust and shared values while emphasizing creation of resilient supply chains; such synergy is a positive mark for the budding Japan-India ties.

Seventh, it is realistic to note that a complete decoupling from China is not possible. However, a structured exodus of manufacturing and supply chains from China alongside enhanced efforts for improving ties with countries like Vietnam is necessary. In his first U.N. address, Suga spoke of proactively leading global post-pandemic recovery, marking the continued active presence of Japan internationally. Simultaneously, continuing with Abe’s move away from Japan’s pacifist Constitution, Suga and Modi must pursue global growth in their defense and maritime ties. This will reflect positively in their economic ties, with Japan looking to enter the global arms market while India too aims for defense indigenization under Make in India.

Suga will have to lead Japan through a tumultuous time until Japan’s 2021 general elections, in terms of both economic and security environments. He will thus have to invest heavily in maintaining, if not building, the personal camaraderie Abe shared with world leaders, including Prime Minister Modi. Even though India-Japan ties have been instituted within structured, progressive mechanisms, relying on these mechanisms will not be enough. Personal investment is key with the Abe-Modi legacy is a vivid example. Suga must carefully take forward the multi-faceted ties between India and Japan in order to build international and domestic support.

Dr. Jagannath Panda is a Research Fellow and Centre Coordinator for East Asia at the Manohar Parrikar Institute for Defence Studies and Analyses, New Delhi. He is the Series Editor for Routledge Studies on Think Asia.