To boost manufacturing, India need not choose between Japan and China
Without Chinese suppliers on the ground, potential Japanese investments will struggle to reach the scale or speed the moment demands
Some of Japan’s most notable investments in India have been in the financial sector. Japanese financial group MUFG’s US$4.4 billion stake in Shriram Finance announced last December is one example.
Japan has been a major investor in India, with a cumulative foreign direct investment (FDI) of over US$48 billion this century. Leaving aside Singapore and Mauritius, which serve as domiciles for channelling investments to India, Japan was second only to the US in the scale of FDI investment in India – with US$3.2 billion in the 2025-26 financial year.
However, India’s trade with Japan was a modest US$27.5 billion in the 2025-26 financial year, compared with US$151 billion with China in that period. While Japan is only ranked 10th in trade with India, China is India’s top trading partner in goods – pointing to how complementary the two economies are. Japan’s industrial investments in India often need imported components from China.
FDI is a key driver of economic development. Upon its entry into the World Trade Organization in 2001, China saw brisk growth in the inflow of FDI. According to World Bank data, the country’s net FDI intake grew from US$42 billion in 2000 to almost US$244 billion in 2010. After a peak of US$290 billion in 2013, China saw another peak of US$344 billion in 2021, before dropping to US$43 billion in 2024. At the end of 2023, China’s inward FDI stock stood at US$3.7 trillion.
In comparison, India’s net FDI inflow was US$3.6 billion in 2000, peaking at US$64 billion in 2020 and falling to US$27 billion in 2024. While the cumulative inflow of FDI into India has approached US$1.2 trillion since 2000, India’s FDI stock was only about half a trillion in 2023.