India and Japan have built a relationship based on trust and investment over the years. Now, the focus is shifting towards turning that partnership into a global manufacturing alliance.
Speaking at NDTV’s Indo-Japan Strategic Dialogue during a session titled ‘Factory to the World: Scaling India as Japan’s Global Manufacturing Hub’, industry leaders said India has the potential to become Japan’s preferred manufacturing base, but improvements in speed, quality and supply chain ecosystems will be key.
Japanese Investment Has Tripled
Mitsui & Co. Managing Director Faisal Ashraf said Japanese investment in India has entered a new phase. According to him, investment from Japan remained around $8-10 billion every five years between 2000 and 2020. However, that pace has now increased to $25-35 billion, reflecting growing confidence in India.
“Now, that 8 to 10 billion rhythm or cadence, whatever you might want to call it, has now shifted into 25 to 35 billion. so it’s gone up 3x it’s a huge shift, especially if you’re associated with the Indo-Japanese space it’s a huge shift which has taken place,” he said.
Ashraf said the priority is no longer just attracting Japanese investment but ensuring it can be deployed quickly through faster implementation and infrastructure development.
“I think the critical factor that we can bring to the table is speed. Speed of deployment, speed of getting infrastructure projects off the ground,” he said.
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India’s Execution Speed Has Improved
Dr Bharat Kaushal, Corporate Officer at Hitachi Ltd. and Executive Officer of Hitachi India, said India has witnessed a significant improvement in project implementation over the past decade.
Kaushal cited the rapid rollout of metro projects, highways, renewable energy and Digital India initiatives to highlight India’s faster pace of implementation. “The other thing, and Digital India, which sort of showed the world that scalability, affordability can be done at speed, it surprised even India and Indian people. The other is the consciousness of quality,” he added.
Kaushal said India’s growth continues to be largely driven by domestic demand, creating significant opportunities for manufacturers.
India Now A Priority For Japanese Companies
Tatsuya Yamada of Deloitte said India has moved from being one of several manufacturing options to becoming a priority destination for Japanese companies.
He said India has moved from being a low-cost production destination to becoming a priority market where Japanese companies want to develop high-quality products alongside Indian engineering talent.
“Japan used to be, you know, seeing the place like India and China as the place to produce the things manufacture the things with cost place But now it is the place to co a new product with a quality product India is now for the Japanese companies to produce a quality product together with the Indian talents,” he added.
Yamada added that awareness of India’s skilled workforce is increasing not only among large Japanese corporations but also among mid-sized companies across regional Japan.
MSMEs Hold The Next Opportunity
Joining virtually, Gen Funahashi, Group CEO and COO of ICMG Group, said much of Japan’s manufacturing strength lies with its regional small and medium enterprises (SMEs). He said nearly 75% of Japan’s GDP comes from regional areas, while 70% of its workforce is employed by SMEs.
Funahashi said many Japanese regional SMEs have cutting-edge technologies but face challenges in entering the Indian market independently. He said ICMG invests in Indian startups, facilitates proof-of-concept (POC) projects with Japanese SMEs and, if successful, helps establish joint ventures.
According to him, this model can help bring Japanese technology into Indian manufacturing while strengthening local industries.
Manufacturing Is No Longer About Low Labour Costs
Ashraf said India’s manufacturing competitiveness is no longer defined only by low labour costs. He said factors such as logistics, technology, infrastructure, product quality and domestic demand are becoming increasingly important. He also noted that India’s logistics costs have declined significantly over the years as infrastructure continues to improve.
“Traditionally, low labor cost, India is an LCC, you know, low-cost country, low-cost manufacturing country, has been a story which has been around for about 25 years. And I think that is no more the sole factor,” he added.
What India Needs To Improve
The panel agreed that three areas require continued attention if India wants to become Japan’s preferred global manufacturing hub:
- Faster execution and project implementation
- Greater focus on quality and continuous improvement
- Stronger MSME and supply chain ecosystems
Yamada said predictable policies and continuous improvement would encourage more Japanese businesses, particularly SMEs, to invest in India.
‘Make a few big winners’
Concluding the discussion, Dr Kaushal said India should focus on creating a few successful examples of Japanese companies that can quickly establish operations through plug-and-play infrastructure.
“We can make five or seven big winners from Japan very quickly, just take responsibility for doing the trunk infrastructure, ask them to plug and play. It creates believability at a much faster pace,” he added.
