Japan's $12.5 Billion Bet on India
As Japan's population shrinks, its companies are aggressively turning to India for growth. Prime Minister Sanae Takaichi’s July visit secured $12.5 billion in new agreements, aligning Japan's capital with New Delhi's manufacturing ambitions. However, ongoing friction over the Mumbai-Ahmedabad bullet train project proves this growing economic partnership will still face operational hurdles.
In a Nutshell
- Japan’s population has declined for 16 to 17 years, leaving companies with a domestic market that is steadily shrinking. India offers the scale and growth they increasingly need.
- Japanese investment in India rose from $3.7 billion in 2021 to $7.6 billion in 2025, while investment in China fell from $12.5 billion to $1.7 billion. The shift reflects diversification, rather than Japanese companies abandoning China.
- Japan is now investing across Indian finance, retail, technology and manufacturing. MUFG bought 20% of Shriram Finance for $4.4 billion in 2025, while more than 100 Japanese companies operate global capability centres in India.
- Takaichi’s July visit produced around 120 cooperation agreements and about $12.5 billion in Japanese corporate commitments, covering areas such as semiconductors, AI, energy and mobility.
- The timing suits India, which needs more FDI to build manufacturing capacity and move into higher-value industries. Japan has already become one of India’s largest foreign investors.
- The relationship has a point of tension in the Mumbai-Ahmedabad bullet train project. Japan provided financing and Shinkansen technology, but India is pushing for greater domestic production and has reduced Japan’s role in parts of the project.
Context
For Japan, India is becoming a more important destination for overseas growth as the domestic market contracts.
The regional timing is also worth noting. While Delhi is deepening economic ties with Tokyo, Dhaka and Beijing are opening new channels of their own. Representatives from Bangladesh and China confirmed just days ago that both countries are preparing state minister-level diplomacy and defence and early foreign minister-level strategic dialogues, while Chinese involvement is expanding around Teesta, Mongla Port and the China Economic and Industrial Zone.
This puts India and Bangladesh on different tracks. Delhi is using Japanese investment to support its push into manufacturing and advanced technology, while Dhaka is bringing Chinese capital and expertise into infrastructure and industrial projects. If both trends continue, they could leave the two neighbours with increasingly different economic relationships with the major Asian powers around them.
What We Think
Japan's money and tech will give India's factories a massive boost, even if they occasionally argue over who controls the projects. This spells trouble for Bangladesh. While Bangladesh leans on China to build its infrastructure, India is using Japanese tech to become a much tougher economic rival.