The economic relationship between India and Japan has witnessed remarkable growth in last few decades. Especially, the signing of the Comprehensive Economic Partnership Agreement between India and Japan in 2011 has further accelerated the cooperation across sectors. 

And the chemicals sector is no exception but a part of this.

The strong partnership is characterised by Japan’s advanced technology and capital resources, which complement India’s vast market potential, growing consumer base and readily available pool of skilled young professionals. As the world evolves towards sustainable solutions and technological advancements, the collaboration between these two super giants offers significant opportunities for mutual growth and development.

Japan’s investment footprint in India

Between April 2000 and September 2024, the cumulative Foreign Direct Investment (FDI) from Japan to India amounted to an impressive $43.1 Bn. As the fifth largest FDI contributor, Japan places strategic importance on its economic relationship with India. 

In fiscal 2023-24, the total value of trade between Japan and India amounted to $22.85 Bn. Of this, exports from Japan to India accounted for $17.69 Bn, while imports to Japan from India were worth $5.15 Bn further highlighting the depth of this bilateral trade relationship. 

In 2023, India’s National Infrastructure Investment Fund (NIIF) and Japan Bank for International Cooperation (JBIC) launched a $600 Mn India-Japan fund to invest in environmental sustainability and low carbon emission strategies. As a part of this programme, the fund also signed a binding agreement to invest $48 Mn in Mahindra Last Mile Mobility Ltd which manufactures electric vehicles. 

Growing investor interest and full FDI allowance

In the chemicals sector specifically, Japan stands as the fifth-largest FDI investor, reflecting its critical role in India’s industrial landscape. 

India has allowed 100% FDI in several sectors, including chemicals. This has been paving the way for increased Japanese investments. This policy has catalysed a wave of investments due to access to skilled talent, market localisation and cost efficiency. 

Recent investments by Japanese companies underscore the deepening economic ties between the two nations. Some of the major investments include:

• Sumitomo Chemicals establishing third agrochemical manufacturing facility with an initial investment of around $35 Mn
• Mitsubishi Gas Chemicals has established its trading subsidiary in India in June 2024 
• Anupam Rasayan has signed a Letter of Intent with a Japanese chemical company to supply new-age polymer intermediates over the next nine years, valued at $61 Mn (approximately ₹507 Cr) 
• The Indian renewable energy firm ACME and Japan’s heavy industry leader IHI have signed a landmark agreement to supply green ammonia from India to Japan. This deal involves a total investment of $5 Bn for a plant with a capacity of 1.2 Mn metric tonnes per annum (MMTPA) located in Gopalpur, Odisha
• Japan’s Air Water, industrial gas manufacturer was awarded a gas supply contract in FY 2023-24 by Steel Authority of India Limited (SAIL), where Air Water will design and manufacture a cryogenic air separation unit for the on-site supply 

Trade dynamics in chemicals sector

India’s top exports to Japan in the chemicals sector

India’s top imports from Japan in the chemicals sector

The robust trade in chemicals between India and Japan illustrates the complementary nature of their economies. While India exports a significant amount of organic chemicals, it imports substantial volumes of inorganic chemicals from Japan, facilitating a balanced trade relationship.

Prospects for Japanese companies in India

The future scope for Japanese companies in India is vast and varied:

1. Greenfield manufacturing projects for: 
   • Electronics & Semiconductors: With the increasing demand for electronics, Japanese companies can focus on high-purity semiconductor grade materials and encapsulants, essential for semiconductor manufacturing. In 2023, Japan signed an agreement with India to jointly develop the semiconductor ecosystem and strengthen its global supply chain. 
   • Eco-friendly chemical products: Aligning with global sustainability goals, both Japanese and Indian companies are inclined towards investing in green chemicals and sustainable materials. This provides a new opportunity for companies to innovate and invest in joint ventures and greenfield projects in India for bio-based chemicals and green technologies to meet their ESG goals.
   • High-tech adhesives and coatings: For the automotive industry, textiles and electronics etc. For example, DIC Corporation’s wholly owned subsidiary IDEAL CHEMI PLAST commenced its operations in Maharashtra for a new coating resin production facility.
2. R&D/technical centres: Given India’s robust ecosystem, setting up research and development centres focused on the development of new molecules can drive innovation and meet rising demands. Eg., Insecticide India Limited (IIL), an agrochemical manufacturer, and Japanese firm OAT Agrio have invested approximately $6.5 Mn to establish an R&D centre in Rajasthan.
3. Global capability centres: With the largest IT workforce in the world and being the largest exporter of IT services, India offers an excellent opportunity for companies to establish their Global Capability Centres. Currently, around 1,700 GCCs are present in India and the number is projected to reach 2,400 by 2030, as per a NASSCOM report. As per Indo Japan chambers of Commerce data, Japanese companies represent approximately 5% of the GCC ecosystem in India mainly in the automotive, electronics and manufacturing sectors.  

Strategic geographic advantage

India’s geographic location offers access to key markets in Asia, Africa and Europe, making it an ideal hub for Japanese companies aiming to expand their reach. The port proximity on the eastern and western coasts of India, development of Petroleum, Chemicals and Petrochemicals Investment Regions, plastic parks and refineries through favourable government policies complement this advantage. The strong diplomatic and economic ties, bolstered by agreements such as the India-Japan CEPA, is creating a favourable environment for trade and investment.

India and Japan’s partnership in the chemical sector is set to grow rapidly. India’s chemical industry is expected to reach $1 Tn by 2040, creating huge opportunities for investment. Japan, with its advanced technology and strong financial backing, can further tap into high-growth segments like specialty chemicals and petrochemicals. By working together, both countries can drive innovation, boost economic growth, and build a strong, sustainable future.

This blog is written by Aboli Mandurnekar