Will Modi-Moon Bonhomie Lead To More Trade?
South Korea was among the first nations to believe in a liberalised India, but Korean investments have since stagnated. Where do we go from here?
At the end of his four-day visit to India, President Moon Jae-in of the Republic of Korea set his New Southern Policy in motion and pledged to more than double South Korea’s trade with India to $50 billion by 2030 from $20 billion now. President Moon is the man who brought peace to the Korean Peninsula, bringing together a rather belligerent President Donald Trump and the reclusive and secretive Kim Jong Un of North Korea to an informal parley in Singapore in June.
President Moon’s rather large entourage included heads of Chaebols, suggesting a fresh spike in Korean investment. The Korean Chaebols were incidentally, among the first lot of foreign investors to set foot in India soon after economic reforms were unleashed in 1991, making brands like Samsung, LG, and Hyundai household names in the country. As many as 500 Korean companies now do business in India. Prime Minister Narendra Modi’s last visit to South Korea in 2015 had elevated bilateral relations to that of a ‘special strategic partner’ with a diplomatic and security dialogue in the ‘2+2’ format.
While diplomatic bonhomie prevails, bilateral trade is somewhat skewed in favour of South Korea at the moment and dwindling year-on-year. India’s trade deficit with the Republic of Korea was $12 billion in 2017-18 and the total bilateral trade with the Republic of Korea is faltering every year. India’s bilateral trade with South Korea has plunged from $15,785 million in the beginning of 2015 to an abysmal $4,964 million at the end of March this year.
“The trade deficit for India
has increased by 50 per cent in 2017-18 from 2013-14 after the Comprehensive Economic Partnership Agreement (CEPA) with stagnant export and increasing import and this is certainly the concern with Korea, and India must find ways to address the situation,” says Professor Biswajit Dhar at the Center for Economic Studies & Planning, Jawaharlal Nehru University.
While the average investment in India during the last four-year period (2013-2016) was $343.1 million a year, South Korea’s investment in the United States and China markets was a whopping $84.8 billion and $57 billion in 2017, according to the Exim Bank of Korea. The First Korean wave of investment in India has certainly lost its froth, which is the reason why, the potentials of the next wave are significant.
The New Southern Policy
President Moon’s new ‘Southern Policy’, built on the precepts of People, Prosperity and Peace (PPP) has had an impact in new areas of cooperation, such as shipbuilding, medical devices and food processing. Speaking at the ‘India-Korea Business Forum’ organised by Ficci and the Korean Chamber of Commerce and Industry (KCCI), President Moon said that the ‘Southern Policy’ was aligned with India’s ‘Act East’ policy.
“The Indian government is planning to build 100 Smart Cities and construct industrial corridors to link the major cities,” he said, adding, “I also wish to participate in the infrastructural projects.” Altogether nine memoranda of understanding (MoUs) were signed and a joint statement declared on the critical Early Harvest Package of the Upgraded Comprehensive Economic Partnership Agreement. The CEPA was first signed in 2010. An upgraded CEPA gets off with balanced tariffs, but will that stimulate trade and investment?
Says Ambassador Doraiswami, “Yes, upgraded CEPA will have positive benefits for increased trade … This would also help deal with the deficit. At the same time, it is important to note that at least part of the deficit is made up of components imported for assembly or integration into value-added products like cars, electronics etc.” The Republic of Korea, he says, had proved its resilience by building a trillion dollar economy - an incredible integration with the global economy, which is still called a “Korean miracle”. Its GDP was the 11th largest in the world after Canada ($1.258 trillion) last year with a 51.16 million population to drive the fifth largest export economy in the world.
The Republic of Korea has agreed to arrange finance for $10 billion of infrastructure development, comprising an Economic Development Cooperation Fund ($1 billion) and export credits ($9 billion) for priority sectors, including smart cities, the railways, power generation and transmission and others.
The next wave of investment is certainly in the area of defence partnership. It is interesting to note that South Korea has done what the Indian defence sector is struggling to do - set up a robust defence manufacturer, based on the PPP (Public-Private Partnership) model. The Korean defence manufacturer Hanhwa, has partnered with Larsen and Toubro (L&T) to produce K-9 Vajra artillery guns for the Indian Army. Make in India in defence has been the main focus of the discussion, and that has got enshrined in the joint vision statement on the strategic ties with South Korea. Defence opens an alternative to India beyond the traditional markets.
President Moon’s remarks that there will be “bruises and burns but we succeed”, sums up the summit and perhaps, suggests the road ahead too.