INDIA IS A PRIORITY DESTINATION FOR KOREAN BUSINESSES

by August 6, 2018 0 comments

INDIA IS A PRIORITY DESTINATION For KOREAN BUSINESSES

India and Korea not just share history, but also have immense shared business interests. Samsung plant in NCR is just a beginning, a lot more is to come…

The South Korean President Moon Jae-in paid a four-day visit to India in July (7-10) and held delegation-level talks with Prime Minister Narendra Modi and other senior leaders on a wide range of bilateral, regional, and global issues of mutual interest with a view to further strengthen the special strategic partnership between the two countries. This was Moon’s first visit to India after he took over as the President of South Korea in 2017. It was one of the most productive visits to India by a foreign leader as the talks ended with a big-ticket investment announcement that would further deepen bilateral ties between Asia’s third and fourth largest economies, particularly in the economic sphere. Prime Minister Modi also took the opportunity to mention how India is concerned about North Korea’s nuclear weapon development programmes, and appreciated Moon’s initiative to address this issue. For India, Pyongyang’s nuclear link with Pakistan has remained a matter of concern for a long time.

A brief history

India-South Korea relations are not recent but for reasons other than economics, bilateral relations remained in a state of “strategic disconnect”. India’s policy of “non-alignment and economic autarchy” and the perceived closeness with the then Soviet Union were seen by the US and its allies, such as Japan and South Korea, with suspicion. Under the circumstances, there was little prospect for India-South Korea relations to develop. even the important role played by India in dispatching the 60th Parachute Field Military Ambulance Platoon — a mobile army surgical hospital that treated more than half of the wounded soldiers and an average of 250 to 300 civilians a day, during the UN operations in late 1951 following the Korean War — though remembered with gratitude, did not substantially help remove political barriers to forge a partnership that could have fetched mutual benefits.

There are civilisational linkages between the two countries too. It is popularly believed in South Korea that the legendary Korean King Suro married an Indian princess from Ayodhya centuries ago and mothered the Kim dynasty. Almost 80 per cent of the present generation bearing the name Kim traces their ancestry to the ancient dynasty. So, there is an emotional connection between the people of the two nations.

even Nobel laureate Rabindranath Tagore’s evocative poem that Korea will be the lamp bearer for the illumination of Asia could not translate to concrete construction of an India-South Korea partnership until the ideological gulf remained. The collapse of the Soviet Union and India’s Look east policy, rechristened now as Act east policy, dramatically altered the perceptions in reviewing India-South Korea bilateral ties in a different light in which economic, defence, and strategic dimensions were found enmeshed. The strategic history of India’s ties with this Northeast nation, that remained disjointed for almost four decades since the end of the Korean War, has been successfully recast now.

India’s choice of inward-looking import substitution model

Put briefly, India-South Korea relations have developed in stages. The years since diplomatic ties were established in 1973 until early 1990 was the first stage or the ‘budding period’. Though some efforts were made by both, they could not realise the potentials because of their “inherent ideological incongruity and differences in their policy orientation”. While India adopted a socialist, secular, democratic government at home and pursued the policy of non-alignment of the third world in international affairs, South Korea remained tied in a security alliance with the US. So, both saw each other as belonging to different camps and “were blinded by the blinkers of the global block politics of the time”.

India’s choice of inward-looking import substitution model of development sharply contrasted with South Korea’s outward-looking export-oriented development path prevented the growth of economic ties between them. Though the diplomatic and other bilateral interactions continued smoothly, not much headway could be made in expanding the economic ties.

The second stage of the bilateral ties between 1991 and 2009 can be called the phase of ‘economic and commercial cooperation’. Both countries discovered a convergence of interests in many areas during this period. In the third stage, the bilateral relationship was elevated into a ‘strategic partnership’. This strategic partnership could be achieved because India’s of the convergence of India’s Look east Policy and Korea’s New Asia Diplomatic Initiative described as “policy rendezvous”. First, the bilateral relationship was catapulted into a higher gear when President Roh Myun-Hwan visited India in 2004 and a “long-term cooperative partnership” was established. This served as the bedrock for bilateral relations. This relationship was elevated to the level of strategic partnership when President Lee Myung-bak paid a historic visit to India in January 2010 as the chief guest of the Republic Day celebrations. The Comprehensive economic Partnership Agreement (CEPA) signed in 2009 was also implemented and entered into force from January 1, 2010, thereby jump starting the dormant economic component of the bilateral ties. The CePA — which came into force on January 1, 2010 — was the first deal of its kind which India signed with an OECD country and South Korea with a BRIC nation.

Subsequently, several top level visits have taken place between the two countries: Former President Pratibha Patil’s visit in July 2011, former Prime Minister Manmohan Singh’s visit in March 2012, and others. Defence and
Foreign Ministers from both countries have also visited, each time elevating the relationship to a higher level.

Significance of Moon’s visit

Against this background as the relationship evolved, Moon’s recent trip to India is another milestone in the bilateral ties. Firstly, the timing of the visit is significant as it coincided with the changes taking place with breathtaking rapidity in the geopolitical landscape of Northeast Asia. The architect of the changes is none other than President Moon whose peace overtures — which started with North Korea’s participation in the PyeongChang Winter Olympics and subsequently led to a summit meeting with Kim Jong-un on April 27, and later paved the way for the first ever summit between Kim and US President Donald Trump in Singapore on June 12. India-South Korea relations were elevated to ‘special strategic partnership’ after Modi visited South Korea in May 2015, seeking investments in many flagship programmes of the Government, including Skill India and Make in India. The South Korean Government earmarked a whopping $10 billion as “financing arrangement for infrastructure development in India”.

Make For The World

Moon’s dynamic leadership aside from his efforts to solve the nuclear dilemma of North Korea became demonstrably clear, or at least his intent, even during the presidential election campaign in 2017 wherein he pledged that he would elevate ties with India to the level of Korea’s relations with four major powers in and around the Korean Peninsula — China, Japan, Russia, and the US. This aside, he intended to craft India prominently in his “new Southern policy” and include the 10-member ASEAN group in its ambit. This is a significant departure from Korea’s traditional foreign policy and possibly could be, as some analysts suggested, a hedging strategy amid the US-China stand-off, coupled with the desire to forge a robust India-South Korea partnership in the interest of building peace and stability in the region. Though for India, South Korea is a valued partner, bilateral trade is below its potential. Bilateral trade in 2017 totaled $20 billion and investment has shown an upward trend. Both sides have pledged to increase it to $50 billion by 2030. There are about 300 Korean companies which have invested about $3 billion, employing about 40,000 workers. The only aberration in the bilateral ties seems to be that the POSCO project in Odisha did not take off despite that it was the single biggest foreign direct investment project to the tune of $12 billion, owing to land acquisition problems.

This 12-million capacity steel plant was floated in 2005 and POSCO had the patience to wait for close to a decade to see the project become functional. In the process, the company invested a lot of money in the social sector, including the CSR. But despite strong governmental support to the company to make the required land available for the steel project to be set up, the efforts failed and POSCO was forced to pull out of the project in 2017, after waiting for 12 long years as public resistance continued with no sign of ending.

Though POSCO was an unhappy experience for South Korea, this did not deter it to halt investment in India in other projects, such as by firms like Kia and Samsung, in recognition of the Indian market and the buying power of the urban middle class estimated to be to the tune of 350 million plus. Though the main driving force in the bilateral relations remains economic, the strategic dimension including defence cooperation is becoming equally important. The two sides are looking at defence hardware procurement and manufacture. India is looking for minesweepers for the Navy, and South Korea could be a possible source. India has also sourced artillery guns from South Korea and is looking to manufacture them in India under the Make in India programme. In this light, Moon’s India visit shall pave the way for expanding bilateral ties in multifarious dimensions, upgrading business ties to the level Korea has with China. Indeed, Moon has been pushing Korean majors to raise their investment in India.

The reason why the economic dimension in the partnership is significant can be deciphered from the address Moon made to the India-Korea Business Forum organised by the Federation of Indian Chambers of Commerce and Industry. It was attended by top management of the major business houses or large family-owned mega-conglomerates from Korea, such as Samsung, Hyundai, and LG. The three companies command large chunks of the export and domestic consumer and industrial markets in Korea. This was the second such event in less than five months. In February, Modi had addressed a mega delegation of 150-odd Korean companies, wherein he had exhorted the chaebols to further expand the $2.7 billion worth of investment mainly in the automobile and engineering sectors. Consumer products of Korean companies, such as Samsung and LG, are household names and therefore important players in the Indian consumer market. In the automobile sector, Hyundai competes equally with Japanese products, such as Toyota, Honda, and Mitsubishi.

There are some trade and tariff issues that need to be sorted out. For example, India seeks zero duty on items such as sesame and motor parts. Korea is reluctant to accede to this request. South Korea imports 630 per cent duty on Indian sesame, while imports 24,000 tonnes a year from China at zero duty, and therefore, India’s request is legitimate. Korea feels that opening tariff lines to a country ensures zero custom duty to importers of the country to which it is opened. The duty is applicable for products under those tariff lines. From the strategic perspective, the importance of South Korea in India’s Indo-Pacific strategy came out clear in Modi’s keynote address at the Shangri-La Dialogue on June 1, 2018, when he mentioned South Korea was an important component of the Act east policy.

Korea

During Modi’s visit to South Korea in 2015, the two sides sought amendment to the bilateral Air Services Agreement to enhance flight connectivity covering more cities. As Korean business in Indian cities expands, Korea would be interested in increasing direct flights from the existing six in a week. That time, an MoU was inked on cooperation in audio-visual co-production, paving the way for co-production of films, animation and broadcasting programmes. This time during Moon’s visit, five MoUs in the field of science and technology were signed. Science and Technology Minister Harshvardhan and his Korean counterpart You Young Min signed three MoUs on Programme of Cooperation 2018-21, Establishment of Future Strategy Group and Cooperation in Bio-technology and Bio-economy. Two other MoUs were signed between the Council of Scientific and Industrial Research (CSIR) and South Korean National Research Council for Science and Technology and IIT Mumbai and Korea Institute of Science and Technology, to further accelerate future-oriented cooperation.

Modi & Korean PM

During his visit, Moon inaugurated a Samsung manufacturing unit, the largest in the world, in Noida in which the company has invested $760 million, demonstrating the trust and business confidence in Indian market despite the unhappy experience of POSCO. This is going to be the world’s largest mobile phone manufacturing facility, touting Modi’s pet Make in India to propel India to become the world’s second-largest manufacturer of mobile phones as the number of factories soared to 120 from just two, four years ago. Apart from creating four lakh direct jobs, 30 per cent of the phones manufactured at the factory — built at a cost of Rs 5,000 crore — will be exported to the Middle east and Africa. India was already the R&D hub for Samsung, now it will be a manufacturing base too.

Would India be the next China for South Korea, as claimed by Korea’s Trade Minister Kim Hyun-chong? It may be recalled when South Korea deployed the THAAD US missile defense system in 2017, a decision taken by Moon’s predecessor, a diplomatic row broke out between South Korea and China as the latter felt that THAAD breached into China’s security. China adopted a series of economic retaliatory measures against Korean products, thereby severely affecting the Korean economy. South Korea is yet to recover from this. Moon now seeks to enhance economic and trade relations with the ASEAN and India, thus announcing his southern policy.

Moon’s strategy is laudable but not without difficulties. Many bilateral economic issues concerning trade and tariff need to be sorted out. Moreover, if Moon targets the ASEAN grouping as a single package, that would be difficult, as a strategy that fits all countries may not be possible as the characteristics of each country could be different. For example, if South Korea wants to expand the market presence of its car makers in Indonesia — the largest car market in Southeast Asia where Japanese vehicles enjoy 98.6 per cent market share, but the Korean cars take up only about 0.1 per cent — the challenge could be huge. on the other hand, India holds the greatest potential for South Korea and has the least risk, which is why India is a priority destination for Korean businesses. The absence of any sensitive issue, either historical or geographical, also works in India’s favour to be a preferred partner for South Korea. The Moon Government has, therefore, prioritised India to deepen and strengthen multidimensional relations.

With its population expected to reach 1.5 billion in 2030, India has the potential to emerge as the world’s single largest market. In view of this, any nation doing business with another country may find it irresistible to overlook India to be a partner in pursuit of economic prosperity. Moon is aware that India is eyeing the tag of the world’s third largest economy by 2030, after overtaking France as the sixth largest economy and coming close to the UK, which is at the fifth place. Indian economy is at the take-off stage and is expected to be the world’s third largest by 2030 with the GDP worth $10 trillion. This means India is aiming to overtake the UK, Japan, and Germany by 2030, to be behind only the US and China. As far as doing business is concerned, India presents tempting prospects for any country, and South Korea is well aware of this.

Rajaram Panda: Writer is former Senior Fellow at the IDSA, was until recently ICCR Chair Professor at Reitaku University, Japan. rajaram.panda@gmail.com I Courtesy: The Pioneer

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