As India's merchandise trade deficit with Japan nearly tripled from $5.18 billion in 2015-16 to $15.4 billion in 2025-26, the government is reviewing the existing free trade agreement (FTA) with the island nation. While officials acknowledge that it is difficult for Indian exporters to make significant inroads into the Japanese market, they believe the pact can be better leveraged to attract higher Japanese investments into India.
According to government sources, stringent non-tariff barriers, particularly Japan's quality and sanitary standards, make it challenging for Indian exporters to expand their presence in the Japanese market. However, Japan remains a key investment partner whose capital can support employment generation and economic growth in India.
Over the past decade, India's imports from Japan more than doubled from $9.8 billion in 2015-16 to $21.43 billion in 2025-26, while exports increased only modestly from $4.6 billion to $6 billion during the same period.
India's merchandise exports to Japan have largely remained subdued over the last decade, with only a couple of years registering positive growth. In 2025-26, exports to Japan declined 3.36%, following a sharp 21.2% increase in 2024-25. The steepest decline was recorded in 2016-17, when exports fell by more than 17%.
Japan's non-tariff barriers, particularly stringent sanitary and phytosanitary (SPS) measures, continue to be a major hurdle for Indian exporters. The latest example was Japan's suspension of fresh mango imports from India after quarantine authorities found lapses in pest-control and disinfection procedures at Indian treatment facilities.
"Japan has very strict SPS measures, and that is not specific to India. It applies to all countries. We are discussing a review of the current provisions of the FTA. But every FTA has its own purpose. We want to leverage this agreement more to bring better investment into India, which will boost the economy," a government source familiar with the matter said.
Japanese foreign direct investment (FDI) in India has increased in recent years, although it remains modest compared with Japan's total outward FDI. Japanese FDI into India stood at $3.1 billion in 2023-24 and $2.48 billion in 2024-25, while it reached $3.2 billion in 2025-26 (up to December 2025). Cumulatively, from April 2000 to June 2025, Japanese investments in India amounted to $44.97 billion, making Japan the fifth-largest source of FDI into the country, according to official government data.
During the recent summit, Japan committed to invest ¥10 trillion (around ₹5.5 lakh crore) in India over the next decade. More than ¥2 trillion (around ₹1.1 lakh crore) has already been committed through 129 private-sector agreements spanning infrastructure, next-generation mobility, semiconductors and clean energy.
