MARKET PERSPECTIVE

By J Mulraj

Aug 30- Sep 5, 2025

Several benefits will accrue to India

Image created by Bing

During PM Modi’s recent visit to Japan, 6 Agreements and 7 MOUs were signed, and 8 announcements were made. These included:

Over the next 10 years, Japan will invest $68 b in India, targeting areas like

• clean energy,
• semiconductors
• infrastructure and healthcare.
• Defence co-operation
• Technological and Infrastructure collaboration
• Collaboration in space exploration
• Human Resource and cultural exchange.

Take 1. above. The design of a chip provides over 50% of the value of the chip. Indian engineers are very good at designing chips; a fifth of global chip designers are Indian. They have been designing chips for years, but India did not invest, so far, in a fabrication facility (fab) as it is capital intensive. With Japan’s investment, and knowledge in semiconductors, and given India’s expertise and knowledge in chip design, India can become a major player in the semi conductor industry, and not become vulnerable to chip shortages, as happened during Covid.

Suzuki Motors will invest $8 b. and produce an EV in India. This will save the import duty (about 70% on landed cost of a Tesla, Model Y, of Rs 30 lacs), and make the EV more affordable. After all taxes (import duty, GST, compensation chess), the Tesla Model Y showroom price doubles to Rs 60 lacs.

In 2. Defence co-operation, Japanese firms like Mitsubishi Heavy Industries (MHI) and Toshiba, have expertise in AI, Quantum Computing and autonomous systems, which will help propel India’s atmanirbharta , or self reliance. MHI, in collaboration with British and Italian companies, are jointly developing a sixth generation stealth fighter, the F-X, expected to become operational in mid ‘30s.

In 3. Japan will help India develop high speed trains, the E-10 Shinkansen. India has been building, albeit very slowly, a high speed train between Mumbai and Ahmedabad, a distance of 491 kms. Currently, the fastest train, Vande Bharat, covers the distance, with 4 stops, in 5 hours. The Shinkansen will reduce this to a little over 2 hours. Given the advantages over air travel (stations closer than airports, and no time spent on security checks) and lower costs, it will impact the airline industry.

The advantages of Shinkansen are not just that. Basically, high speed trains help decongest a city. Japan developed high speed trains to decongest Tokyo. People could work in Tokyo, living further away, spending less time on commute. This has implications for real estate prices in congested metro cities.

The E-10 high speed train will kick start with connecting Hyderabad, Chennai, Amravati and Bengaluru.

Perhaps 5. Human Resources and cultural exchanges, hold the most promise for a deeper relationship between the two countries.

Japan has a very serious demographic problem. With a population of 125 million, and a fertility rate of just 1.15, it cannot sustain it’s society, and it’s way of living, without influx of immigrants. It has been reluctant to allow immigrants, so as to preserve its social and cultural homogeneity. So it is heartening to see that it is, under the agreement, planning for an exchange, over 5 years, of 500,000 people, including 50,000 skilled workers from India to Japan to bolster workforce mobility.

This will be of huge mutual advantage. For Japan, in getting skilled workers which it’s declining population is unable to provide industry with. And for Indian workers to be able to learn, and practice on the job, the vaunted industrial best practices like Total Quality Control, Just In Time delivery, Six Sigma, Kaizen and others. Japan is known for its high quality and for its customer care. India is working towards that and can learn best manufacturing practices.

After his visit to Japan, PM Modi met Chinese President Xi Jinping at the SCO summit and both leaders agreed to a diplomatic reset, a de-escalation of border disputes, strengthening cultural ties, easing visa restrictions and other issues.

After the Chinese incident in Galwan, in June 2020, which resulted in the death of 20 Indian soldiers, relations between India and China had soured. India banned Chinese investment, travel and trade. And Tik Tok. The thaw, where PM Modi attended the SCO in Tianjin, was due to a push by Trump, who illogically imposed a punitive tariff on India for buying Russian oil to meet the needs of its 1.4 billion people, helping fund Russias war with Ukraine.. Illogically because both China, and the EU, which buy more Russian energy, weren’t imposed punitive tariff, and more so when the US also buys Russian uranium.

The Russia-Ukraine war would not end diplomatically if European leaders, forming a coalition of the willing, propose ‘boots on the ground’ in Ukraine as a part of security guarantees for it. That brings the situation back to square 1, prior to the war. Russia had objected to Ukraine becoming a part of NATO because that would allow other members the right to put boots on the ground. The problem cannot become the solution, right?

Besides, the big EU economies are, themselves, in dire straits. France as high debt, 112% of GDP, and may be compelled to resort to an IMF bailout. The UK, too, would need a bailout. Both the UK and Germany spend huge amounts on social programs but can’t afford them. Can they afford to put ‘boots on the ground’ in Ukraine?

The size of their armies are woefully inadequate. Germany’s army strength is 64,000, Britain’s is 70,000, France’s is 111,000. Are their leaders serious when they keep provoking Russia with asinine ‘boots on the ground’ suggestions, given the state of their finances and of their armies? Or are they living in La La Land?

EU countries have foolishly brought upon themselves their own economic downfall, by allowing themselves to be prodded by America into cutting off cheap Russian energy supplies. This had been obvious ab initio to a columnist like me, see my July 22 article ‘Don’t pick a fight with your bullet supplier’. The collective west blew up the Nordstream pipeline. This had 2 consequences. It drove up the price of energy, which America benefitted from, providing LNG at several times the cost. And it pushed Russia and China, the two chief rivals for America, closer together.

UK has taken its tax policy to a level of lunacy! It has oil reserves in its North Sea, but seriously hampers discovery by imposing a 78% tax on revenue (30% corporation, 10% supplementary and 38% windfall tax! (Perhaps windbag might be a better description. The effort and cost of deep sea oil discovery is, by no stretch of imagination a windfall, except for a windbag). Given the likelihood of UK needing a bailout, any sensible leader would drastically lower tax.

The Indian stock market remains range bound around the 79-80000 levels.

Globally, investors are betting that weak US job opening numbers, which have fallen below unemployment numbers, will lead to an interest rate cut by the Fed at its September meeting. Trump has long been pushing for a cut, because US debt of $38 trillion is too high. The interest on this is $ 1 trillion, which is the largest cost in the US budget, more than defence, social security and Medicare. Every interest rate cut helps servicing the debt. America will need to raise $ 11 trillion by issuing T Bills, including $9 trillion to repay maturing debt plus $2 trillion in new spending.

One plan under consideration is to reprice gold in its reserves. US gold is currently valued at $ 42.22/ ounce; the current price is $ 3000. That will help, but cannot eliminate, its need for fresh funds to rollover existing debt.

Like shoppers waiting for the pre Christmas Black Friday Sale to get good bargains, investors are now waiting for the September 16-17 Fed meeting interest rate cut.

What then? America’s overspending will continue. The EU will keep posturing on Ukraine, without the financial or military strength for a fight. Russia will agree to a peace deal only on its conditions, ones which Zelenskyy is yet unwilling to accept. Trump will continue his rants, losing more ‘allies’.

The Earth will continue to spin.

But there will be little fodder for the bull.

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Comments may be sent to jmulraj@asiaconverge.com