India-Japan trade ‘minuscule’: Expert flags opportunities in rare earths, technology | Exclusive

India and Japan need to deepen trade, technology partnerships and investment to strengthen supply chains, as their economic relationship remains small despite growing strategic cooperation, Prachi Mishra, an economics professor and policy researcher at Ashoka University, told LiveMint.

Despite their complementary economic strengths, the two countries remain under-integrated in trade, with significant untapped potential in semiconductors, rare earths, institutional investment and skilled labour, said Mishra, dean of the Rakesh Jhunjhunwala School of Economics and Finance and director and head of the Isaac Centre for Public Policy at Ashoka University.

In an exclusive interview with LiveMint on the release of Ashoka University's India-Japan Economic Corridor report, Mishra said that closer cooperation could help both countries diversify their supply chains and strengthen economic resilience amid geopolitical uncertainty and the growing fragmentation of the global economy.

“Back in the 1980s, Japan's share in India's exports and imports were of the order of 10% or more. Now they're in the range of 1 to 2%,” she said, adding that Japan sources less than 1% of its imports from India.

“Either way, if you look at this relationship, trade relationship, either Japan's importance for India and India's importance for Japan is minuscule,” Mishra said.

The report, being developed through Ashoka University's Iron Pillar Initiative in Global Learning, explores opportunities across manufacturing, technology, financial services and infrastructure.

The report comes amid a broader bilateral partnership that includes infrastructure financing, a 10 trillion yen (about $68 billion) investment target and agreements announced at the 16th India-Japan Annual Summit in July 2026.

India-Japan economic corridor: Why it matters

Mishra described the global economy as “walking a tightrope”, with the West Asia conflict and a surge in Asian technology exports shaping the economic outlook.

“Yet, global economy has adapted and we've seen lower flows through actually being balanced by switching suppliers and running down inventories,” she said.

India's ambition to become a developed economy over the next two decades will require sustained economic growth, Mishra said.

“India wants to become Viksit Bharat, an advanced economy, in the next 20 years. Basically, that means growing at 8% on average over the next 20 years,” Mishra said.

Deeper economic integration with Japan could help India diversify its partnerships and reduce vulnerabilities in critical supply chains, she added.

“Resilience means building buffers in good times and minimising losses in bad times. And this is the concept of resilience. And that's where I think India-Japan relationship has particular significance,” Mishra said.

Referring to remarks by India's external affairs minister at the Kautilya Economic Conclave in New Delhi, Mishra described Japan as a “transparent and mature market” that India is opening up to.

Japanese investment offers scope for technology transfer

India's share in Japan's outbound foreign direct investment (FDI) has increased from almost zero to about 4%, Mishra said. However, the composition of these investments points to opportunities for deeper manufacturing and technology partnerships.

“Majority is outside manufacturing, which is where real technology transfer, productivity improvements can happen. So there's a huge opportunity there to leverage,” she said.

Japanese institutional capital could provide another avenue for expanding investment in India.

Japan's government pension investment fund has about $2 trillion in assets, Mishra said, while India's share of the fund's investments remains below 1%. Even a modest reallocation could benefit India while giving Japanese investors greater exposure to the country's long-term growth, she added.

Semiconductors, rare earths offer supply-chain opportunities

Semiconductors and rare earths are among the sectors where Japan's technological expertise could complement India's efforts to expand domestic manufacturing and diversify critical supply chains.

Rare earths, in particular, offer scope for cooperation as countries seek to reduce dependence on concentrated processing capacity in China.

One potential model would involve Japanese firms refining rare earths in India, using the country's engineering talent and exporting the resulting magnets, the interview discussion highlighted.

“Building resilience means no single point of failure. And here, India and Japan can be each other's second source, and aim for being the first,” Mishra said.

Skilled labour and execution remain critical

Labour mobility could provide another pillar of the corridor, given Japan's ageing population and India's demographic dividend.

“Japan has an ageing population, India still has a demographic dividend,” Mishra said, noting that India's dependency ratios are expected to decline for at least another decade.

“The opportunity is really for both these countries to let trade, capital, and people move freely to build true resilience. And the moment is actually now,” Mishra said.

“Our leaders have committed to deepening these ties. And now the task is to execute,” she added.