India and South Korea have a robust economic engagement, but the Modi govt. will need to take bold steps for a deeper partnership.
In his first year of office, Prime Minister Narendra Modi has chosen his foreign destinations with careful thought. After wrapping up his visits to
China and
Mongolia, Mr. Modi will be in Korea on May 18 and 19 in recognition of the country’s potential importance in pushing the agenda of
‘Make in India’, skill development, employment generation and indigenisation of defence manufacturing.
The stage for the visit has already been set by External Affairs Minister Sushma Swaraj, who had, in December 2014, visited Seoul for the 8th Joint Commission meeting. Defence Minister Manohar Parrikar also went to Seoul in April to identify projects for closer defence collaboration.
South Korea and India have both economic and cultural ties, apart from similar historical trajectories. Their ancient bonds are based on the twin strands of Buddhism and the Princess of Ayodhya. Koreans widely believe that a princess from Ayodhya travelled by sea to Korea in 48CE and married King Kim Suro. A prominent branch of the Kim clan called the Gimhae Kims proudly claim this Indian lineage. The two countries also share bitter colonial experiences; they had to undergo post-independence horrors of partition. Both continue to face hostile nuclear siblings: Pakistan and North Korea, respectively.
Economic engagement
Despite this, India and South Korea did not take much notice of each other till the end of the 1970s. A nonaligned India pursued a policy of equal treatment of the two Koreas, which it finally abandoned in the 1980s.The emergence of South Korea as an Asian Tiger compelled India to look at it as a source of investment and technology. The dawn of real democracy in South Korea in the late 1980s brought it ideologically closer to India. The end of the Cold War and former Prime Minister Narasimha Rao’s ‘Look East Policy’ opened the doors for a rapid economic engagement with South Korea.
Korean Chaebols such as Samsung, LG and Hyundai Motors invested heavily in India in the late 1990s.Their success in capturing the Indian market is visible all around us. Korean investment in India is now more than $3 billion. Indian companies such as Tata Motors, the Mahindra Group and Birla Group have also invested more than a billion dollars in South Korea.
The first decade of the new millennium saw a rapid expansion of both economic and political relations. In 2010, India and South Korea became ‘Strategic Partners’ and implemented the Comprehensive Economic Partnership Agreement (CEPA). Bilateral trade surged to $20 billion in 2011, surpassing India’s trade with Japan. However, economic activities have been somewhat stagnant since then and require renewed energy and new ideas. For instance, the much-heralded $12 billion investment by the Korean steelmaker POSCO in Odisha has been stuck since 2005 in the quagmire of procedures for mining licences, land acquisition and environmental clearances. Both countries focus on the economic prosperity of their citizens. On strategic regional issues, they strive for a stable and peaceful external environment. However, South Korean President Park Geun-hye and Mr. Modi differ widely on the other two regional giants: China and Japan. No consensus on this is expected at this summit.
In this background, Prime Minister Modi has clear objectives, but difficult issues to address. South Korean corporates have rich experiences of working in rather difficult Indian conditions but before investing more, they may wait for conditions to improve.
Prime Minister Modi will benefit from studying the Korean experience of rapid skill development in the 1960s and 1970s. The impressive industrial miracle of South Korea is based on its trained and dedicated manpower. The system of vocational training, technical education as well as Research and Development is driven by the requirements of industry. In these areas, India’s efforts are largely government-driven and practically divorced from industry requirements. Mr. Modi would also be surprised to learn that 3.4 per cent of Korean GDP is spent on research and innovation and 70 per cent of this amount comes from industry!
Lessons from shipbuilding
In the shipbuilding sector, South Korea has world class technology, but India has obsolescent equipment and management. Creative policy changes would be required in India to motivate Korean private shipbuilders to invest in India. Koreans by nature do not like joint ventures, guard their technology carefully and demand full managerial control. Just as the Rao government had allowed 100 per cent FDI to Korean companies in 1996 as a pioneering policy change, the Modi government should offer to lease a shipyard to the Koreans for the long-term on negotiated terms. Such a move would attract the Koreans to not only invest in shipbuilding in India but also bring in modern technology and equipment. Also, it is hoped that Prime Minister Modi’s visit will reopen the stalled negotiations for the acquisition of eight minesweepers from KangNam Company, which would be partly built at the Goa shipyard.
During the visit, Mr. Modi is likely to face some pressure from President Park for urgent revision of the CEPA. However, he must be cautious as the present CEPA has not generated any extra exports from India, and the bilateral trade gap is widening against India. Despite assurances, the Korean regulators continue to drag their feet in according approvals for import of Indian generic drugs and agricultural products. Indian IT companies have also been struggling for business in South Korea as Koreans hesitate in sharing data with outsiders.
Koreans may also press for the allocation of a site for Korean companies to build a nuclear power plant. They may offer state of the art technology and their overall costs for erecting a project would be about 20 per cent less than their competitors. In turn, India could offer to launch Korean satellites on its launch vehicles.
There is vast potential for the growth of tourism on both sides and India’s decision to grant ‘Visa on Arrival’ and e-visas to Koreans will facilitate tourism. Indian films, cuisine and yoga are widely popular in Korea. Korean pop music and TV serials are well known in India among the youth, particularly in the Northeast. Since the countries share a bond concerning the Princess of Ayodhya, they could even offer incentives to film producers for a joint production of a film based on the legend.
The key component of India-South Korea strategic partnership continues to be a robust economic engagement. This fits squarely with the present priorities of the Prime Minister to boost the manufacturing sector in India. But the Modi government would need to display more imagination and take bold steps to fully tap the potential of a deeper partnership with South Korea.
