Even before Narendra Damodardas Modi was officially declared the Prime Minister Designate of India on May 20th, foreign heads of state and governments rushed to personally convey their best wishes to him, looking forward to strengthening relations with India under his leadership.
The notable countries included USA, Japan, Germany, France, China, Russia, UK, Australia, Singapore, Canada, Israel, France, South Africa and Spain among others. From the immediate vicinity of South Asia- leaders from Pakistan, Sri Lanka, Bangladesh, Nepal and Afghanistan sent in their personal messages after the Indian Parliamentary Election results were announced on May 17th. So it was rather surprising that South Korea’s President Park Geun-hye skipped the opportunity to personally convey her wishes- given the huge potential for economic ties between both sides.
The only acknowledgement of the election results came from a low level bureaucrat in the Ministry of Foreign Affairs who read out a short prepared statement: “The government offers its congratulation to the National Democratic Alliance on its landslide victory, which reflects the Indian people’s aspirations for a change and a reform. The government looks forward to working together with the new Indian government to further advance the relations...”
Throughout his election campaign, Modi has emphasized his ‘Look-East Vision,’ on more than one occasion, even singling out South Korea as a shining example of economic development. While admittedly, business-friendly Modi may be more focused on relations with China and Japan, this was the right opportunity for South Korea to send out the right signals before he assumed office on May 26th.
Sadly, President Park was too preoccupied with regional issues and developments in North Korea to even consider giving Modi a call. A personal gesture on her part could have been a step in the right direction, to revive economic relations, which, despite a four-year old Comprehensive Economic Partnership Agreement (de facto FTA) has stagnated.
Moreover, just five months ago, President Park made a State Visit to India, where she talked highly of the complementary economic structures and assets, admitting that only about 40 percent of the trade agreement’s capacity is being utilized.
Trade Relations
It was widely anticipated that the CEPA, which came into effect in January 2010, would lead to more bilateral trade and investments. South Korea has abolished tariff on 93% of Indian imports and India has done the same on 75% of Korean imports. Besides, the agreement sought to increase the interactive trade account as it includes investment in various sectors like goods, services and even intellectual property.
According to statistics compiled by Korea International Trade Association (KITA), while bilateral trade has slightly improved, it is still almost halfway short of the target of $30 billion set for 2014.
|
Year
|
Total Trade
|
Growth
|
Indian Exports
|
Growth
|
Korean Exports
|
Growth
|
|
2007
|
11,224
|
22.35%
|
4,624
|
27.03%
|
6,600
|
19.3%
|
|
2008
|
15,558
|
39.00%
|
6,581
|
42.32%
|
8,977
|
36%
|
|
2009
|
12,155
|
-21.88%
|
4,142
|
-37.06%
|
8,013
|
-10.7%
|
|
2010
|
17,109
|
40.76%
|
5,674
|
36.98%
|
11,435
|
42.7%
|
|
2011
|
20,548
|
20.10%
|
7,894
|
39%
|
12,654
|
10.7%
|
|
2012
|
18,843
|
-8.30%
|
6,921
|
-12.3%
|
11,922
|
-5.8%
|
|
2013
|
17,568
|
-0.07%
|
6,183
|
-10.7
|
11,385
|
-4.5%
|
Bilateral trade between both countries was $17.57 billion in 2013, with India ranked as the 15th largest trade partner of South Korea, a very low position. In 2002 India’s share in South Korea’s global trade was 0.83%, which now reads 1.63% in 2013.
India’s contribution in Korea’s global imports increased from 0.78% in 2001 to 1.2% in 2013. In 2013, India was South Korea’s 18th biggest source for imports while India was its 9th biggest export market.
During the first year of operation of CEPA in 2010, bilateral trade between both sides increased by 40%. Indian exports rose by 37% in 2010 while Korean exports increased by 42.7%. In the 2nd year of implementation, bilateral trade reached $ 20.57 billion recording a growth of 20.28%. In 2012 the bilateral trade came down to $18.84 billion and further dropped last year.
Clearly, while considerable scope exists, it is not possible to pump up trade between both sides without government efforts. It is all the more important for South Korea to do so, as its economy has thrived on export-led industrialization.
Bilateral Investments
Over the past few years, even as Indian companies have aggressively expanded globally, they have hardly made any significant inroads into the Korean market. Among the few noticeable investors are Tata Motors Ltd., Novelis Inc. and Mahindra & Mahindra.
While Indian software companies like TCS, WIPRO and L&T Infotech do have a minor presence in the country; they have not made any large commitments to the market.
The major Korean conglomerates that have invested in India include: POSCO, Hyundai Motor, Samsung Electronics, LG Electronics, Lotte, Hyundai Mobis, Doosan Heavy Industries and Hyundai Wia Corporation.
According to EXIM Bank Korea, 647 Korean companies have invested a little over $ 3 billion in India to-date. In contrast, USA continues to be the main investment destination with a total of $ 48 billion; China its main destination in Asia with an overall investment of about $ 46 billion, Hong Kong $ 15 billion and Vietnam $10 billion.
Opportunities
Given India’s huge market and the advantage of having a business-friendly Prime Minister, it is time South Korea woke up to reality and proactively engages with the new government. While the other economic powerhouses have already started their groundwork, South Korea seems to be a laggard in this regard.
India’s booming knowledge-based service industry complements the hardware and manufacturing-based economic structure of South Korea. India’s capabilities in pharmaceutical industry, IT software and auto components usefully complement Korean competence in heavy engineering, automobiles, machinery and electronic hardware. There is also potential for bilateral cooperation in India’s telecoms, high speed Internet and e-governance.
Opportunities for expanding business cooperation exist in engineering, design engineering and construction services. Then there is the power sector and India’s plans to enhance civil nuclear power generation capacity.
There are also many sectors in South Korea that provide ample opportunities for Indian investments. Financial & legal services, auto-parts, food industry, pharmaceuticals, fashion & textiles, and the IT industry are just some of the few industries that Indian businesses may find attractive.
President Park should not rue that she let go of this opportunity by being late to the party.
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