India-Korea Trade & Economic Partnerships
India and South Korea: two nations that may seem too different from each other and worlds apart, but in the realm of trade and economics, they're actually closer than ever. How so you ask? Let’s see.
In this article, we will look into the key agreements and collaborations that have shaped the economic relationship between the two countries, and also what the future holds for them. So, let's dive into the story of India-Korea trade and economic partnerships, exploring the facts, the figures, and the real-world impact of this thriving connection.
A Historical Perspective
India and South Korea's relationship wasn't always as strong as it is today. Of course, they were connected. The two countries established consular-level relations in 1962, and it got upgraded to Ambassador-level in 11 years. But, it wasn’t until the 1997 IMF crisis that the nations actually began to pursue significant cooperation in the trade and economic sectors. Republic of Korea(RoK)'s open market policies found resonance with India's economic liberalization and both found several ways to collaborate in these areas. In recent years, India-Republic of Korea (RoK) relations have made great strides and have become truly multidimensional, spurred by a significant convergence of interests, mutual goodwill, and high-level exchanges.
Key Partnerships and Agreements
Let’s look into some key partnership agreements:
The Comprehensive Economic Partnership Agreement (CEPA):
CEPA (signed between the two countries in 2009 but it was officially operationalized on January 1, 2010) was a game changer. Imagine cutting down import tariffs on a wide range of goods over eight years! That's what CEPA aimed to do. Amazing, right?
The main aim of this trade deal was to lower/eliminate import tariffs on a wide range of goods over the period of eight years. The agreement was also to help expand opportunities for investments and trade in both goods and services. As part of the pact, while South Korea got rid of tariffs on 90 percent of Indian exports, India committed to eliminate tariffs on 85 percent of Korean exports. CEPA largely strengthened cooperation in energy, electronics, and shipbuilding industries, including setting up a Joint Working Group for Cooperation in the Shipbuilding sector and another in the field of Electronics Hardware manufacturing. (source)
Korea Plus Initiative:
India launched the ‘Korea Plus’ initiative to address all the issues raised by Korean companies during PM Modi’s visit to Korea in 2016. To ensure the initiative reached the right audience, the Embassy of India in South Korea organized an event aptly named 'Korea Plus'. This event acted as a platform to introduce the initiative to Korean businessmen and investors, showcasing the commitment to fostering stronger ties. As part of this broader effort, India also rolled out 'Invest India,' a program designed to guide, assist, and support investors worldwide. (source)
The Indian Chamber of Commerce in Korea (ICCK):
The Indian Chamber of Commerce in Korea (ICCK) is a dynamic collaboration between Indian and Korean companies, formed with the mission to foster trade and investment connections between the two nations. By working closely with state and provincial governments, as well as businesses in both India and Korea, the ICCK aims to unlock economic and cultural opportunities that benefit both countries. Beyond serving as a bridge for commercial relationships, the ICCK also plays a vital role in supporting the Embassy's efforts. It actively assists in organizing seminars, events, and promotional activities that further enhance business ties and mutual understanding.
India-Korea Startup Hub:
Recognizing the potential of innovation and entrepreneurship, Indian Prime Minister Narendra Modi inaugurated the 'India-Korea Startup Hub.' This initiative aims to foster collaboration in research, innovation, and entrepreneurship, creating a platform where ideas can thrive and businesses can grow.
City-to-City Partnership:
In a move that underscores the growing ties at the local level, Noida city in Uttar Pradesh, India, and Changwon city in South Gyeongsang province, South Korea, signed a Memorandum of Understanding (MoU) in 2021. This agreement is designed to promote economic development through cooperative schemes between the two cities, reflecting a shared commitment to mutual growth and collaboration.
Double Taxation Avoidance Agreement (DTAA):
In 2015, India and South Korea signed a revised Double Taxation Avoidance Agreement. This agreement aims to eliminate the burden of double taxation for taxpayers in both countries, stimulating the flow of investment, technology, and services. The revised DTAA provides tax certainty to the residents of India and Korea. (source)
Corporate Investments: A Two-Way Street
South Korea's export-driven economy is attracted to India's vast market and opportunities. Korea’s expertise in shipbuilding, steel, nuclear energy, and heavy electrical machinery aligns well with India's needs. Conversely, South Korea seeks to leverage India's strengths in IT software, combining it with its own capabilities in IT hardware, design, engineering, and manufacturing. This collaboration has led to significant corporate investments between the two nations, reflecting a partnership that goes beyond trade to include technology and innovation.
Top Indian companies’ investment in Korea
Mahindra and Mahindra: Mahindra & Mahindra, one of India's leading automotive manufacturers, made a significant investment in South Korea by acquiring SsangYong Motor Company. The acquisition was finalized in 2010, and Mahindra & Mahindra acquired a majority stake in the South Korean automaker.
Tata Motors: Tata Motors invested in S. Korea by acquiring Daewoo Commercial Vehicle in March 2004 for KRW 120 billion (approximately $102 million), Tata Motors' cumulative investment in Korea now surpasses $400 million.
Nakhoda Ltd: Known for its high yarn production capacity, Nakhoda Ltd acquired Kyunghan Industry Company with a $40 million investment.
Major Indian IT companies like Tata Consultancy Services (TCS) and Mahindra Tech have established operations in South Korea, serving both local and international clients. Currently, it seems that Indian IT major HCL is also trying to establish its footsteps in the Korean market.
Top Korean companies’ investment in India
Samsung India Electronics: Serving as the Regional Headquarters for Southwest Asia, Samsung has invested around $1.1 billion in India. In a landmark moment, Indian PM Narendra Modi and President Moon inaugurated Samsung's largest mobile manufacturing facility in Noida in 2018. Indian employees make upto 7% of Samsung's global workforce.
LG Electronics: With over 40,000 outlets across India, LG's manufacturing unit in Greater Noida stands out as one of the world's most eco-friendly. LG has consistently ranked among the top five trusted brands in India, reflecting its strong presence in the market.
Hyundai Motors: As the second-largest car manufacturer in India, Hyundai produces approximately 7 lahks (700,000) cars annually and exports over 150 thousand cars to 87 countries. With a state-of-the-art R&D facility in Hyderabad, Hyundai's commitment to innovation is evident.
Kia Motors: Kia Motors is establishing a manufacturing facility in Andhra Pradesh. With an annual capacity of 300,000 cars and an investment of $1.1 billion, Kia is making significant strides in the Indian market.
POSCO: Operating as a wholly-owned subsidiary, POSCO India has steel processing centers in Pune, Delhi, Chennai, and Hyderabad. With major production plants in Maharashtra and an investment of around $1 billion, POSCO's influence in the steel industry is substantial. (source)
The Present and Future
Today, India and South Korea share considerable synergies and trying to find more ways to find ways to co-operate. Whether it’s Kia's manufacturing facility in Andhra Pradesh or POSCO's steel processing centers across India, Korean companies are contributing to India's ‘Make in India’ and ‘Atmanirbhar Bharat’ initiatives. (source)
But what's next?
There are talks where the two countries are exploring opportunities in space, defense, and nuclear energy. The challenge lies in diversifying exports and focusing on high-tech products.
Overall, India and South Korea have a huge potential for collaboration in various sectors, and agreements like CEPA have been successful to some extent in helping corporations from both sides do business smoothly. However we can’t stop here, we have a long way to go. For instance, India has to diversify its export market, particularly focusing on high-tech products in addition to primary goods, if it has to penetrate the Korean import market.
What do you think the future holds for India and South Korea? How can both countries leverage their strengths to create a win-win situation? Share your thoughts, and let's keep the conversation going!
Written by: Aditi Rawat, Nidhi Agrawal
Research by: Aditi Rawat