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India-South Korea Business Relations- An Overview

January 04, 2019 | Rajat Prakash, Managing Partner, Athena Legal

 


Rajat Prakash
Managing Partner, Athena Legal

 

India and South Korea have enjoyed great bilateral relations for last many centuries. India and Korea also share many similarities in their cultures and traditions. It is believed that Heo Hwang-ok the legendary Korean queen is believed to be from Ayodhya in India. Subsequently over the centuries many Korean monks like who. Hyecho visited India in 723CE and wrote a travelogue in Chinese describing his stay in India. Modern bilateral relations between India and South Korea, were established in 1962 and upgraded to Ambassador-level in 1973.

South Korea is an export-driven economy and is drawn by India's huge market. South Korea developed considerable expertise in shipbuilding, steel, nuclear energy, heavy electrical machinery, automobiles and consumer electronics etc; and is keen to invest in India in these areas. Similarly, South Korea wants to take advantage of India's prowess in IT software and wants to combine it with its expertise in IT hardware, designing, engineering and manufacturing. The trade between India & South Korea gathered momentum after signing of Comprehensive Economic Partnership Agreement (CEPA) in 2010. The two countries have now set a target of increasing bilateral trade to $50 billion by 2030 from present $19 billion and are negotiating to upgrade the CEPA so that both countries can take full benefit of each other's economic & technological prowess. To this extent Prime Minister Narendra Modi's "Act East" and "Make in India" policies and Korean President Moon Jae-in "New Southern" policy converge to give momentum to India- South Korea trade relations.

To illustrate the booming trade relations between India & South Korea, South Korean companies, Samsung, LG, Hyundai are market leaders and most trusted brands in India. South Korean companies have been one of the leading participants in Make in India initiative of the Government of India. Samsung Electronics has set up world's largest mobile phone manufacturing factory at Noida, UP, India; In addition Samsung has R&D centres and design facilities in India and employs over 45000 people in India. LG has two manufacturing units in India which cater not only to domestic market but also exports. Hyundai manufactures over 700,000 cars in India annually in addition to having R&D facility in Hyderabad which is one of just 5 in the world. Other South Korean companies manufacturing in India include KIA, POSCO and Lotte. Lately number of South Korean SMEsare setting up operations in India. South Korean companies have also made significant investments and contribution to the infrastructure development in India including in smart cities and transport solutions. Infrastructure investment in India got a boost with Korean Export Import bank extending a $9 billion credit line for infrastructure sector. The MOU to facilitate this credit line was signed between Korean Export Import Bank and Indian EXIM bank in June 20l7.There are more than 500 South Korean companies actively doing business in India and more than 10000 South Korean nationals working in India. From the Indian side, investments in South Korea amount to nearly $ 3 billion, Novelis, a Hindalco subsidiary, acquired a Korean aluminium company by investing about $600 million. Mahindra & Mahindra acquired a majority stake in SsangYong Motors, the country's 4th largest auto manufacturer, in March 2011, with an investment of about $360 million. Tata Motors acquired Daewoo Commercial Vehicle Company for $102 million in March 2004. Other Indian companies present in India include 'IT majors, Indian Overseas Bank, State Bank of India etc. Recognising that India needs to attract cutting edge South Korean technology and capital for infrastructure development Government of India rolled out Korea Plus Initiative in June 2016 which is aimed at facilitating South Korean investments in India. The Korea Plus initiative has representatives of both Government of India and Government of South Korea to promote, facilitate and retain South Korean investments in India. The mandate of Korea Plus initiative is to cover the entire investment spectrum including supporting Korean enterprises entering the Indian market for the first time, looking into issues faced by Korean companies doing business in India and policy advocacy to the Indian Government on their behalf. Korea Plus initiative acts as a mediator in arranging meetings, assisting in public relations and research/evaluation and provide information and counselling in regard to Korean companies' investing in India. Invest India, the official Investment Promotion and Facilitation Agency of the Government of India is the nodal agency for Korea Plus programme.

Despite strong bilateral trade relations between India and South Korea the trade between two countries is yet to achieve full potential. Issues like prolonged and inconclusive negotiations with regard to amendment to CEPA which would elevate the India-South Korea CEPA to bring it at par with India-Japan CEPA; issue of tariffs primarily in relation to Steel, Textiles & Chemicals remain unresolved issues from the South Korean perspective and issues with respect to withholding tax in relation to IT services and certification, standards and testing procedures remain outstanding from the Indian side. There has also been delay in finalising agreements related to of certain mega projects between India and South Korean companies in relation railway infrastructure, shipbuilding, LNG transport etc. The inability of POSCO to set up steel plant in Orissa and recent initiation of arbitration proceedings against India by Korean electric utility KOWEPO under Bilateral Investment Treaty and CPEA also point to the challenges faced by South Korean Companies doing business in India.

To overcome the above challenges and to educate South Korean business especially SMEs about India and its potential besides the efforts of the government there needs to be more engagement of South Korean business by various business chambers like ASSOCHAM. This will also supplement Korea Plus initiative of the government of India.


 

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