Why Japanese MSMEs Still Hesitate to Invest in India: JICA's Takuro Takeuchi Charts a New Roadmap

Despite India's vast market potential, Japanese MSMEs remain underrepresented compared with Southeast Asia. At the 5th India–Japan Business Conference 2026, JICA India's Takuro Takeuchi explained the barriers, opportunities, and practical roadmap needed to unlock the next phase of India–Japan economic cooperation

Takuro Takeuchi, Chief Representative of JICA India Office, addressing the 5th India–Japan Business Conference 2026 in Kolkata on Japanese MSME investment in India.

With a thought-provoking question— "Why are there still so few Japanese MSMEs operating in India?"—Takuro Takeuchi, Chief Representative of JICA India Office, prompted business leaders, policymakers, and entrepreneurs gathered at the 5th India–Japan Business Conference 2026 in Kolkata to rethink the barriers and opportunities shaping bilateral business engagement.

His presentation shifted the conversation away from celebrating the strength of India–Japan relations toward addressing a pressing economic reality: despite decades of strategic cooperation and strong political trust, Japanese small and medium-sized enterprises (SMEs) have yet to establish a significant footprint in India's rapidly growing economy.

Held on 10 July 2026 at The Bengal Chamber of Commerce and Industry, in association with the Consulate General of Japan in Kolkata, the conference carried an ambitious theme— 'Scaling Indo–Japan SME Partnerships: Trade, Technology, and Eastern Corridors'. More importantly, it reflected a shared determination to move beyond diplomatic dialogue and into practical execution. For India and Japan, the next phase of economic cooperation may not be led by multinational corporations alone but by thousands of innovative SMEs capable of driving technological collaboration, regional development and industrial innovation.

From Infrastructure Builder to Economic Ecosystem Partner

For many Indians, the Japan International Cooperation Agency (JICA) is synonymous with metro rail projects, highways and urban infrastructure. Yet Takeuchi's presentation painted a much broader picture of JICA's evolving role.

For nearly seven decades, JICA has been one of India's most trusted development partners. Since Japan extended its first Official Development Assistance (ODA) loan to India 69 years ago, bilateral cooperation has expanded dramatically. Today, India stands as the largest recipient of Japanese international cooperation, with cumulative ODA commitments exceeding INR 5.2 trillion (JPY 8.9 trillion) and more than 120 ongoing cooperation projects spread across the country.

Beyond concessional loans for public infrastructure, JICA now supports technical cooperation, institutional development, human resource training, innovation partnerships and selected private-sector investments that generate public value. Increasingly, it is positioning itself as a facilitator of business ecosystems that connect governments, universities, startups and industry across both countries.

India's Promise Is Undeniable—But Why Has Investment Plateaued?

Few countries today offer the combination of advantages that India presents.

The world's largest population. A median age of under 30. A rapidly expanding consumer market. Strong economic growth. Increasing manufacturing capability. And a business environment where large percentage of Japanese companies already operating in India expect to expand their business over the next one to two years.

Yet one statistic surprised many in the audience. The number of Japanese companies operating in India has remained almost unchanged over the past seven years, hovering around 1,400 companies. While interest remains high, new market entry has slowed significantly.

Even more striking is India's comparison with Southeast Asia. Thailand hosts more than 6,000 Japanese companies, Vietnam over 2,200, and Indonesia nearly 1,500, despite India's significantly larger market potential.

This contradiction lies at the heart of the India–Japan business relationship. If India is viewed as one of the world's most attractive growth markets, why are Japanese SMEs choosing other destinations?

Why Japanese MSMEs Are Missing from India's Growth Story

Takeuchi argued that the challenge is not convincing Japan's largest corporations. Large Japanese companies consistently rank India among their most promising overseas markets. The hesitation lies elsewhere.

Japanese SMEs, which form the backbone of Japan's economy and account for much of its manufacturing innovation, remain underrepresented in India. According to data cited during the presentation, only around *15 percent* of Japanese companies operating in India are MSMEs, compared with *48.5 percent* in Thailand.

For smaller companies with limited financial resources, entering a new overseas market carries considerably greater risk than it does for large multinational corporations. Unlike global manufacturers that can afford years of market experimentation, SMEs often need quicker returns and more predictable operating environments.

Beyond Bureaucracy: Understanding the Real Barriers

The obstacles facing Japanese SMEs are not limited to regulation alone. Drawing on JETRO surveys, Takeuchi identified several recurring concerns.

Tax uncertainty and unexpected assessments continue to worry foreign businesses. Administrative procedures involving permits and approvals are often perceived as complex and time-consuming. Rising labour costs and infrastructure gaps also remain areas of concern.

However, equally important are the less visible challenges. Japanese companies frequently cite difficulties in land acquisition, payment collection, business planning practices, limited local Japanese business networks and quality-of-life considerations such as pollution, food and social infrastructure.

These factors may appear manageable for established corporations with extensive local teams. For smaller enterprises entering India for the first time, they can become significant deterrents.

Changing the Narrative: India's Social Challenges Are Its Greatest Business Opportunity

Perhaps the most thought-provoking aspect of Takeuchi's presentation was his argument that India needs to rethink how it markets itself to Japanese SMEs.

For years, investment promotion has focused on familiar themes—the world's largest population, a young workforce, demographic dividend and a rapidly growing middle class. While these remain important strengths, they are no longer enough.

Instead, Takeuchi suggested that India should openly showcase its complex social and developmental challenges. At first glance, this may sound counterintuitive.

Yet Japanese SMEs have built global reputations by developing specialised technologies that solve difficult industrial, environmental and healthcare problems. Water purification, precision manufacturing, waste management, energy efficiency, medical technology and agricultural innovation are areas where Japanese SMEs excel. India's large-scale social challenges therefore represent equally large business opportunities.

Rather than presenting India simply as a massive consumer market, investment promotion should highlight where Japanese technology can generate meaningful solutions while building commercially sustainable businesses.

Indian Talent as the Gateway to Market Entry

Another compelling proposal centred on human capital. Instead of asking Japanese companies to establish Indian operations first and recruit talent later, Takeuchi highlighted an emerging strategy gaining traction in several Japanese prefectures:

"Hire skilled Indian professionals first—and allow them to lead India market entry'". This represents a significant shift in Japanese business thinking.

Indian engineers, researchers, software professionals and business managers are increasingly viewed not merely as cost-effective employees but as strategic assets capable of bridging cultural, technological and commercial gaps. Matching programmes connecting Indian professionals with Japanese companies are already being introduced in parts of Japan, creating future business leaders who understand both markets.

Rather than seeing India only as a destination for investment, Japanese SMEs are beginning to view Indian talent itself as the gateway to successful international expansion.

Three Strategic Pillars for Stronger India–Japan SME Cooperation

Based on discussions with Japanese local governments, financial institutions and industry organisations, JICA outlined three strategic priorities for expanding SME cooperation.

The first is to communicate India's business opportunities more effectively by focusing on sectors where Japanese technologies can solve real-world challenges.

The second is to leverage India's exceptional human capital and build stronger cross-border talent partnerships.

The third is to strengthen institutional support that helps Japanese SMEs navigate India's business environment, identify reliable partners and manage operational risks.

Rather than expecting SMEs to overcome every challenge independently, JICA envisions an ecosystem where governments, academic institutions, financial organisations and industry associations work together to reduce market-entry barriers.

Building Practical Bridges

JICA is already putting this philosophy into practice. Its collaboration with the *Government of Telangana* supports Japanese companies, including SMEs, in identifying business opportunities and local partners.

Partnerships with *IIT Hyderabad* help Japanese businesses localise research, recruit Indian talent and strengthen innovation capabilities. Across sectors including agriculture, healthcare, forestry and water management, JICA is supporting the adaptation of Japanese technologies to address India's development priorities while creating commercially viable business models.

This integrated approach reflects a broader vision in which development cooperation and private investment reinforce one another.

New Growth Sectors for India–Japan Business Collaboration

The presentation also highlighted emerging industries where India and Japan can jointly build future growth engines.

These include semiconductor ecosystems supported by human resource development, medical technologies focused on early cancer detection, wooden construction systems, matcha production and processing, organic fertiliser and biogas ecosystems, Japanese-style horticulture services, and the rapidly expanding AVGC (Animation, Visual Effects, Gaming and Comics) sector.

Such industries represent a departure from the traditional narrative dominated by automobiles and heavy manufacturing. Instead, they illustrate how India–Japan cooperation is diversifying into innovation-driven sectors with strong global potential.

Why Eastern India Could Become the Next Gateway

The conference's emphasis on *Eastern Corridors* was equally significant. With expanding connectivity, improving logistics and increasing attention under India's Act East Policy, eastern India is emerging as an attractive destination for future Japanese investment.

States in eastern and northeastern India offer opportunities across manufacturing, logistics, agriculture, renewable energy and digital industries while serving as strategic gateways to Southeast Asia.

For Japanese SMEs seeking new markets and diversified supply chains, these regions may become important investment destinations over the coming decade.

The Next Chapter Will Belong to SMEs

Takeuchi's presentation offered more than an assessment of investment trends. It proposed a new framework for India–Japan economic cooperation.

The challenge today is no longer persuading Japanese companies that India has enormous market potential. That debate has largely been settled.

The real challenge is ensuring that Japanese SMEs—often the source of Japan's most innovative technologies—can enter India with confidence, build trusted local partnerships and scale their businesses without navigating the market alone.

If the first chapter of India–Japan economic cooperation was written by governments and large corporations through infrastructure, manufacturing and strategic investments, the next chapter may well be authored by thousands of entrepreneurs working together across technology, healthcare, agriculture, sustainability and advanced manufacturing.

Institutions like JICA are increasingly becoming the bridge that transforms decades of diplomatic goodwill into practical business partnerships.

And if the discussions in Kolkata are any indication, the future of India–Japan cooperation will be measured not by the number of conferences held, but by the number of SMEs that choose to build that future together.