Japan Invests Heavily in India Amid Shift in China Focus: Report

Japanese Investment in India Surges to Record Levels

Key Figures:

• $4.4 billion: Mitsubishi UFJ Financial Group's (MUFG) investment in Shriram Finance, the largest foreign deal in India's financial sector to date
• $8.8 billion: Total Japanese investment in Indian businesses in 2025, according to Dealogic data
• 62%: Proportion of smaller Japanese firms with a capital base of $30 million or less in the Japan Chamber of Commerce in India, up from less than 40% in 2021

Japanese investment in India is gaining unprecedented momentum, driven by growth opportunities, geopolitical realignment, and competition with China. The surge reflects a wider push by Japanese corporates to expand overseas as domestic growth remains sluggish. India, one of the world's fastest-growing major economies, has emerged as a key destination.

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Mitsubishi UFJ Financial Group (MUFG) led the surge with a $4.4 billion investment in Shriram Finance, the largest foreign deal in India's financial sector to date. This transaction formed part of a broader $8.8 billion investment by Japanese companies in Indian businesses in 2025, according to Dealogic data.

Japanese investors have traditionally favoured minority stakes in Indian firms, citing high valuations and regulatory challenges. However, the scale and pace of recent deals indicate rising confidence in India's long-term potential. Mizuho Financial Group has also stepped up its presence, announcing a majority stake in Avendus Capital.

Geopolitical factors are reinforcing this trend. Tokyo and New Delhi are strengthening economic ties amid concerns over China's growing influence. India's tighter scrutiny of Chinese investments since the 2020 border tensions has further boosted its attractiveness for Japanese capital.

Data from the Japan External Trade Organisation (JETRO) shows Japanese investment into India has exceeded flows into China for two consecutive years, while investments into China have dropped to their lowest level since 2014.

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Japanese capital is increasingly flowing into startups, manufacturing, and the services sector. Large Japanese institutions, including banks, insurers, and asset managers, are driving a broader wave of investment. Smaller Japanese firms are also entering the market in greater numbers, with companies with a capital base of $30 million or less accounting for 62% of members in the Japan Chamber of Commerce in India.

Manufacturing remains a major focus area, with Japanese companies investing to build scale and compete with Chinese rivals both in India and globally. Air-conditioner maker Daikin plans to increase its India production capacity to 5 million units annually by 2030, with a longer-term goal of reaching 10 million units through digitised factories.

Despite challenges such as regulatory complexity, infrastructure gaps, and tax hurdles, India's large consumer base, digital growth, and favourable policy environment continue to attract Japanese investors. With capital flows accelerating and strategic alignment deepening, India is fast emerging as a central pillar in Japan's global investment strategy, signalling a long-term shift in Asia's economic landscape.