C Fred Bergsten of the Institute of International Economics wrote an invitation piece in The Economist in September 2004 in which he pointed out the risks that threaten the world economy. His two-year-back prognosis — in which he outlined five major risk factors — has brought us closer to the disturbing global realities he foresaw. The oil shock is already on us, with the crude prices having breached the barrier of $60 a barrel in the second half of 2005 and has remained volatile since. Among the other warnings held out by Bergsten were the rising American current deficit in which he foresaw the potential to bring the dollar crashing down and China, holding the centrestage of world economy, facing the prospect of a “hard landing from its recent over heating” and, lastly, the new forms protectionism enforced by countries.

 

Not all his dismal projections may play out post-2006 the way Bergsten predicted in 2004 — with policy interventions likely to save the situation — but the point underscored by him cannot be overlooked: it will take a lot to steady the boat from countries that matter, foremost being giving up the old ways in favour strategic partnerships and forging pragmatic political and economic ties.

 

Coming to Asia against this backdrop, it’s the economic and political ties between the three major Asian powers — India, Japan and China — that will determine and shape the coming scenario. Governments, aware of the challenges, have begun shedding their past posturing, ambivalence and started exploring areas of strategic alliances and cooperation.

 

Improvements in political and economic ties between Indian and Japan in recent years flows out from the shift in bilateral relations forced by economic circumstances and the central thinking of benefiting from each other’s strong points. The desire on both sides to improve relations reflects how the changing geo-political realities and security concerns are forcing governments to pursue paths they had abandoned. Japan has forgotten Pokhran II nuclear blasts by India, which had cooled off the ties and put a spanner in the growing cooperation between the two countries. It has begun to look up again and the two Asian countries are again exploring and expanding areas of viable economic exchanges.

 

To promote patnership, the two countries have resumed high-level visits with both outgoing Japanese Prime Minister Junichiro Koizumi and Indian Prime Minister Manmohan Singh having already visited each other’s country since 1985. Also, there are now regular ministerial-level exchanges, including between Foreign, Defence, Finance, and Trade ministries. The two Asian economies have agreed to enlarge the scope of strategic dialogue, ICT cooperation, freight corridors projects, disarmament and nuclear non-proliferation, visa and UN reforms.

 

Earlier in June this year, Union Minister for Commerce and Industry Kamal Nath held in-depth discussions with his Japanese counterpart Toshihiro Nikai to further strengthen India-Japan economic relations. They decided to adopt an action plan to promote Japanese investments in India with focus of small and medium enterprises.

 

Mr Kamal Nath emphasized that the two countries had complementarity in all sectors of the economy. “While Japan has advantages in terms of capital, technical skills and product development, especially in the manufacturing sector, Indian has highly qualified and skilled labour force in such sectors as information technology and IT-enabled services and technology. It is mutually beneficial to enlarge bilateral trade and Japanese companies’ investment into India, especially in the manufacturing sector that creates job opportunities,” said the joint press statement at the conclusion of the ministerial meeting.

 

The ties between the two countries are pulsating again and are set to touch a new high under the new Prime Minister Shinzo Abe. That’s the way to go — to prove wrong Bersten’s prognosis. 

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