30 Jul 2024
When the Bank of Japan increased its interest rate from negative to 0-0.1% in April 2024, the Yen depreciated to a 34-year low, thus making imports cheaper for India.
Since 2003, India has been the biggest recipient of Japanese Official Development Assistance (ODA) loans. Japan has funded several infrastructure projects, like the Delhi metro and India’s first bullet train, by giving loans at meagre rates of 0.1 to 1.8%. Japan authorised the 50-year loan for the Ahmedabad-Mumbai bullet train at a 0.1% interest.
A declining Yen catapulted Indian imports, especially those from the automotive industry. Between FY2023 and FY2024, India’s imports from Japan increased by approximately USD 1.2 billion, while exports to Japan reduced by USD 0.31 billion.
With negligible domestic opportunities, Japan seeks large-scale infrastructure projects abroad. It lends loans at dirt-cheap rates on the condition that India imports technology, machinery, and metals from Japan. Compared to the Bank of Japan’s negative interest rates, 0.1-1.8% rates become profitable for Japanese lenders.
Japanese imports from India include marine products and apparel, which are not locally produced in that country.