Modi-Abe Summit : New Leap in Ties Likely
Ahead of Japanese PM Shinzo Abe’s summit meeting with Narendra Modi in India on September 12-14, here’s identifying core issues of emerging importance to both countries and zeroing in on some policy prescriptions
Japanese Prime Minister Shinzo Abe is scheduled to visit India on September 12-14 for a summit meeting with Indian Prime Minister Narendra Modi. The annual summit meetings between the PMs of the two countries started in 2006, and this platform has been very useful as the leaders exchange views on a range of issues that are relevant to both countries. These include bilateral, regional, and multilateral issues covering economic, political, and security/strategic issues.
These annual visits alternate between Tokyo and New Delhi. The last visit by Prime Minister Modi to Japan was in November 2016. The pathbreaking civil nuclear cooperation was signed at that time after over six years of negotiations. The issue was hanging fire as nuclear is too sensitive an issue in Japan, more so after the Fukushima nuclear accident following the Great Eastern Earthquake in March 2011. This created a large anti-nuclear constituency in the country and a large percentage of the population was no longer willing to accept nuclear as a source of energy. The Government came under immense pressure and was compelled to shut down all 54 nuclear reactors, bringing the share of nuclear into the country’s total energy mix to zero.
Given such a circumstance, reaching an agreement with India — a country which is not a signatory to the Nuclear Non-Proliferation Treaty — displayed the remarkable statesmanship of Prime Minister Abe. This also demonstrated the confidence and trust that Japan reposes in India as a country that shall never deviate from its commitment to peaceful use of nuclear energy. India’s commitment on moratorium on nuclear testing remains absolute.
Civil nuclear cooperation
After the civil nuclear agreement was signed during Modi’s visit in November 2016, it took some more months for the Japanese Diet to deliberate before it was passed in July 2017. The agreement entered into force in July 2017 when Foreign Secretary S Jaishankar and Japanese Ambassador Kenji Hiramatsu exchanged diplomatic notes in New Delhi, marking operationalisation of the pact.
Japan is the world’s leader in civil nuclear technology, with almost every advanced nuclear reactor in the world being dependent on Japanese components. The agreement will enable Japan to export nuclear power plant technology as well as provide finance for nuclear power plants in India. Japan would now assist India in nuclear waste management and could undertake joint manufacture of nuclear power plant components under the Make in India initiative.
Since many American firms, such as Westinghouse and GE, use components made by Japanese firms, such as Toshiba and Hitachi, they could not enter the Indian market despite the Indo-US nuclear deal. With the India-Japan nuclear deal entering into force now, that would be easy. Initially, Japan was also insistent that India signs the Comprehensive Test Ban Treaty but this barrier was subsequently overcome.
Japanese industrial conglomerate Toshiba, which owns Westinghouse, will have a major role when US nuclear major supplies technology for the pair of six reactors in Andhra Pradesh. Hitachi, also from Japan, has stakes in General Electric (GE), which has also proposed to set up reactors in India. So the energy scenario in India is destined to undergo a perceptible overhaul in the coming years. This will be the third major development in India’s civil nuclear outreach beginning with pacts with Russia for Units 5 and 6 for Kudankulam Nuclear Power Plant and first uranium shipment from Australia. The nuclear agreement is a major highlight and a key element in India-Japan strategic partnership.
It is significant that India is the only non-NPT signatory with which Japan has entered into a civil nuclear deal. This demonstrates that Japan recognises India’s impeccable non-proliferation record. The deal now paves way for the American nuclear major Westinghouse to set up six nuclear reactors in Andhra Pradesh by supplying technology. The construction will be undertaken by a relevant Indian partner. Such an arrangement shall help Westinghouse come out of the bankruptcy quagmire that it is now facing. Westinghouse, which was acquired by Japanese conglomerate Toshiba in 2006 for $5.4 billion, filed for bankruptcy in March 2017.
At present, there is no functional reference atomic plant, which is a requisite to obtain permission from the Atomic Energy Regulatory Board (AERB), India’s nuclear watchdog. Since March, senior Westinghouse officials visited India twice to assure that the project is on track. The finance for the project from the US Exim Bank remains intact and the initiative would start in 2018. The India-Japan deal also includes clauses that allow Japan to finance reactor projects in India. It seems clear that the Modi Government’s goal of enhancing nuclear power generation in India and the role of nuclear in the country’s total energy mix is going to be important.
The External Affairs Ministry spokesperson Gopal Baglay remarked: “This agreement is
a reflection of the strategic partnership between India and Japan and will pave the way for enhanced cooperation in energy security and clean energy.” He went to say that “the landmark agreement seeks to promote full cooperation between the two countries in the development and uses of nuclear energy for peaceful purposes on a stable, reliable and predictable basis”. Thus, India becomes the first non-NPT signatory to receive nuclear power equipment and technology from Japan.
There are some lingering concerns though. The fear is India being a non-NPT signatory could be tempted to use nuclear technology received from Japan for military purposes.
Such concerns are unfounded as India is facing power shortages and keen to increase the use of nuclear and renewable energy to sustain its economic growth. Moreover, it stands by its commitment to maintain moratorium on nuclear testing since 1998.
At present, nuclear as a source in India’s total energy mix is negligible. Nuclear energy accounts for less than 2 per cent. It is the policy of the Indian Government to increase the share of nuclear as the economy continues to grow, registering above 7 per cent growth. At present, India is the fastest growing economy in the world. The IMF has projected that India is likely to register close to 8 per cent growth rate in the coming three to four years. This too coincides with the Chinese economy that continues to decline to around 6 per cent. This means that demand for energy will surge, which is why India needs to diversify the sources and nuclear as a source of clean energy is attractive.
Opponents of nuclear energy argue that apart from the risk in its use, it is expensive, especially at a time when global prices of oil have fallen and costs of solar rates are low. However, nuclear remains the world’s most viable source of carbon-free base load power. India’s nuclear liability law is deterring potential foreign players from entering into nuclear business with us. The existing reactors are inadequate to meet the energy demand.
No doubt, there are perils in the use of nuclear energy. But countries around the world have benefitted and progressed economically by using nuclear power. China, for example, continues to build reactors as fast as it can to meet its energy needs. Despite the hazards involved in the use of nuclear energy, India needs to keep the nuclear option open and keep safety standards high.
Defence and maritime security
Besides the nuclear issue, both Modi and Abe are likely to agree to promote defence cooperation among India, Japan and the US, with an eye on China’s recent increased activities in the East and South China Seas, the Indian Ocean and the ongoing India-China stand-off on the Doklam issue. Both also had talks on the sidelines of the Group of 20 meeting in Germany and their conversation included stronger maritime security cooperation. Emphasising the ‘Free and Open India and Pacific Strategy’, Abe called for bolstering economic ties to deepen security cooperation with countries along the sea corridor. This time, both are expected to seek agreement to further collaboration in defense equipment and technological development.
The remarks that Abe had made in Parliament on August 22, 2007, during his first term as PM still resonate in all subsequent discussions that leaders and ministers of both countries have had on a gamut of issues. Abe had observed then: “Japan-India relationship is blessed with the largest potential for development of any bilateral relationship anywhere in the world.”
In this light and in view of a common concern for New Delhi and Tokyo, both leaders could target a maritime security pact during Abe’s forthcoming visit. They are also expected to discuss potential responses to North Korea, which continues to push forward with its nuclear and missile development programmes despite UN sanctions. In view of China, both Modi and Abe are likely to seek an agreement in the field of defence and maritime security.
Deepening cooperation in the area of infrastructure development is another topic that is likely to figure prominently in the Modi-Abe talks. The Mumbai-Ahmedabad high-speed Shinkansen railway project using Japanese technology and capital is the precursor to many such projects in the offing. Indeed, infrastructure development and connectivity top the Modi Government’s priorities, and Japan’s cooperation in this project is too important to be overlooked. The decision to use the Shinkansen system for its high-speed railways to connect the Western cities of Mumbai and Ahmedabad was reached between Abe and Modi in 2015. India plans to start construction of the roughly 500-mile rail link in 2018 and aims to have it operational by 2023. Japan agreed to fund $12 billion for this project at a nominal interest of 0.1 per cent for 50 years with a moratorium on repayments up to 15 years.
Seen from the Japanese perspective, Abe is Japan’s ‘top salesman’ for the adoption of Shinkansen technology by other Indian railway systems. This time, Abe is expected to participate in the ground-breaking ceremony in Ahmedabad, thereby celebrating birthdays of both leaders and hold bilateral talks. During his visit to Japan in November 2016, Modi had suggested holding the ceremony for the construction to start in September 2017. India has pledged to build high-speed railways focused on the four major cities of Delhi, Mumbai, Kolkata, and Chennai. When Modi had visited Japan, he had travelled by Shinkansen with Abe from Tokyo to Kobe to visit a bullet-train plant of Kawasaki Heavy Industries Ltd, a maker of Shinkansen cars. The Mumbai-Ahmedabad Shinkansen project is the only high-speed railway project approved in India so far.
India also plans to firm up $1.6 trillion financing institution that will fund highway projects across the country with a 26 per cent held by Japanese companies to achieve a target of 30-km of road-laying per day. Talks with Japan are at an advanced stage and India hopes to attract foreign funds in the development of its highways. This funding arm will also secure all green and regulatory clearances. Other related issues such as pension, endowment, insurance and private funds to attract investments need further discussion. Though India is talking with potential investors across the globe, Japan is the most attractive candidate. There were 62 stalled highway projects. The Minister in charge, Nitin Gadkari, pushed them for early clearance. There were 240 projects in all under the public-private partnership (PPP) model, of which 186 were stuck. Of the remaining, 44 were terminated and 80 restarted.
According to estimates, India has the world’s second largest road network, totalling to some 4.7 million km, transporting over 60 per cent of all goods in the country and 85 per cent of passenger traffic. Half of these are in poor shape. Japan’s involvement will certainly upscale the quality as advanced technology will be used. Though highways account for only two per cent of the total roads network, they transport 40 per cent of goods.
India was constructing 12 km of roads per day in the first year of the Modi Government. This was gradually increased to 14 km and finally met the target of 30 km. The major hurdle had been funding, which was soon removed by the Cabinet decision in 2015. Modi and Abe are likely to discuss the future cooperation in the highway development project.
Another area is setting up industrial townships across the country. Japanese companies prefer exclusive economic zones that are self-contented like the one on the Delhi-Jaipur highway where specific economic zones are designated for Japan and Korea. As Japan doubles its investment in India, promotion of domestic manufacturing and building infrastructure are the two key areas where the bulk of Japanese investment would be directed.
Accordingly, Japan has identified 11 sites to set up industrial townships in India, which would serve as hubs for investments in the country. These include Tumkur in Karnataka, Ghilot in Rajasthan, Mandal in Gujarat, and Supa in Maharashtra. Japan will also provide soft skills training to Indian workers in the manufacturing sector to help bridge the demand-supply gap.
Japan aims to double its investment to about $35 billion in the next five years, thereby strengthening bilateral economic ties. Japan is already the primary investor in India’s economic corridors. Strengthening domestic manufacturing with Japan’s help can contribute to the success of the Make in India initiative and ensure transfer of technology. The Government plans to give concessions to Japanese companies in the industrial townships, equivalent to at least what is offered to units in special economic zones and the proposed National Investment and Manufacturing Zones (NIMZs).
Special economic zones are allowed duty-free imports and 100 per cent tax-free export income for the first five years, 50 per cent for the next five years, and 50 per cent of the ploughed back export profit for the subsequent five years. NIMZs, under the National Manufacturing Policy, provide tax incentives to small and medium enterprises. The development of the townships will be assisted by the respective State Governments, the Department of Industrial Policy and Promotion, and Japan’s Ministry of Economy, Trade and Industry.
Japan is the fourth biggest foreign investor in India, contributing 7 per cent to the total FDI inflow since April 2000, according to the DIPP. Japan brought in $1.7 billion worth of FDI in 2013-14 and $18 billion between April 2000 and February 2015.
The other areas identified for the townships include Ponneri in Tamil Nadu, Neemrana in Rajasthan, Jhajjar in Haryana, and the Integrated Industrial Township in Greater Noida. Japan will extend its industrial township advance soft skills development project to impart training to workers in the manufacturing sector. The sectors will be wide-ranging — right from auto components to textiles, food processing, and engineering.
In May 2015, Japanese Minister for Trade Yoichi Miyazawa and then Indian Minister of State for Commerce and Industry, Nirmala Sitharaman, signed in New Delhi a five-point agenda for the development of Japanese industrial townships, promotion of investment and infrastructure development, further development and cooperation in the IT sector, enhancing cooperation in strategic sectors and advance Asia Pacific economic integration. Japan has invested $4.5 billion in the first stage of the Delhi-Mumbai Industrial Corridor through lending by Japan International Cooperation Agency and Japan Bank for International Cooperation. They together hold 26 per cent equity in the project.
North Korean issue
Other regional and global issues are also likely to figure in the discussions. Both are expected to discuss North Korea’s nuclear and missile development issues and potential responses. Pyongyang continues to push forward its nuclear and missile development programmes despite UN sanctions. The UN slapped new sanctions unanimously in July 2017 to check the North Korean nuclear menace.
Until recent times, India did not articulate its policy clearly towards North Korea despite the latter continuing its nuclear and missile programmes. But now that the threat from North Korea has escalated further, any act by Pyongyang will inevitably impact India’s relations with other countries in economic and security domains. India can no longer remain silent and has to come out with an appropriate response.
North Korea’s nuclear links with Pakistan are equally worrying for India. India has already come under pressure from the US to scale down engagement with North Korea. Abe too is likely to endorse this view. Both Modi and Abe are likely to discuss this issue and come out with a statement.
The writer is currently the Indian Council for Cultural Relations (ICCR) India Chair Visiting Professor at Reitaku University in Japan. The views expressed are his own and do not represent those of either the ICCR or the Government of India.
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