The geopolitical and geoeconomic importance of Japan and India is paramount in the context of today’s evolving global complexities marked by the emergence of strong leaders, dominance by nationalistic fervour, insulating tendencies of economies that were once the major proponents of free market economies and globalisation, and greater restrictions on international labour movements. The importance of these two economies comes not only from their position as two pillars of the QUAD in the Indo-Pacific but also as two of the most critical economies of Asia, both ranking among the top five economies of the world in terms of GDP. While Japan has always been hailed as a harbinger of the developed world in terms of technology, innovation and standard of living, the geopolitical/ geoeconomic rise of India and its increasing importance as a critical representative of the global south is a hallmark of the present decade. India has also been heralded as a “bright star” 1 in the global economic slump with 2023-24 recording a growth rate of 8.2% (recently revised to 9.2%2)– the highest among the world's major economies. India’s increasing importance in the global economy and geopolitics emerges from its inherent strength originating from a large population base of 1.42 billion, leading to improving business conditions, better engagement with the diaspora and a strong broad-based geostrategic dynamic driven by smart diplomatic endeavours.
Japan, despite being a global leader in technology and innovation, has been facing problems of a declining workforce due to skewed demographics. The Japanese population has been declining since 2010 (Figure 1) and is slated to decline further in the future. The Health, Labor and Welfare Ministry estimates3 a decline in the working-age population (i.e. population in the age group of 15-64 years) from 65.3 million in 2017 to 60.82 million in 2025 and further to only 52.45 million in 2040. This would be a decline of almost 20% by from 2017 to 2040. This is coupled with a decline in labour productivity since the 1990s, which is now the lowest among the G7 economies4. This has also been a driver of Japan’s declining GDP growth rates, as can be witnessed in Figure 2.

India has benefited immensely from Japanese collaboration

History bears ample testimony of Japan-India collaborative endeavours that have emerged not just as beacons of mutual prosperity, but have also positioned the relationship as a cornerstone for regional stability and economic growth. The Comprehensive Economic Partnership Agreement (CEPA) signed in August 2011 highlights not just the depth of the trade relations but also the broad spectrum of investment and industrial cooperation between the two economies. The substantial increase in trading volumes marked by a CAGR of 5.62% from FY 2019 to FY 2023 underscores the nations’ growing interdependence. Furthermore, Japan is India's fifth-largest foreign investor, with a significant Japanese presence across key sectors like automobiles, infrastructure, and telecom. The proliferation of approximately 1,455 Japanese companies in India is a testament to the confidence and commitment Japan places in the Indian economy and its growth narrative. India has also been the largest recipient of Japanese Overseas Development Assistance (ODA) loans for the past decades. India’s Delhi Metro is an important example of Japanese cooperation through ODA. Japan’s interest in India’s northeast and the development of quality infrastructure addressing critical connectivity concerns has been a key feature of this partnership.
Beyond the impressive numbers, the India-Japan partnership reflects a deeper strategic alignment, underscored by their coordinated leadership in the G20 and G7. Ongoing collaborations in semiconductors, steel decarbonisation, and the India-Japan Digital Partnership (IJDP) signal a shared vision for a sustainable and tech-driven future. The India-Japan Forum 2023 further reinforced this trajectory, with Japan’s commitment to the Free and Open Indo-Pacific (FOIP) strategy highlighting the joint pursuit of regional stability and prosperity.
 

How can a workforce agreement help Japan?

India has the world's largest population with 1.42 billion people, with 65% of the population belonging to the working age (15-64 years). More than 65% of the population is below the age of 35, more than 55% is below the age of 30, and more than 50% is below the age of 25, as per the revised data of the World Population Prospects 2022. This demographic structure of India renders the economy a unique demographic dividend that can also help a labour-deficit economy like Japan, especially in the scenario of the latter’s skewed demographics. The labour-endowed economy of India, which otherwise has benefited immensely from the labour-deficit Japan, can now seek a new form of agreement on human resource mobilisation that can entail either smooth workforce mobility or remote working facilities being institutionalised (This involves institutionalisation of an integrated Japan-India labour market where potential workers from a relatively low-income India (in terms of per capita income) can be connected to employers in high-income Japan.
There are various models by which such a mechanism could work, as has been acknowledged in a forthcoming ORF-PWC report. It can be a plain-vanilla, on-shore job model where Indian workers can move to Japan and work there. There may be other models like off-shore “conclaves”, with specialised workforce groups (conclaves) established within the host country. The third option may be the “guest worker” programme, where a specialised workforce works for a temporary period in Japan and returns to India. The need here will be to map the existing skill-set in India with the skill-set demand in Japan. So, this is not merely a quantitative exercise of matching numbers between the two sides (labour demand and supply). One of the reasons for underemployment or unemployment in the developing world and many emerging economies has actually   been skill-set mismatching, rather than a lack of jobs. Moreover, with proper skill-set mapping, there will be a need for skilling and reskilling of the youth population of India as per the needs of the Japanese economy – this implies transforming the workforce to human capital that can adequately contribute to the macroeconomy.
Such a mechanism of creating an integrated labour market has multiple advantages. First, it helps the Japanese economy improve labour productivity thereby contributing to their GDP. Second, by bringing in young people within the Japanese economy, there will be a new generation of consumption demand  that will help in boosting economic growth in Japan, thereby helping the economy move out of its long-run slump. Third, it will help the Indian economy through the repatriation of income. Fourth, it will not only address the employment issues of the Indian economy but will also help in creating a productive workforce with global experience, which can contribute to the Indian cause upon Indian workers’ return to India (if they choose to do so). This, therefore, emerges as a model where Japanese technical efficiency meets the vast human capital pool of India, thereby leading to a win-win solution for not only the two nations but for the broader Indo-Pacific region.

Sources:

1 Indian Finance Minister Nirmala Sitharaman’s 2023-24 Union Budget Speech    https://www.indiabudget.gov.in/budget2023-24/

2 https://pib.gov.in/PressReleasePage.aspx?PRID=2106921

3 https://www.weforum.org/stories/2019/02/japan-s-workforce-will-shrink-20-by-2040/

4 https://www.rieti.go.jp/en/papers/contribution/miyagawa/17.html

Nilanjan Ghosh is Vice President – Development Studies and Senior Director at the Observer Research Foundation. Email: nilanjanghosh@orfonline.org.