Japanese firms accelerate India expansion as China investment cools

Japanese corporations are significantly increasing their commercial footprint in India, driven by a strategic pivot away from traditional markets amid geopolitical tensions and domestic demographic shifts. This expansion is evident across multiple sectors, from consumer retail to high-level financial investments, marking a new phase in the bilateral economic relationship. The move comes as Japan seeks to diversify its growth strategies and reduce concentration risks associated with its heavy reliance on Chinese manufacturing networks.

The visibility of Japanese brands in Indian urban centres has grown markedly in recent years. Established apparel giants such as Uniqlo and Muji, along with the premium sneaker label Onitsuka Tiger, are rapidly expanding their store networks in major cities including Mumbai, Delhi and Bengaluru. Newer entrants are also making inroads into the market. Nitori, a furniture manufacturer, has recently entered the Indian retail space, while the convenience store chain Lawson is preparing for a substantial rollout. Reports indicate that Lawson plans to open 10,000 stores in India by 2050, with initial operations set to begin in Mumbai. This retail push is part of a broader trend where Japanese consumer goods are becoming increasingly common on high streets and in shopping malls across the country.

Beyond consumer goods, Japanese financial institutions are aggressively pursuing opportunities in India’s banking and lending sectors. MUFG Bank, Japan’s largest lender, completed a deal last year to acquire a 20 per cent stake in Indian shadow lender Shriram Finance for 4.4 billion dollars. This transaction represented the largest foreign investment in India’s financial sector to date. In a similar move, Sumitomo Mitsui Banking Corporation became the largest shareholder in India’s Yes Bank last year, securing a 24.22 per cent stake. These investments stand in contrast to the broader trend of foreign lenders exiting Indian bank portfolios, highlighting a specific appetite for Japanese capital in the region.

Japan has also become the largest contributor to India’s ecosystem of global capability centres, which serve as offshore innovation hubs for multinationals. According to a recent report by Deloitte, more than 100 Japanese firms operate these centres in India. These hubs perform critical business functions, including research and development, corporate strategy and artificial intelligence development. Vipul Nath Jindal, founder of Next Bharat Ventures, an impact fund backed by Suzuki Motor Corporation, noted that Japanese companies are turning to India for growth due to a permanent shrinking of the domestic market, which has seen a declining population for the past 16 to 17 years.

The strategic shift is further influenced by the declining attractiveness of other traditional markets. Investment into China has fallen sharply amid geopolitical tensions and changing economic dynamics, while the United States market presents challenges due to tariffs and domestic competition. Other Southeast Asian economies are viewed as having limited market size. Consequently, India has emerged as a natural target for long-term business growth. This trend was underscored during Prime Minister Sanae Takaichi’s visit to Delhi in July, where Japanese companies announced 12.5 billion dollars in investments through approximately 120 agreements. These deals span sectors ranging from semiconductors to green energy.

The momentum is not limited to large corporations. Small and medium-sized enterprises are also actively exploring the Indian market. Hamamatsu City, known for its high concentration of manufacturing SMEs and as the birthplace of companies like Suzuki, Honda and Yamaha, recently established the Hamamatsu India Committee to facilitate expansion for its smaller firms. Experts describe this shift as a commercially driven reallocation of capital rather than solely a geopolitical move. Toshiro Nishizaewa of the University of Tokyo characterised it as an autonomous market diversification strategy, while Shruti Pandalai of the Lowy Institute noted that India acts as a hedge against China-related risks.

Despite the positive trajectory, challenges remain. India continues to face issues with tax uncertainties, bureaucratic red tape and delays in land and environmental approvals. Recent public criticism from a former Japanese minister regarding delays in the Mumbai-Ahmedabad bullet train project highlighted ongoing friction, with accusations that India was prioritising its own interests. Indian state media quickly highlighted these rifts to underscore gaps in contract enforcement. For Delhi, which is seeking to reduce its trade deficit with China and attract sustained foreign capital, maintaining this investment momentum is crucial. The relationship has moved beyond leader-level diplomacy, becoming embedded in bureaucratic and corporate planning on both sides, though experts warn that economic interdependence with China still constrains the scope for coordinated measures that might provoke economic retaliation.