How India and Japan are preparing for the AI economy

The 16th India-Japan Summit, held during Japanese PM Sanae Takaichi's visit to India last week, can easily be framed as another diplomatic milestone, marked by new memoranda of cooperation, 75 years of bilateral ties, plans to celebrate 2027 as the India-Japan Year of Shared Horizons, expanding people-to-people exchanges, growing influence of Japanese culture and language in India, and Japan's role as a leading development finance partner with $3.7 billion in outward FDI to India in FY2025-26. Yet while this narrative is accurate, it's also incomplete.

The relationship has undergone a decisive transformation over the better part of a decade. It's no longer just about ODA flows, automobile investments, or infrastructure financing, as it has become an economic security partnership. By linking AI, semiconductors, critical minerals and resilient supply chains, the two countries are laying the foundations of an industrial ecosystem that could define India's next phase of manufacturing-led growth.

But this transition did not happen overnight. It was being built across successive engagements since 2018 and has become operational at precisely the moment the global order demands it.


The shift in 2018 was India-Japan Digital Partnership to foster collaborations in startups and digital talent exchange. Then, the 2023 Semiconductor MoC sought to build resilient supply chains. AI enters this equation as a source of new industrial demand.

Every AI system deployed requires chips, packaging, power infra and precision-manufactured components. Japan's strength in AI runs upstream with companies like Shin-Etsu and SUMCO, dominating the global silicon wafer supply. India's opportunity runs downstream in assembly, testing, system integration and the vast manufacturing ecosystem that a semiconductor industry requires.

The pivot that India's policymakers and Japan's strategic planners share is that AI is not primarily a software story. It is also equally a hardware story. The clearest marker of how far the trust architecture has developed is how both sides have committed to assess vulnerabilities across the AI tech stack from an economic-security perspective.

India imports over $116 bn in electronics. If AI deployment doubles global chip demand over the next decade as predicted, that import dependency becomes a structural liability. The Japanese partnership addresses this directly, with points of cooperation covering data centres, GPUs, and other compute resources and semiconductors. The strategic opportunity is that AI manufacturing creates jobs in semiconductor fabrication, chip packaging, electronics assembly, advanced materials production, precision engineering. These are labour-absorbing manufacturing activities at scale.

Japan has reiterated its commitment to a specific target of inviting 500 skilled AI professionals from India to Japan by 2030 and promoting joint research, which was set in the Japan-India Foreign Ministers' Strategic Dialogue in January. This can be viewed as a talent-for-capital exchange, with India receiving capital and manufacturing technology and Japan receiving talent and partnership.

The strategic importance of Northeast India can be viewed through this emerging industrial lens. Traditionally, it was discussed within the context of India's 'Act East' policy and regional connectivity. It's now beginning to occupy a more consequential position in the India-Japan tech partnership. The region is being linked to semiconductors, biofuels, industrial value chains, skill development, all while reaffirming both countries' commitment to develop manufacturing corridors connecting the Northeast with the Bay of Bengal through BIMSTEC.

Three spotlight programmes now reinforce the North East's role within the broader cooperation lens. The semiconductor activities now underway; the newly launched Cooperative Biogas for Growth Initiative, which is targeting 1,000 biogas plants; and emphasis on AI for hard infra like roads, bridges, power grids. This has marked an important conceptual of the Northeast region (NER) from a connectivity project to an industrial gateway.

The Japan-India Act East Forum was established in 2017. NER is where India's eastern neighbourhood strategy meets AI economy. Moreover, these regional strategies align with Takaichi's Indo-Pacific dream. The challenge lies in translating this strategic role into projects that move beyond declarations and become embedded in industrial and regional value chains and long-term institutional partnerships.

Depth of the partnership does not mean its tensions are resolved. There are fault lines beneath the framework. But credibility rests on willingness to reduce strategic ambiguity as the partnership deepens. Read together, commitments made by both countries suggest that physical connectivity, semiconductor ecosystems and digital infrastructure are no longer separate policy domains but mutually reinforcing components of a broader Indo-Pacific industrial architecture.

This is not a coincidence. It reflects a deliberate positioning by both governments over several years. Together, they can attempt to co-design the infrastructure of future competitiveness, rather than merely expanding bilateral trade.

The writer is chair, Institute for Competitiveness. Inputs from Darshana Gauratra.