From bullet trains to semiconductors: India, Japan expand economic partnership for an uncertain world

By Aroonim Bhuyan

New Delhi, July 2. What began as a post-war friendship built on Japanese development assistance has evolved into one of Asia’s most consequential strategic and economic partnerships.

Seventy-five years after the establishment of diplomatic relations, India and Japan are seeking to redefine their ties for an era marked by geopolitical competition, fragile supply chains and rapid technological change. The 16th India-Japan Annual Summit held in New Delhi on July 2 between Prime Minister Narendra Modi and his Japanese counterpart Sanae Takaichi underscored that transformation, with economic cooperation emerging as the central pillar of a relationship increasingly driven by economic security and technological resilience.

The summit, held during Takaichi’s first official visit to India, saw the two leaders unveil an ambitious agenda spanning semiconductors, critical minerals, artificial intelligence, clean energy, logistics, mobility and resilient supply chains as they sought to position Asia’s second and fourth-largest economies to navigate an increasingly uncertain global environment.

The India-Japan relationship has travelled a long way since Japan became one of the first countries to resume ties with independent India in 1952. Over the decades, Japan emerged as India’s largest source of Official Development Assistance, helping finance iconic infrastructure projects ranging from the Delhi Metro to industrial corridors and freight networks.

The transformation accelerated after the relationship was elevated to a Strategic and Global Partnership in 2006 and later to a Special Strategic and Global Partnership in 2014. Since then, annual summits have steadily expanded cooperation beyond infrastructure and investment into areas such as defence, technology, supply chains and economic security.

At this year’s summit, the two leaders described India and Japan as “natural and indispensable partners” whose cooperation was essential not only for their national interests but also for ensuring a resilient and prosperous Indo-Pacific.

Economic security takes centre stage

There are over 1,400 Japanese companies operating in India. According to sources following the summit, more Japanese companies are expected to open their offices in India, particularly in Gurugram and Noida.

But, perhaps the most significant theme emerging from the summit was the growing convergence between New Delhi and Tokyo on economic security.

The disruptions caused by the pandemic, the war in Ukraine, tensions in West Asia and intensifying strategic rivalry in the Indo-Pacific have exposed vulnerabilities in global supply chains and highlighted the risks of excessive dependence on a single market or supplier.

Reflecting these concerns, the two leaders expressed unease over economic coercion, arbitrary export restrictions and non-market practices that could disrupt trade in critical industrial sectors and strategic resources.

The response, they argued, lies in building diversified and trusted supply chains among like-minded countries.

To this end, India and Japan adopted a Joint Declaration on Economic Security Cooperation aimed at promoting project-based collaboration in key sectors including semiconductors, critical minerals, information and communication technology, pharmaceuticals and clean energy.

The agreement builds on the Economic Security Initiative launched during the previous summit and follows the establishment of a private-sector Economic Security Dialogue involving businesses from both countries.

For India, seeking to reduce vulnerabilities in strategic technologies and manufacturing, Japan offers advanced industrial capabilities and trusted technology partnerships. For Japan, India’s vast market, skilled workforce and manufacturing ambitions offer an attractive alternative production base and investment destination.

Semiconductors and critical minerals emerge as strategic priorities

The prominence given to semiconductors and critical minerals reflects changing geopolitical realities.

Semiconductors have become the backbone of modern economies and military systems, while access to critical minerals is increasingly viewed as essential for electric vehicles, batteries, renewable energy systems and advanced manufacturing.

Both countries agreed to work towards protecting high-technology trade while simultaneously easing export control challenges that often impede collaboration in advanced sectors.

Officials from relevant ministries will intensify consultations aimed at facilitating cooperation in strategic technologies and industrial production.

The move aligns with India’s efforts to emerge as a global electronics manufacturing hub and Japan’s strategy of diversifying supply chains away from excessive concentration in a single geography.

Energy security in an era of turbulence

Energy cooperation also occupied a prominent place in the discussions.

As two of Asia’s largest energy importers, India and Japan share concerns over disruptions in maritime trade routes and volatility in global energy markets.

The leaders emphasised the importance of ensuring freedom of navigation and uninterrupted commercial traffic through key maritime chokepoints such as the Strait of Hormuz, through which a significant proportion of Asian energy imports transit.

The two countries agreed to expand cooperation across the energy value chain, including maritime energy transportation, strategic petroleum reserves and supply chain resilience.

Japan reiterated support for India’s long-standing aspiration to join the International Energy Agency, a move that would further integrate India into global energy governance mechanisms.

Clean energy partnership gains momentum

The transition towards cleaner sources of energy is also emerging as a major component of the bilateral relationship.

The summit witnessed the launch of the India-Japan Cooperative Biogas for Growth Initiative aimed at supporting India’s target of establishing 1,000 biogas and organic fertiliser plants across the country.

The two countries also reaffirmed their commitment to collaborate in emerging sectors such as green hydrogen, clean ammonia, solar photovoltaic technologies and nuclear energy.

Particular attention was given to the landmark clean ammonia project in Odisha, which both governments pledged to continue supporting.

The emphasis on clean fuels reflects both countries’ efforts to balance decarbonisation objectives with concerns over energy security and affordability.

Artificial intelligence and digital infrastructure

Artificial intelligence emerged as another major frontier of cooperation.

Recognising that AI technologies are likely to shape future economic competitiveness, the two governments launched an India-Japan AI Strategic Dialogue and adopted a separate joint statement on AI cooperation.

The initiative seeks to strengthen national capabilities in artificial intelligence while promoting trusted and resilient digital infrastructure and supply chains.

The two countries also committed themselves to ensuring that AI development remains inclusive, secure and trustworthy while drawing upon international frameworks such as the Hiroshima AI Process and the New Delhi Declaration on AI Impact.

For Japan, with its strengths in robotics, advanced manufacturing and precision engineering, and India, with its software ecosystem and digital public infrastructure, collaboration in AI presents opportunities that extend well beyond traditional trade and investment.

Japanese investment continues to expand

Japanese investments remain among the strongest pillars of the bilateral relationship.

The two leaders welcomed progress towards the ambitious target of 10 trillion yen in Japanese investment in India announced at the previous summit.

Both sides pledged to improve the investment climate through the fast-track mechanism established under the India-Japan Industrial Competitiveness Partnership.

Japanese companies have played a major role in India’s automotive, manufacturing and electronics sectors for decades, while India is increasingly becoming an important destination for Japanese financial institutions and banks seeking opportunities in fast-growing emerging markets.

The summit also highlighted opportunities in logistics, textiles, food processing, agriculture, industrial machinery and automotive manufacturing.

The two governments additionally agreed to strengthen cooperation in financial services, payment systems and local currency transactions while exploring greater collaboration in healthcare and pharmaceutical supply chains.

A new focus on SMEs and startups

Another notable feature of the summit was the emphasis on small and medium enterprises and startups.

The two leaders welcomed the launch of the India-Japan SME Forum and encouraged greater participation by Japanese startups and SMEs in the Indian market.

Building upon the Japan-India Startup Support Initiative, the two countries agreed to strengthen links between Japanese enterprises and India’s rapidly expanding ecosystem of micro, small and medium enterprises, particularly in Tier-II and Tier-III cities.

The objective is not merely to attract investment but to create industrial partnerships, technology transfers and integrated supplier networks capable of serving global markets.

Infrastructure remains the flagship

Infrastructure cooperation continues to define the public face of India-Japan economic ties.

The leaders welcomed progress in projects supported by Japanese development assistance, including the Mumbai Metro Line 11, Bengaluru Metro Phase III, healthcare and education initiatives in Maharashtra and sustainable horticulture projects in Punjab.

The Mumbai-Ahmedabad High-Speed Rail corridor remains the flagship project of the partnership.

Japan reiterated its commitment to support India’s target of commencing commercial operations on priority sections by 2027 and expressed support for the introduction of the next-generation E10 Shinkansen technology.

The two countries also agreed to explore cooperation on future high-speed rail corridors as India pursues an ambitious plan to build a 7,000-km national high-speed rail network.

In addition, they signed a memorandum on a Next-Generation Mobility Partnership aimed at combining Japanese technological expertise with India’s market scale and engineering talent.

Shipbuilding and maritime industries were also identified as promising areas for future collaboration.

Northeast India as a gateway to Southeast Asia

The summit also highlighted the strategic importance of India’s northeastern region.

Japan has emerged as one of the most important development partners in the region, supporting roads, bridges, healthcare infrastructure, disaster management and skill development initiatives.

The two leaders expressed support for creating industrial value chains linking the Northeast with the Bay of Bengal region and Southeast Asia through cooperation with regional organisations such as BIMSTEC.

Japanese investments in semiconductors, biofuels and human resource development are increasingly contributing to this effort.

Defence ties move from exercises to co-development

If economic security emerged as the central theme of the summit, defence cooperation provided the clearest indication of how far the India-Japan relationship has evolved over the past two decades.

What began with maritime dialogues and naval exercises has gradually expanded into one of the most important security partnerships in the Indo-Pacific. The two countries signed the Joint Declaration on Security Cooperation in 2008, elevated defence ties through the establishment of the ministerial 2+2 dialogue in 2019, and have steadily increased military interoperability through exercises involving their armed forces.

At this year’s summit, the two leaders reaffirmed their commitment to deepening defence and security cooperation amid growing strategic uncertainty in the Indo-Pacific. They welcomed the successful conduct of the bilateral naval exercise JAIMEX 2025, agreed to expand maritime domain awareness cooperation using satellite capabilities, and pledged to strengthen collaboration in naval maintenance, repair and overhaul facilities.

The summit, however, will be remembered most for a landmark development in bilateral defence relations – the first-ever co-development project between India and Japan in the defence sector.

The two sides announced that they had reached agreement in principle on the remaining technical details of the Unified Complex Radio Antenna, or UNICORN, project, paving the way for its early conclusion.

The system, originally developed by Japan for its warships, integrates multiple communication and sensor antennas into a single mast structure, reducing radar signatures while improving communications efficiency and survivability in contested maritime environments.

For India, the project represents access to advanced Japanese naval technology and aligns closely with the country’s emphasis on indigenous defence manufacturing under the ‘Make in India’ and ‘Aatmanirbhar Bharat’ (Self-reliant India) initiatives.

For Japan, the agreement is equally significant. For much of the post-war period, Tokyo maintained strict controls on defence exports and technology transfers under its pacifist security doctrine. However, the changing strategic environment – marked by China’s military rise, North Korea’s missile programme and growing instability in the Indo-Pacific – has prompted Japan to gradually open its defence industry to trusted strategic partners.

Prime Minister Modi welcomed Japan’s review of its Three Principles on Transfer of Defence Equipment and Technology, expressing hope that the changes would enable deeper defence industrial cooperation between the two countries.

The UNICORN project is therefore far more than a single procurement programme. It marks Japan’s emergence as an active defence technology partner and India’s arrival as one of the first countries to benefit from Tokyo’s evolving export policies.

The leaders also agreed to explore additional projects in defence equipment and technology, signalling that cooperation could eventually extend to areas such as

Viewing ties through a broader strategic lens

Although economics dominated the summit agenda, both leaders viewed their partnership through a broader strategic lens.

The rise of economic coercion, the weaponisation of supply chains and intensifying geopolitical competition have blurred the traditional distinction between economics and security.

In this environment, India and Japan increasingly see economic cooperation as an essential component of national resilience and strategic autonomy.

As both countries seek to shape a free, open and rules-based Indo-Pacific, economic collaboration has become as important as defence partnerships and diplomatic coordination.

Seventy-five years after diplomatic ties were established, the India-Japan relationship is no longer defined solely by aid, trade or investment.

It is increasingly becoming a partnership aimed at building trusted technologies, resilient supply chains and sustainable growth in an uncertain world.