India-Korea: A renewed push

Notwithstanding an eight-year-old trade agreement, India and South Korea bilateral trade has been underwhelming. A fresh attempt is being made to resurrect it. On July 9, South Korean electronics giant Samsung made a big splash when it inaugurated the world's largest mobile manufacturing facility in Noida, a satellite town of New Delhi. With Indian Prime Minister Narendra Modi and South Korean President Moon Jae-in meeting in tow, the new 35-acre facility that takes the Korean firm's production capacity to 120 million units per annum is a statement of intent of India-Korea trade relations. The Noida plant set up in 1996 is Samsung's first of two manufacturing units in India. It started with the manufacture of televisions back in 1997, and mobile phone manufacturing unit was added in 2005. By 2012, Samsung had become the market leader in mobile phones in the country. Over 30 per cent of the production of mobile phones at the factory will be exported. The fresh Rs 4,916 investment in it would also double refrigeration production to 3 million units per annum. "Today is an important day in making India a manufacturing hub. The investment of Rs 5,000 crore [$735mn] by Samsung will strengthen India-South Korea relations," Prime Minister Modi said on the day. "Make in India initiative is getting support from all across the world. India has become number 2 in mobile phone manufacturing." Often dwarfed when compared to Indo-Japanese trade ties, Korean companies like LG and Hyundai besides Samsung have become household names in India over the last two decades. In 1998 when Hyundai ventured into India, its 300,000 units factory in Sriperumbudur on the outskirts of Chennai, was its first overseas plant outside Korea. Another plant has since been added at the same site as Hyundai emerged as the second largest car maker in the domestic market. Today, it makes over 700,000 units in India with plans to expand it by another 50,000 units by next year. In addition, there are 603 large and small Korean firms, which have offices in India. From the Indian side, investments in Korea amount to nearly $3 billion. Indian companies have been active players in the mergers and acquisition space in Korea. 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. “When we decided to invest in India in 1998, it was a big risk. We were unknown entities and for us India was an unknown territory as well,” says Y.K. Koo, managing director, Hyundai Motor India. “It was a gutsy move and an act of faith. Today we are celebrating two decades in this market and it has served us really well. You can say we have served the country well too. So many other manufacturers from Japan and US and later from Europe also entered India but nobody has been able to perform as well as us.” Hyundai's success has rubbed off on its sister firm Kia Motors as well, which decided to enter the country with an investment of $ 1.1 billion towards a 300,000 unit per annum factory in Andhra Pradesh in 2017. Even as it is yet to start selling cars in the country, its first model will hit the roads only by mid 2019, it increased its investment in the country to $ 2 billion earlier this year. “We have big plans in India and have already made significant investments here. Construction of our plant is going on in full swing and is ahead of schedule by a month,” said Han Woo Park, global CEO and president, Kia Motors Corp. “We are making additional investments in the plant and would spend $2 billion by 2021.” In between these stories of success, one gigantic failure - that of South Korean steel major Posco's moribund $12 billion steel project in Odisha, sticks out like a sore thumb. The country's biggest FDI project had to be shelved after a decade of trying as Posco could not get beyond India's infamous red tape, procedural hurdles, bad luck and local politics. It also is an apt reflection of bilateral ties between the two nations. Korea was one of the few countries that India has signed a Comprehensive Economic Partnership Agreement, an abridged form of a Free Trade Agreement, in 2010. It was signed in quick time with just three and a half years of negotiation. Bilateral trade between the two nations gathered momentum again following the implementation of CEPA. In 2011 trade between the two nations crossed $ 17 billion registering a 40 percent growth over a two-year period. The buoyancy led to the target being revised to $40 billion by 2015 by the then Indian PM Dr Manmohan Singh and Korean President Lee-Myung Bak. However, things went downhill thereafter. Bilateral trade declined the following year to $16.68 billion and could tally only $18.13 billion by fiscal 2015. Thereafter it declined again to $16.56 billion in 2015-16 and only inched upwards to $16.82 billion in 2016-17. Thanks to steps taken by both governments to enhance ties in the recent past, trade grew in fiscal 2018 to hit a high of $ 20.8 billion but it has still not achieved its true potential. Further, as is the case with most developed economies, the trade numbers are heavily skewed in favour of Korea. According to Statistics Korea, Indian exports and imports to Korea grew by 26 per cent and 30.1 per cent respectively in the last fiscal. The mismatch has seen trade deficit grow at a steady clip over the years. Partly the reason for this is what India exports and imports from Korea. Major items of what is sent from here includes mineral fuels/oil distillates (mainly naphtha), cereals, iron and steel. Basic materials comprise the bulk with Naphtha accounting for nearly a quarter of it. In contrast India imports value added engineering goods from Korea like automobile parts, telecommunication equipment, hot rolled iron products, petroleum refined products, base lubricating oils, nuclear reactors, mechanical appliances, electrical machinery & parts and iron and steel products. The import of raw materials from India and export of finished goods from Korea has helped the East Asian country more than India. “India's FTA with Korea is advantageous to that nation but India has least utilisation through this pact,” says Anil Rajvanshi, Head - Corporate and Industry Affairs, Reliance Industries Ltd. India does not structurally keep track of utilisation levels of its FTAs but according to Federation of Indian Export Organisations the utilisation levels of India's FTAs lie between 5 per cent and 15 per cent. “This is the lowest rate of FTA utilisation in the world which is mainly due to the country's import competitiveness,” says Ajay Sahai, Director General and CEO of FIEO. Alongside opening the Samsung factory, the two heads of the state held formal delegation level talks where the CEPA was expanded and trade was liberalised with concessions in 11 more items. As in 2012, a fresh target of $50 billion bilateral trade by 2030 was set. The two countries would hope history does not repeat itself this time.