In the era of militarized interdependence, economic security has become the organizing principle of the Indo-Japanese partnership. However, economic security partnerships are only as strong as the industry ecosystems that underpin them. Like the India-Japan Economic Security Initiative takes shape, its success will depend not only on strategic convergence, but also on industrial capacity – the ability to manufacture, process, refine, design and evolve strategic technologies within reliable networks. Even though the strategic alignment between India and Japan is real and the institutional architecture is substantial, they will always need an industrial ecosystem capable of translating this convergence into competitive advantage.
When China used its rare earth exports as a weapon against Japan in 2010, Tokyo recognized the strategic costs of overreliance on a single supplier. Subsequently, Tokyo systematically invested in diversification: supply relationships with Australia, processing capacity in Vietnam, domestic recycling and magnet substitution technologies. When China tightened its export controls again in 2026, Japan was better prepared.
Recently, India has emerged as an important strategic partner due to its significant reserves of rare earths and its growing commitment to cooperation on critical minerals. But India, despite this increasingly deep axis of economic security, remains a promising partner for Japan only in theory, not yet in practice.
The paradox is striking: India is the first third largest reserve of rare earthsbut contributes less than 1% to global production, with resources mainly concentrated in light rare earth elements (LREE). India does not lack resources or strategic intentions; the bottleneck lies in the development of the midstream and downstream industrial ecosystem that transforms mineral resources into strategic capabilities. This gap between diplomatic discourse and industrial reality is real, and closing this gap constitutes the decisive challenge of the next decade.
The institutional architecture of India-Japan Economic Security the cooperation is deep. The Semiconductor Supply Chain Partnership 2023 formalized cooperation in design, manufacturing, equipment and talent development. The India-Japan Economic Security Initiative 2025 deepened this framework, with dedicated dialogues on economic security and avenues for the private sector. Additionally, the Quad Critical Minerals Initiative – bringing together India, Japan, Australia and the United States – reflects a broader recognition that supply chain resilience requires multilateral coordination.
But does this institutional density really create industrial depth that makes economic security sustainable? The litmus test for economic security cooperation between India and Japan will be building supplier networks, training engineers, stabilizing manufacturing yields, and developing processing ecosystems that transform raw materials and design talent into strategic industrial power.
On paper, India and Japan are complementary partners. India has significant reserves of rare earths, industrial potential and considerable scale. Japan brings advanced manufacturing, precision engineering, technological expertise and patient capital, bolstered by a ¥10 trillion private investment commitment that underscores its strategic stake in India’s industrial transformation.
The 2025 Memorandum of Cooperation on Mineral Resources formalized a relationship already visible in long-standing partnerships such as the Toyota Tsusho-Indian Rare Earths Limited collaboration in Andhra Pradesh, which processes rare earth oxides for Japanese industrial use. At the same time, Proterial’s review of a neodymium magnet manufacturing facility in India – targeting magnets that reduce reliance on heavy rare earths – represents a potentially significant step towards adding downstream value.
But the middle layer – separating, refining and converting raw ore into the high-purity materials that strategic industries need – remains a critical gap. India currently produces around 1% of the world’s rare earth production despite its reserves. China controls about 90% of the world’s rare earth refining capacity. The distance between holding reserves and operating a competitive refining ecosystem is measured in terms of industrial depth, technical expertise and accumulated knowledge of processes that take decades to develop.
If critical minerals are the building blocks of strategic technologies, semiconductors represent their most important application. India and Japan have made notable progress through partnerships involving companies such as Tokyo Electron-Tata Electronics and Renesas-CG Power-Stars Microelectronics. Projects such as Dholera in Gujarat and Jagiroad assembly and testing plant in Assam represents a significant step forward in India’s ambition to create a domestic semiconductor industry while integrating into reliable global supply chains.
Yet Indo-Japan semiconductor cooperation is currently focused on the less technologically complex segment of the value chain. These projects largely involve assembly, testing, marking and packaging – a critical but relatively downstream segment of the semiconductor value chain. They create jobs, develop manufacturing discipline and begin the process of integrating India into international production networks. But they occupy a different position in the value chain than wafer manufacturing, semiconductor equipment manufacturing, advanced materials, or chip design ecosystems.
Micron Technology’s investment in Gujarat – a significant milestone in Indo-US semiconductor cooperation – is also focused on assembly, testing, marking and packaging (ATMP), rather than wafer manufacturing. The distance between packaging a chip and manufacturing it is a measure of industrial depth. While outsourced assembly and testing of semiconductors (OSAT) builds manufacturing capabilities, but it does not alone create the broader industrial ecosystem needed for technological competitiveness.
The Dholera fab is targeting initial production at 28-nanometer nodes – a mature technology that marks a modest start for India’s plan for large-scale commercial semiconductor manufacturing. The hope is that this is a stepping stone to something bigger for India: an ecosystem of suppliers of specialty gases, ultra-pure chemicals, precision equipment and process engineering talent. Japan’s strengths in materials and equipment – Tokyo Electron alone holds a significant share of the world’s semiconductor equipment – are directly relevant to closing these gaps.
But the provision of equipment and transfer of process know-how is not the same as the formation of ecosystems. India’s semiconductor infrastructure gaps remain important: network reliability, ultra-pure water supply and availability of specialized chemicals. While India accounts for 20 percent of the global semiconductor design workforce, an expected loss of earnings 250,000 to 300,000 skilled process engineers by 2027. Competitive semiconductor industries depend on dense networks of suppliers producing semiconductor-grade chemicals, specialty gases, silicon wafers, manufacturing equipment, precision tools, logistics, and highly specialized engineers. These ecosystems evolve over decades through cumulative learning rather than isolated investments.
Going forward, the main challenge is whether India-Japan cooperation can generate the industrial ecosystem needed for deeper technological and manufacturing capabilities. Taiwan’s dominance in advanced manufacturing reflects not policy design but decades of co-location between factories, suppliers, equipment manufacturers, process engineers and customers – an accumulation of industrial knowledge and infrastructure. Japan’s strength in semiconductor materials and equipment is also the product of long industrial evolution.
Relatively, India is at a nascent stage. His strengths are real: he has large-scale competence in terms of semiconductor design talent, a growing domestic market, political dynamics and geological wealth of critical minerals. Under the India Semiconductor Mission 2.0, attention is increasingly focused on design, equipment, advanced packaging and ecosystem consolidation.
Japan is well-positioned to accelerate India’s industrial learning – through provision of equipment, process knowledge transfer, workforce development and ecosystem anchoring. Companies like Tokyo Electron are not just investors; they are potential mechanisms for transmitting the tacit industrial knowledge that ecosystems need. Industrial gaps – in materials, chemicals, specialized equipment suppliers and process engineering talent – will be filled through sustained efforts over several decades.
Co-creation of supply chain resilience is a dominant discourse in the analysis of economic security between India and Japan. But the resilience built on packaging plants and downstream processing, without the depth of the upstream ecosystem to support it, remains fragile. The next phase of the India-Japan partnership will be defined by whether existing investments will translate into cumulative industrial modernization capable of maintaining sustainable economic security.
Challenges remain – regulatory harmonization, pace of implementation, talent development and scaling of midstream capabilities will test execution. But the partnership is entering its most important phase, where the indicators of success shift from signed agreements to the resolution of asymmetries and the creation of industrial ecosystems.