Nuclear Deal, Infrastructure Projects and Handling China: What to Expect From Modi's Japan Visit

There are several points still up for discussion before the India-Japan nuclear accord becomes a reality, including Japanese apprehensions on India misusing nuclear technology.

Prime Minister Narendra Modi with his Japanese counterpart Shinzo Abe. Credit: PTI/Files

Prime Minister Narendra Modi with his Japanese counterpart Shinzo Abe. Credit: PTI/Files

Tokyo: Indian Prime Minister Narendra Modi’s upcoming two-day visit to Japan takes place at a time when Asia’s second largest and third largest economies are increasingly finding common strategic ground. The November 11-12 meeting will be the third annual summit between Modi and Shinzo Abe, his Japanese counterpart. A long-anticipated nuclear civilian energy deal is the likely headline to emerge. But a raft of other issues are also on the agenda, including measures to give bilateral economic ties a fillip, defence cooperation, infrastructure projects both in India and third countries like Iran, as well as the sensitive, but crucial, issue of dealing with China’s expanding presence in the region.

Nuclear negotiations

The nuclear treaty will not only pave the way for Japan to export nuclear technology to India’s vast market, it is also a necessity for enabling India’s nuclear deals with the US, France and other countries. Key elements of nuclear reactors, including safety components and the domes of nuclear power plants, are a near-Japanese monopoly. Any deal would be significant for firms like GE-Hitachi, Toshiba’s Westinghouse Electric Company and Mitsubishi-Areva.

Negotiations over the nuclear accord have been ongoing since 2008, following US-led efforts to facilitate India’s access to civilian nuclear energy technologies, despite India not being a signatory to the nuclear non-proliferation treaty. The 2011 Fukushima nuclear disaster in Japan temporarily halted discussions. These have since restarted, but there remain strong concerns in Japan over the possible misuse by India of nuclear technology transfers.

There will, therefore, almost certainly be key provisions in any deal aimed at allaying Japanese apprehensions, most likely a provision to cancel or suspend the accord in the event of India breaking its self-imposed moratorium on nuclear testing. This has been a Japanese demand since the two sides began their negotiations seven years ago. India, which successfully kept such an explicit condition out of its nuclear cooperation agreement with the US in 2007 (and with every other nuclear partner since then), has so far been reluctant to tie termination of the agreement to a nuclear test by the country.

According to Hisanori Nei, professor and nuclear energy expert at Tokyo’s National Graduate Institute for Policy Studies, Japan will permit Indian power producers to reprocess spent fuel at designated facilities on condition that the country accepts comprehensive inspections by the International Atomic Energy Agency. But this is something that will be difficult for India to agree to.

A final sticking point is the question of liability in the event of a nuclear accident. “It is difficult to imagine that the nuclear sector is a total outlier to the general chaos of the business operating environment in India,” explained Jeff Kingston, the director of the Asian studies programme at Tokyo’s Temple University. Modi has been seeking to address the concerns of nuclear vendors on the matter of liability. It’s not clear yet that he’s done enough.

Kingston believes that Abe should be able to push a nuclear accord with India through the parliament by early 2017. He doubts there will be much political opposition, despite the fact that there are many, even within the prime minister’s own Liberal Democratic Party, who are against nuclear energy. (Polls indicate that up to 70% of the Japanese population is opposed to developing nuclear power.)

Like Kingston, most experts in Japan are optimistic that despite the challenges, the deal will be struck. Abe will sell it to a nuclear-sceptic Japanese parliament and public by embedding it in the larger context of Japanese-India ties. Geo-strategic benefits, India’s large export market and investment opportunities will be the sweeteners.

“I don’t think public opinion will be an obstacle,” said Nei, explaining that the accord did not loom large in public discourse in Japan. “The media might cover it for a week or so, and then it will be easily forgotten.”

Economic ties

Economic ties will be the other main focus of the summit. Modi wants to boost India’s economic growth by upgrading infrastructure, strengthening manufacturing and developing a network of “smart” cities – all of which would benefit from Japanese investments and technology. For his part, Abe is trying to fire up a Japanese economy that has been stuck in a holding pattern for two decades. India with its large market and growing middle-class can provide new sources of exports and investment opportunities for Japan.

Yet, despite this natural fit, economic ties are not as robust as might be expected. India-Japan trade in 2015-2016 was only $14.51 billion, a decrease of 6.47% over the previous year. In contrast, India-China trade was worth over $70 billion, while Japan-China trade is at about $350 billion. Trade with India is just 1% of Japan’s total foreign trade. And although Japan is the largest bilateral donor for India, over the past three years Japanese firms have invested more in countries like Vietnam and Indonesia rather than India.

Abe’s government has outpaced China in investment pledges to India, promising to funnel about 3.5 trillion yen ($29 billion) in infrastructure loans, financing and public and private investment. New Delhi has also has set up a special office to promote investments from Japan. At their first summit meeting in 2014, the two leaders vowed to double direct investment within five years.

Against this backdrop, there will likely be announcements of some new investments at this week’s meeting, in addition to the mega-infrastructure projects in India that Japan is already an investor in, such as the Ahmedabad-Mumbai High Speed Rail, the Western Dedicated Freight Corridor and the Delhi-Mumbai Industrial Corridor.

However, as Hiroshi Hirabayashi, president of the Japan-India Association and former ambassador to India, put it, “there are too many negative stories from Japanese investors in their experience in India.” He cited a litany of cases from the unhappy merger of pharma heavyweights Ranbaxy and Daiichi Sanyko, to NTT Docomo’s sour experience with Tata Teleservices and Mitsubishi Chemical’s decision to pull out of a massive proposed investment in West Bengal.

According to Hirabayashi, while Modi’s visit cannot be expected to solve bilateral problems between companies, he can help to address issues of legality and broad-business policy. The main outcome of the summit, according to the former ambassador, will not be concrete economic problem solving, as much as positive atmospherics.

The symbolism of the visit acquires special significance against the evolving geo-strategic cartography of the region, in particular, Beijing’s rising clout and territorial claims. China is expanding its deep-water naval presence and asserts sovereignty over disputed areas of the East and South China Sea and Indian Ocean region, parts of which Japan also claims. India has its own territorial dispute with Beijing along the 4,000-km land boundary they share.

Closer ties between Japan and India are viewed with apprehension in Beijing. According to Japanese news reports, the visit will see India purchasing 12 US-2i amphibious aircraft from manufacturer ShinMaywa Industries at a price tag of between $1.5 and $1.6 billion. The aircraft sale will be one of Tokyo’s first arms deals since Japan lifted its 50-year ban on weapons exports in 2014. It will be a first for Japan, which has traditionally been reticent to supply Japanese-made military hardware to other countries. The purchase is certain to rile Beijing, which sees any military closeness between Japan and India as a potential threat. Tokyo and New Delhi already participate in annual joint military exercises along with the US.

Kingston points out that while India continues its policy of hedging, keeping up bilateral ties with both Japan and China, New Delhi is “tilting” closer to Japan than was previously the case. However, although Japan would like to see India make a strong statement of support on its claims against China in the East China Sea, it is unlikely that Modi will do so, beyond a possible reference to upholding the rule of law in settling disputes.

A final area for discussion at the summit might be the furthering of cooperation in infrastructure projects with incidental implications for China. One example is potential Japanese investment in India’s development of the Chabahar Port project in Iran, something Tokyo has expressed interest in. This would work towards counteracting the Chinese dominance of infrastructure projects in India’s neighbourhood and would help elevate New Delhi’s political and economic profile in the region.

Modi and Abe have had a long courtship. Much has been written about the affinity between the two leaders. When the Japanese prime minister signed up for Twitter, Modi was famously the first world leader he followed. If the nuclear deal, in particular, is finally inked this week, it will go some way in demonstrating that their courting is heading towards a firm commitment.