Japanese firms increase investment in India to diversify from China

Japanese corporations are significantly increasing investments in India as part of a strategic effort to diversify supply chains and mitigate risks associated with China. This shift is characterized by a commercially driven reallocation of capital rather than a purely policymaker-led geopolitical move, aimed at reducing concentration risk following years of geopolitical tensions and supply chain disruptions.

In the retail sector, Japanese brands such as Uniqlo, Muji, and Onitsuka Tiger are expanding their presence in major Indian cities. Other companies, including furniture maker Nitori and convenience store chain Lawson, are also entering or growing within the Indian market. Beyond consumer goods, Japanese financial institutions are making major moves; MUFG Bank recently acquired a 20% stake in Shriram Finance for $4.4 billion, and Sumitomo Mitsui Banking Corporation has become the largest shareholder in Yes Bank.

Additionally, Japanese firms are becoming major contributors to India’s ecosystem of Global Capability Centres (GCCs), with over 100 companies operating these innovation hubs for R&D and AI development. This trend is driven by a need for growth in India to offset a shrinking domestic market and declining population in Japan.