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The Indo-Japan relationship has matured into a strong strategic and economic partnership, with the automotive sector emerging as a cornerstone of bilateral cooperation. Rooted in shared democratic values and a mutual commitment to regional stability, this alliance has flourished under the India-Japan Comprehensive Economic Partnership Agreement (CEPA), signed in 2011. CEPA has significantly liberalised trade and investment, creating a conducive environment for industrial collaboration, especially in the automotive domain.
| Year | India's export to Japan (USD billion) | India's import from Japan (USD billion) | India-Japan bilateral trade (USD billion) |
|---|---|---|---|
|
2020-21
|
4.43
|
10.90
|
15.33
|
|
2021-22
|
6.18
|
14.39
|
20.57
|
|
2022-23
|
5.46
|
16.49
|
21.96
|
|
2023-24
|
5.15
|
17.69
|
22.85
|
|
2024-25
(Apr-Jan) |
5.10
|
15.90
|
21.00
|
|
Source: Embassy of India Tokyo, Japan
|
|||
Japan is India’s fifth-largest foreign investor, with cumulative FDI inflows of USD 43.3 billion between April 2000 and December 2024. The automotive sector has been a major beneficiary, attracting long-term investments from Japanese giants such as Suzuki, Toyota, Honda, and Yamaha. These companies have not only established manufacturing bases in India but have also integrated India into their global supply chains.
India’s auto sector contributes 7.1% to GDP, producing 28 million vehicles in 2024 and exporting over 4.5 million units. With EVs projected to reach 40% market share by 2030, India is rapidly advancing sustainable mobility.
Japan, a global tech leader, produced 8.6 million vehicles in 2023, with 59% output from auto parts. Japanese firms in India rose to 186 by 2025, drawn by scale and cost advantages.
Joint ventures focus on EVs and green mobility, supported by schemes like FAME II and PLI-Auto. India remains a top investment destination, with auto component exports set to triple by 2030.
India’s GST 2.0 reforms simplify tax structures, reduce rates on small vehicles, and enhance EV incentives. Lower prices and easier compliance are driving demand and production. With festive season sales surging, the auto industry is poised for strong growth, especially in electric and affordable vehicle segments.
The GST Council has eased long-standing disputes around post-supply discounts. Businesses no longer need prior agreements to claim such discounts, and clarifications have been issued on ITC treatment for commercial credit notes and promotional activities. These changes aim to reduce litigation and simplify compliance, though retrospective applicability remains uncertain.
Effective 1 October 2025, GST 2.0 introduces a risk-based refund system under Section 54 of the CGST Act. Taxpayers classified as low-risk by the GST Network will receive 90% of claimed refunds provisionally, improving liquidity for exporters and businesses with inverted duty structures. Refunds can now only be withheld with written justification.
Lower GST rates have boosted affordability and demand. Maruti Suzuki saw a 50% spike in bookings and delivered 30,000 vehicles on the first day post-reform. The CBIC is monitoring price changes to ensure benefits are passed to consumers, with helplines set up for complaints.
Rising sales are expected to generate jobs across manufacturing, dealerships, logistics, and MSMEs. Rationalised GST rates offer policy certainty, encouraging fresh investments and supporting ‘Make in India’ goals. Lower GST on construction materials may also reduce project costs.
Refunds for accumulated compensation cess remain disallowed, prompting manufacturers to adjust pricing. Companies must reassess SGST reimbursement contracts and renegotiate with state governments to protect fiscal benefits. Increased demand from GST cuts will positively impact Production Linked Incentive (PLI) schemes.
Union Budget 2025 slashed custom duties on EV components, lithium-ion battery scrap, and capital goods for battery production. Reduced duties on motorcycles, CKD/SKD units boost affordability. These reforms support EV growth, job creation, and align with India’s ‘Atmanirbhar Bharat’ vision for a competitive global automotive presence.
The Indo-Japan Digital Partnership (I-JDP) is accelerating innovation in India’s automotive industry, especially in EVs, smart mobility, and AI-driven manufacturing. The India–Japan Start-up Hub in Bengaluru connects Indian start-ups with Japanese investors, fostering growth in automotive software and MaaS solutions. A key MoU between Startup India and Japan Innovation Network promotes green mobility aligned with SDGs.
Japan’s financial support to firms collaborating with Indian IT companies is boosting smart factory and auto digitalisation efforts. The Supply Chain Resilience Initiative (SCRI), involving India, Japan, and Australia, promotes localisation, diversified sourcing, and investment in critical auto components like semiconductors and EV batteries.
Skill development programmes like JIM, JEC, TITP, and SSW are training over 30,000 Indian engineers to Japanese manufacturing standards, enhancing workforce quality. These initiatives strengthen India’s position as a global automotive hub while supporting Japan’s supply chain diversification and India’s ‘Atmanirbhar Bharat’ vision.
India offers several strategic schemes under its Customs and Foreign Trade Policy that benefit automotive manufacturers and exporters.
The MOOWR allows duty deferment on imported capital goods and raw materials used in bonded warehouses. Duties are payable only when goods enter the domestic market, while exports remain duty-free, boosting liquidity and reducing working capital needs.
Enables zero or concessional duty on capital goods imports, provided export obligations are met. It supports modernisation and enhances export competitiveness, especially for automotive OEMs investing in advanced machinery.
Permits duty-free import of inputs for export production. It reduces landed costs and improves margins, though it requires precise input-output mapping and compliance.
Refunds embedded taxes not covered under other mechanisms, enhancing global price competitiveness. Rebates are issued as electronic scrips based on export value.
These schemes collectively support cost efficiency, liquidity, and global integration for auto and component manufacturers. However, businesses must ensure robust compliance, documentation, and export performance to fully leverage these benefits.
