India and Japan’s economic relations have steadily advanced in recent years, but the balance of trade between the two countries is not in India’s favour. The trade pact that came into force 15 years ago was created to boost business between the two countries, but Indian companies continue to face several non-tariff barriers while trying to gain access to the Japanese market. Now, India wants to move ahead with a review of this agreement and expand its scope.
Let us understand why a review of the India-Japan trade pact is considered necessary, what challenges Indian exports face, and what this could mean for investors.
What’s Happening?
The Comprehensive Economic Partnership Agreement, or CEPA, between India and Japan came into force in August 2011. Now, nearly 15 years later, India wants to review the agreement so that it can be made more effective and aligned with current trade needs. After talks with Japan’s Economy, Trade and Industry Minister Akazawa Ryosei, Commerce and Industry Minister Piyush Goyal said that both countries want to work on modernising the agreement and expanding its scope. However, the scope of the review has not yet been decided, and both sides will have to take each other’s needs into account.
India’s biggest concern is the growing trade deficit. In the financial year 2025-26, bilateral trade between India and Japan stood at $27.47 billion. Of this, India’s exports were $6.03 billion, while imports were $21.43 billion. Thus, India’s trade deficit reached $15.4 billion, up from $8.2 billion in FY22.
However, overall trade has increased. According to an ASSOCHAM report, merchandise trade between the two countries rose from $20.58 billion in FY2021-22 to $27.47 billion in FY2025-26, a 33% increase. Despite this, India’s share in Japan’s total global imports remains less than 1%.
Major Barriers Facing Indian Exports
Despite tariff relief, entering the Japanese market has not been easy for Indian exporters. Industry organisations have highlighted strict standards, certification requirements and long-standing business relationships as major barriers.
Especially in sectors such as food, pharmaceuticals and processed products, Japan’s stringent technical and quality standards continue to pose challenges for Indian companies. The need for different certifications increases costs for companies and takes more time for products to reach the Japanese market.
Indian exporters have demanded Mutual Recognition Agreements, or MRAs, for the recognition of Indian test reports and certifications. In addition, they have called for time-bound processes for SPS and product approvals, simpler rules of origin, electronic documentation and easier procedures for low-value consignments. There has also been a demand to make information related to Japanese regulations available in English.
What is Needed for the $50 Billion Trade Target?
A target has been set to take trade between India and Japan to $50 billion by 2030. But to reach this target, merely increasing the volume of trade will not be enough. India will have to focus more on improving access to the Japanese market, as well as on increasing exports of higher-value and technology-based products.
The ASSOCHAM report has highlighted the possibilities of cooperation in sectors such as semiconductors, artificial intelligence, digital technologies, critical minerals and resilient supply chains. India’s growing domestic market, young workforce and increasing manufacturing capacity can complement Japan’s technology, capital and industrial expertise.
Japan is India’s fifth-largest investor. There is also a commitment of 10 trillion yen in private investment between the two countries over the coming decade. ASSOCHAM has also indicated the possibility of increasing engineering partnerships, along with research and development centres, innovation centres and global capability centres.
What Does This Mean for Investors?
From an investor’s perspective, the importance of reviewing the trade pact is not limited to an increase in exports. If existing barriers related to certification, regulatory approvals and market access are reduced, there could be more opportunities for Indian companies to expand their business in the Japanese market. Opportunities could especially increase in higher-value and technology-based products.
Japan’s investment in India is also an important part of this relationship. Japan has set a target of 10 trillion yen, or about Rs 7 lakh crore, in private investment in India over a decade. According to Piyush Goyal, approximately Rs 1 lakh crore of this target has already come in the first 10 months. He expressed hope that if the current pace continues, the full commitment could be fulfilled within 3-4 years.
Therefore, the main signal for investors is that India-Japan economic relations are no longer limited only to the trade of traditional goods. Increasing cooperation in trade, investment, technology and manufacturing could be the major direction going forward.
What’s Next?
In the coming months, the direction of India-Japan trade relations will depend on how much importance is given to the practical problems faced by Indian exporters during the CEPA review. India has sought suggestions from industry to understand the challenges in exporting to Japan, while the Commerce Ministry is helping exporters with issues related to certification and regulatory requirements.
There is an ambition to take bilateral trade between India and Japan from the current level of $27.47 billion to $50 billion by 2030. On the other hand, the Japanese investment target of 10 trillion yen could give new momentum to economic cooperation between the two countries.
Disclaimer: This article is for educational and informational purposes only and does not constitute investment advice or a recommendation to buy or sell any securities. The companies mentioned are cited as examples within the context of market developments. Investors are advised to conduct their own due diligence and consult their financial advisor before making any investment decisions.
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