India Sees Deepening of Japan Nuclear Ties With Modi Visit

(Bloomberg) -- India says it’s edging closer to a nuclear pact with Japan, which would open up one of the world’s fastest expanding power markets to vendors struggling for growth after the Fukushima disaster.

Indian Prime Minister Narendra Modi will go over the final steps of a civil nuclear treaty with his Japanese counterpart Shinzo Abe during a visit to Japan starting Thursday, according to Sekhar Basu, secretary at India’s Department of Atomic Energy. If completed, the deal is seen deepening ties between Asia’s second- and third-largest economies while China seeks to expand its regional influence through the export of its own domestically-designed reactors.

India’s nuclear power market is estimated at $150 billion and the country aims to boost energy generated from atomic plants to a quarter of its the total by 2050 from about 3.5 percent now, according to the U.S. Department of Commerce. The pact could benefit Japanese nuclear-component makers including Mitsubishi Heavy Industries Ltd. and Hitachi Ltd. that face shrinking business prospects after the 2011 Fukushima disaster led to the shutdown of the country’s reactor fleet for safety checks.

“The nuclear deal would be significant because the India-Japan relationship has been largely about business and trade,” said Sanjaya Baru, India director of the London-based International Institute for Strategic Studies. “You’ve had defense purchases, and naval cooperation and military ties. But if the nuclear deal is done, we’re really signaling a much stronger strategic partnership.”

Nonproliferation Treaty

By agreeing to a civil nuclear-cooperation pact with India, which hasn’t signed the Treaty on the Nonproliferation of Nuclear Weapons, Japan is showing it’s willing to make an exception for India, Baru said.

An official with Japan’s Ministry of Foreign Affairs, who asked not to be identified citing ministry policy, said she couldn’t comment on when the nuclear deal would be signed. The Yomiuri newspaper reported Nov. 6 the accord is scheduled to be signed during Modi’s visit and there will be a separate memorandum specifying that if India carries out a nuclear test Japan can halt cooperation.

A commercial relationship could still be slowed by local laws that may leave suppliers liable for accidents, said Mark Hibbs, a senior associate for the Nuclear Policy Program at the Carnegie Endowment for International Peace. While India ratified an international treaty on nuclear liability in February, Westinghouse Electric Co. said at the time that domestic laws still leave suppliers liable for accidents.

Defense Technologies

Besides being an integral part of the global supply chain for the construction of nuclear reactors, Japan will likely begin helping finance Indian projects, according to Hibbs.

“The global trend has been that countries whose industries supply nuclear equipment provide financing for it,” said Hibbs. “Especially since Japan has identified nuclear plant-building as a strategic industry, India likely counts on Japan to finance equipment and services supplied by Japanese firms.”

Pennsylvania-based Westinghouse Electric, which is owned by Toshiba, is building six reactors in India and that project isn’t contingent on the bilateral treaty between Japan and India, Toshiba spokeswoman Yuu Takase said by e-mail.

Japan’s nuclear components are critical to the progress of U.S. and French atomic projects in India, Titli Basu, an associate fellow at New Delhi-based Institute for Defence Studies and Analyses said in an e-mail. The civil atomic agreement between Japan and India may lead to a deepening of ties and the eventual transfer of defense technologies after Abe relaxed his country’s arms export ban in 2014, she said.

“Another critical area for India is to secure supply of high-end defense technology from Japan,” said Basu. “There is tremendous scope for redefining the contours of the bilateral defense cooperation by way of transfer of, and collaboration on, projects related to defense equipment and technology.”

--With assistance from Stephen Stapczynski and Isabel Reynolds To contact the reporters on this story: Rajesh Kumar Singh in New Delhi at rsingh133@bloomberg.net, Iain Marlow in New Delhi at imarlow1@bloomberg.net. To contact the editors responsible for this story: Ramsey Al-Rikabi at ralrikabi@bloomberg.net.