Thursday, September 30, 2004

Prospects for India-Korea Economic Partnership

The process of liberalisation initiated in the new economic policy by India in 1991-92 and South Korea's attempt to look beyond its traditional sources of growth in the last decade gave momentum to the India-Korea economic relationship. Since then, considerable progress has been made in trade and investment between the two countries. The volume of trade expanded from less than $1 billion in 1991 to over $2 billion in 2002-03. Trade between India and Korea witnessed a quantum jump in 2002-2003 registering a growth of 34%. Growth in trade is also characterised by diversification of the trade basket. The export basket for India, though still dominated by low value-added products, has in recent years expanded to cover a wider range of industrial products like machinery and mechanical appliances, iron ore, electrical machinery and equipment and man-made staple fibres. Exports of software and electronics have increased manifold in the last few years. Imports from Korea, on the other hand, continue to be dominated by electronic goods, even though the share of transport equipment is increasing rapidly. Imports of machinery and equipment are set to grow further as several Korean companies are engaged in highways, power plants, chemicals, petrochemicals and metro rail projects in India.
The bilateral economic relationship has, however, not achieved its full potential. In 2002-03 India’s trade with South Korea accounted for less than 2% of its total trade while Korea’s trade with India was less than 1% of its total trade in the year 2002.
Given the economic size and dynamism of the two countries, their civilisational ties and the fact that they are both members of the Bangkok Agreement, the largest PTA in terms of market potential, trade between India and Korea can be expected to double in the next few years. Opportunities for trade expansion and diversification are evident from the as yet unexploited sectoral complementarities between India and Korea. Korea has expertise in manufacturing and financial and international marketing know-how, while India has abundant low-cost and technically-skilled manpower and established strength in science and technology. India and Korea can thus utilise their synergies to boost bilateral trade further.
Sectors like steel, chemicals, pharmaceuticals, automobiles and auto components, textiles, agro-products and gems and jewellery offer scope for expansion in trade. Knowledge-based industries like biotechnology and information technology are the gateways to future trade ties between India and Korea. Korea is fast progressing towards becoming an IT society. Korea’s ratio of internet penetration is the highest in the world and this is where India can make inroads. Korea has world class broadband IT infrastructure, ideal test bed for technology innovation and is a leader in mobile technology. India’s strength lies in its high quality and talented engineering pool, world-class software and services industry and is the world central point for IT outsourcing. Opportunities for joint cooperation and development as well as outsourcing projects for third countries are, therefore, substantial.

India has also come up as an attractive investment destination for Korean companies. Korean motivation to invest in India is shaped by critical advantages in terms of labour costs and easy access to Chinese, S-E Asian and West Asian markets. South Korea ranks fifth in cumulative investment approved in India. Main sectors that have attracted Korean investment are transportation, largely in the automobiles sector, fuels, electrical equipment (such as computer software and electronics, mobile telephony and consumer goods), metallurgical industry and office and household equipment.
Today, South Korean business groups such as LG, Samsung and Hyundai have become household names in India and are diversifying their businesses into different sectors and also using India as a base for expansion of their global business.
Increased focus on cooperation between our small and medium enterprises is also on the agenda of India Korea bilateral economic relationship. Successful tie-ups in this category would have a beneficial impact on an otherwise technically lagging sector in India.
India and Korea have for long recognised the advantages of regional integration arrangements. India is a founder member of the Bangkok Agreement, signed in 1975 and recently rejuvenated by China's entry. This agreement is the only preferential trading arrangement that provides preferential access to three of the major markets of this region, i.e., India, Republic of Korea and China. This may be an initiative, therefore, where India and Korea can jointly work to broaden the scope of the agreement to deal with non-tariff barriers and trade in services as against its current coverage of tariff concessions on goods only. On the multilateral front also, it would be beneficial for both India and Korea to evolve a consensus on issues of common interest and jointly work for an early resolution of the Doha Development Agenda.
India-Korea economic relationship also offers scope for providing the foundation for a stronger Indian presence in the East-Asian economic zone. India has much to offer as a bridge between East Asia and Central and West Asia. Further, as Asean negotiates free trade agreements with China, Japan, South Korea and India individually, the vision of a larger framework that includes the Asean+3+1 or Asean + 4 is taking shape. The accumulated wealth of Japan and the Republic of Korea and the huge markets of China and India will create fresh opportunities for trade driven growth in the region.
An India-Korea equation with a strong underpinning of economic relations and supported by shared values, religion and culture can make a significant contribution towards the Asean + 4 economic integration process.
Co-authored with Amita Batra

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