Rare earths pact to boost Indo-Japanese ties

 As PM Manmohan Singh travels to Japan for an annual summit, there is a scramble to show off the next big thing in the Indo-Japan bilateral ties. India and Japan are likely to sign an inter-governmental agreement on rare earths, whereby New Delhi would woo Japanese investors for the metal's extraction and production back home.

India and Japan had signed a maritime security agreement during the 2011 summit, but neither side has met even once. The ostensible reason from both sides is "scheduling" issues — a euphemism for lack of time.

Meanwhile, India has signed a similar agreement with China, and that too without a meeting. With maritime security gaining international attention coupled with growing territorial tensions in the seas surrounding China, India's lack of initiative is surprising.

The PM, who will be heading for the East Asia Summit in Phnom Penh from Japan, will find maritime security dominating the discussions there as well akin to 2011. Japan is increasingly concerned about Chinese activities regarding the Senkaku/Diaoyu islands in the East China Sea. China claims these islands and has been sending patrols to harass Japanese ships stationed there — this happened after Japan nationalized the islands and spooked the Chinese.

Indian officials say there is almost no daylight between India and Japan on most issues. In 2008, Japan signed only its third security agreement with India (the US and Australia are the other nations). This year, Japan wants to renegotiate its agreement with the US, in the face of what Tokyo believes is a concerted bid by the Chinese to scare Japanese away from the contentious islands.

The umbrella pact is expected to start in earnest joint development of rare earths metals in India. Rare earths is an opportune marriage of economic and strategic imperatives. India, which has 3.1 million tonnes of rare earths metals, has one of the world's largest reserves. But in 2004, Indian Rare Earths Ltd, a DAE enterprise, had stopped production of rare earths because China swept the market. India was producing REEs for $10 a kg, while China was doing it for $1.50. However, China's decision to curb the exports of rare earths metals, particularly to Japan as a backlash of the Senkaku/Diaoyu dispute, in 2010 severely affected Japan's hi-tech manufacturing sector.

Japan is also looking at building a new industrial corridor — between Hyderabad and Chennai. India will push this though sources said India's record of implementation, particularly in terms of land acquisition and securing clearances, appears to be a stumbling block.

Despite encountering about six PMs in the revolving door of Japanese politics, Singh had been an ardent votary of the country and its importance for India. The Japanese government is heading for yet another election in the next couple of months which means that the PM may well be greeting a different Japanese counterpart next year. Interestingly, the Japan relationship cuts across political parties. If Singh is the biggest votary in the government, Gujarat CM Narendra Modi is believed to be a darling of Japanese investors.