India & South Korea: This partnership holds promise

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Published: May 14, 2015 12:22:41 AM

South Korea must be one of the major pillars on which Make-in-India is built

A less talked about but an important foreign visit of Prime Minister Narendra Modi is scheduled for South Korea on May 18-19, following his visit to China and Mongolia. The visit is crucial as South Korea could be an ideal partner for the Make-in-India initiative. Ahead of Modi’s visit, it has been announced that the Export-Import Bank of Korea would provide $10 billion as long-term loan to India for the three important agenda items of the Modi government, which are broadly part of infrastructure development. These are the smart city project, Digital India and Swachh Bharat Abhiyan. The negotiations on the terms and conditions of South Korean loan are in the final phase.

India has to realise that South Korea could be and must be one of the main pillars on which Make-in-India should be built. It is probably a less known fact that India-South Korea bilateral trade has been more than India-Japan bilateral trade until 2012. It is also interesting to note that if we include the unrealised Posco investment, South Korea’s FDI into India has been more than Japan’s since 2000. Moreover, this investment goes well with the Modi government’s plan to strengthen its manufacturing sector. Around 86% of South Korea’s investment into India so far is concentrated in the manufacturing sector.

It was wise on the part of foreign minister Sushma Swaraj to visit South Korea in December last year on the occasion of the eighth India-South Korea Joint Commission meet. It was also a time when there was some diplomatic strain because of the Indian cancellation of R6,000 crore deal of eight ocean minesweepers with a South Korean company; it was reported there were some irregularities in the deal. Swaraj not only successfully conveyed that the incident would have no impact over the economic synergies between the two nations but also sought South Korean cooperation in the areas of defence co-production, manufacturing LNG tankers, cooperation in cyber security, and more.

It was an important gesture since South Korea apparently felt left out when Modi visited Japan immediately after coming to power but could not make it to South Korea. In April, defence minister Manohar Parrikar undertook a visit to South Korea with 11 business leaders representing eight defence manufacturing firms from both private and public sectors. The composition of the delegation was a sign that India would like South Korea to have joint defence production in all possible areas. India expressed desire to procure six new minesweepers during the Parrikar visit, though an earlier deal was cancelled. India can learn from South Korea how to indigenise its defence industry.

During Modi’s visit, both countries might decide on economic cooperation in the areas of shipbuilding, LNG tankers, railway infrastructure, nuclear energy and bullet train technology. It is interesting to note that the Delhi Metro technology is largely South Korean, and in bullet trains also India may like to explore similar possibilities.

What helps matters is South Korea’s complementarities with the Indian economy and the absence of any major political disagreement between the two countries. South Korea has the world’s largest shipbuilding industry. It ranks among the top in the production of semiconductors and electronic products, and is one of the major players in the automobile sector. It also leads in e-governance, internet penetration and broadband availability. India has been looking to move ahead in such areas and South Korean assistance could be useful. The economic synergy between the two nations is strong and their bilateral trade crossed $20 billion mark in 2011 itself. Though in the last few years the bilateral trade has declined a little, but it may recover soon.

South Korean MNCs have already actualised opportunities in India; Hyundai, Samsung and others have invested over $3 billion here. In fact, Samsung and LG have captured 40% of the Indian mobile market and Hyundai is India’s second-largest car maker.

Further, revising the Comprehensive Economic Partnership Agreement could be deliberated during the Modi visit. The FTA between the two countries, which became effective in 2010, needs revision in accordance to changed realities. It would be productive to judiciously allow agricultural products to enter into each other’s market. India would be interested in measures to curb its growing trade deficit with South Korea and try to make Indian export basket to South Korea diversified. Right now, over 50% of the Indian export is basically naphtha. Both nations must also work together to connect their SMEs, which need government support and encouragement. There should be efforts to make POSCO investment possible; however, it should not be made a test case as it involves a contested issue of the Indian political economy, which is not yet resolved.

Modi is not new to South Korea. As the Gujarat CM, he visited the country in 2007 and has had a meeting with South Korean President Park Geun-hye in November 2014 on the sidelines of the EAS and ASEAN summits. Hopefully, South Korea would be more seamlessly integrated into India’s Act East Policy.

The author is assistant professor at the Department of East Asian Studies, University of Delhi.

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