India-Japan investment enters new phase as Japanese companies deepen their India play: GTB report

NEW DELHI: The India-Japan economic relationship is entering a more ambitious phase. What began largely as a story of automobiles, industrial manufacturing and infrastructure is increasingly becoming a broader partnership built around technology, economic security, supply-chain resilience, talent and long-term capital.

That is the central message of the third edition of Grant Thornton Bharat’s “Indo he Yokoso: Shaping the future of Japanese investments in India”. The report identifies 1,463 Japanese companies operating in India in 2026, up from 1,374 a year earlier, with a combined turnover of ₹7,925 billion and an employee base of 459,333.

The numbers suggest that Japanese investment in India is no longer confined to a handful of large industrial clusters. It is developing into a wider corporate ecosystem in which manufacturing, financial services, technology, business services and increasingly research and development are interconnected.

From strategic relationship to investment pipeline

The scale of the opportunity is reflected in the new investment target. Japan has already achieved its earlier USD 34 billion public and private investment and financing target for India ahead of schedule. The two countries have now set a goal of mobilising USD 67 billion in Japanese private investment over the next decade.

The momentum was visible at the July 2026 India-Japan Summit, which drew more than 150 Japanese companies and generated approximately USD 12.5 billion in private-sector investment commitments towards that target.

This is significant because the relationship is simultaneously moving into areas that matter to both economic competitiveness and national security.

The July summit broadened cooperation into semiconductors, critical minerals, pharmaceuticals, medical devices, batteries, artificial intelligence, defence and maritime security. It also produced a Joint Declaration on Economic Security Cooperation and a Joint Statement on AI cooperation, including a linkage between IndiaAI and Japan’s GENIAC initiative.

The partnership is therefore acquiring a new logic: Japan brings capital, advanced manufacturing, precision engineering and technology, while India offers scale, talent, a large domestic market and a rapidly expanding digital economy.

Trade has grown, but the opportunity is larger

India-Japan merchandise trade has roughly doubled over the past decade, from USD 13.60 billion in FY2016-17 to USD 27.48 billion in FY2025-26.

But the composition of that trade also reveals an imbalance. Indian exports to Japan increased from USD 3.85 billion to USD 6.04 billion during the period, while imports from Japan rose from USD 9.75 billion to USD 21.44 billion. Japan is currently India’s 10th-largest trading partner.

Japan’s exports to India are concentrated in machinery, capital goods, electrical equipment and technology-intensive industrial inputs. India’s exports are more diversified, with vehicles and auto components, organic chemicals, machinery, electrical equipment and marine products among the leading categories.

For India, the challenge is therefore not merely to attract more Japanese capital but to use the relationship to move Indian companies and suppliers higher up the value chain.

Japanese investment is already substantial

Japan’s cumulative FDI in India reached USD 48.14 billion between April 2000 and March 2026. Japanese FDI equity inflows alone stood at USD 3.75 billion in FY2025-26, representing 6.36% of India’s total FDI equity inflows.

Deal activity reinforces the picture.

Between 2021 and 2025, the India-Japan corridor recorded 51 deals worth USD 12.17 billion. Of that, USD 7.69 billion came in 2025 alone — about 63% of the five-year total.

Financial services dominated the deal landscape, accounting for 13 transactions worth approximately USD 10.7 billion, or nearly 88% of total deal value. Major transactions included MUFG’s USD 4.45 billion investment in Shriram Finance and SMFG’s acquisition of Fullerton India.

This suggests that the next wave of Japanese investment may not look like the previous one. Banking, insurance, fintech, wealth management and cross-border financial services are becoming important components of the bilateral economic relationship.

Manufacturing remains the foundation

Despite the diversification, manufacturing remains at the heart of Japanese business activity in India.

Industrial products account for 32% of Japanese companies in India, followed by consumer, retail and e-commerce at 16%, technology at 13%, auto and auto components at 12%, business services at 9% and financial services at 5%.

The geographical concentration is equally striking. About 40% of Japanese companies are located in the National Capital Region, followed by Maharashtra at 20%, Karnataka at 17% and Tamil Nadu at 11%. The remaining 12% are spread across other locations.

The largest Japanese businesses include Maruti Suzuki, Toyota Kirloskar Motor, Honda, Panasonic, Escorts Kubota, Daikin, SMFG India Credit, Nissan, Kansai Nerolac and Sony.

Yet the report also points to a more dynamic layer beneath these established names. It identifies 383 Japanese-owned businesses with turnover above ₹500 million and annual growth of at least 10%. Collectively, they generated nearly ₹4,036 billion in revenue and recorded average turnover growth of 46%.

The GCC opportunity could change the relationship

Perhaps the most consequential development is happening away from factories.

Grant Thornton identifies more than 75 Japanese Global Capability Centres in India in 2026. These include dedicated technology and business-services centres as well as Indian operations with identifiable engineering, R&D, digital, analytics and shared-services functions.

This matters because GCCs represent a shift from “India as a production base” to “India as a knowledge and innovation base”.

Japanese companies such as Sony, MUFG, Hitachi, Nissan and Toshiba are using India’s talent ecosystem for technology, engineering, research, digital transformation and business functions. The report notes that Japan’s IT talent shortage could reach as much as 790,000 by 2030 under a high-gap scenario, making India’s talent pool strategically important.

Karnataka hosts about half of the Japanese GCCs, with Delhi-NCR, Maharashtra and Tamil Nadu forming other major clusters. Smaller clusters are emerging in Telangana, Andhra Pradesh, Kerala and West Bengal.

The evolution of GCCs is particularly important. They are increasingly becoming centres for R&D, intellectual property creation, digital products and enterprise-wide innovation rather than simply low-cost back-office operations.

Where the next investments could come from

The report identifies a broad opportunity map.

In automobiles, Japanese companies can deepen their presence in EVs, batteries, charging infrastructure, vehicle electronics and mobility R&D.

Advanced manufacturing offers opportunities in industrial automation, robotics, precision engineering, smart factories and digital twins.

Healthcare and pharmaceuticals present opportunities in APIs, key starting materials, contract development and manufacturing, biologics, medical devices and digital health.

Clean energy opens possibilities in renewable-energy equipment, grid modernisation, battery storage, green hydrogen, clean ammonia and circular-energy infrastructure.

Critical minerals could become another strategic pillar, covering mineral processing, refining, long-term offtake arrangements, battery-cell manufacturing, recycling and rare-earth components.

Semiconductors and electronics are also moving up the agenda, with opportunities in semiconductor equipment and materials, advanced packaging and testing, design centres, speciality components and supplier localisation. Defence, aerospace, space, digital infrastructure, telecom, deep tech and high-speed rail add further dimensions.

Why India — and what could hold it back?

India’s appeal is straightforward: scale, demographics, economic growth and an expanding domestic market. The report notes India’s population of 1.4 billion, median age of 29 and projected 2026 nominal GDP of approximately USD 4.15 trillion.

Policy reforms are another attraction, including liberalised FDI rules, production-linked incentives, digitalised regulatory processes, labour-code consolidation and the Digital Personal Data Protection framework.

But the report is notably clear that the opportunity is not without friction.

Japanese companies surveyed by the Japan Bank for International Cooperation continue to identify uncertainty in the implementation of laws and regulations, infrastructure gaps, tax complexity, competition and difficulty in securing management talent as concerns.

That may be the most important message for policymakers. Attracting investment is only the first step. Retaining it, expanding it and turning it into domestic value creation requires predictable regulation, efficient infrastructure, skilled manpower and deeper supplier ecosystems.

From “Made in India” to “Innovated in India”

The larger story emerging from the report is that the India-Japan relationship is gradually changing character.

The first phase was dominated by Japanese manufacturing expertise entering India’s growing market. The next phase could see Japanese capital and technology combining with Indian engineering, software, AI and entrepreneurial capabilities to create products and intellectual property for global markets.

The talent relationship is already being institutionalised. The two countries have set an aspirational target of more than 500,000 personnel exchanges over five years, including 50,000 skilled personnel, supported by engineering and academic mobility, internships, vocational training and industry-academia programmes.

For India, this creates an opportunity that goes beyond FDI statistics. Japanese companies can become partners in building domestic capabilities in semiconductors, mobility, clean energy, advanced manufacturing, healthcare and AI.

For Japan, India offers something equally strategic: a large and increasingly sophisticated talent and production ecosystem at a time when Japan faces demographic and technology-skill constraints.

The USD 67 billion investment ambition will ultimately be judged not by the size of commitments announced but by how effectively those commitments translate into factories, research centres, GCCs, supplier networks, skilled jobs and globally competitive Indian operations.

The Grant Thornton report’s central implication is therefore bigger than a forecast of more Japanese investment. It points to the emergence of an India-Japan economic corridor in which capital, technology, talent and economic security are becoming increasingly inseparable.