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India-South Korea: The State of Affairs

Rohit Pattnaik was a Visiting Scholar at the Institute for Defence Studies and Analyses, New Delhi.
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  • September 22, 2006

    The India-South Korea bilateral relationship is a remarkable example of how trade is the primary driver in global relationships. Ideology, which marked international relations in the previous decades, has given way to trade - which now is the international marker for relations. An important watershed in the relationship will be the beginning of construction for the POSCO integrated steel plant, which is slated to begin in April 2007 and would constitute the single largest foreign investment in India at US$ 12 b. The recent bid by an Indian group for the takeover of a Korean electronic division is an indicator of the confidence in the economic story on both sides. The transformation in their relationship is unique, since diplomatic relations were established only in 1973 and the fact that South Korea is hemmed between its two larger neighbours, Japan and China. India-South Korea ties during the decades since the formation of the South Korean state were marked by token visits and a lack of convergence in the political realm. The strength of the bilateral relationship today can be ascertained from the fact that while bilateral trade in the financial year 1992-1993 was a mere $ 530 m, it is expected to touch nearly $ 10 b during 2006-2007. The vibrant nature of the relationship between the two has improved with the visits of the President of Korea Roh Moo Hyun to India in 2004, followed by that of President Abdul Kalam to Korea in February 2006.

    The liberalisation of the Indian economy in 1991 under "The New Economic Policy" heralded a spurt in trade and investment related activities. The reforms were influenced by the East Asian success story and South Korea was among the chief countries to have an impact on the Indian policy makers' thinking process. India's "Look East Policy," launched in 1992, helped the bilateral process as well as to foster closer relations with North East Asia and the ASEAN. The reform process happened at the right time in terms of the South Korean business's search for alternative markets for investment and to hedge their investment risk since the primary destination for their investments till then was China. India's New Economic policy offered South Korean investors a conductive environment for conducting business operations. Also, what is important to bear in mind is the change in the Korean trade policy from export oriented to trade oriented (investment based). From the South Korean viewpoint, boosting their investments in the global markets was an objective to solve the difficulties that arose from the Asian financial crisis of 1997 and to achieve a greater balance between the domestic and world markets. The Indian market offered a huge potential for Korean business.

    Today, South Korean business groups have a firm presence in the Indian market. The primary areas of business that Korean firms in India are in are transportation, electronics, and metallurgical industries, chemical and industrial machinery. South Korea today is the fifth largest investor in India and India is the fifteenth largest investor in Korea. Bilateral trade has witnessed a phenomenal growth since the opening up of the economy, registering a 40 per cent rise during the financial year 2005-2006 compared to the previous financial year. The current bilateral trade for the financial year 2005-2006 stands at $ 6391.06 m. The $12 b POSCO project signifies the strength in the bilateral economic activity achieved in a short span. During the visit of President Roh Moo Hyun, the two sides had projected to achieve bilateral trade of over $10 b by the year 2007. And true to the mark, the target looks set to be achieved.

    Indian companies have also invested in the Korean market and acquired Korean companies in the transportation sector. Recently, an Indian company has bid for an electronic division of an erstwhile chaebol in South Korea offering $ 700 m for it. Indian exports to the Korean market have increased. During the last financial year, goods and services worth $ 1827.2 m were exported, a growth of 75 per cent over the previous year. The IT sector too has seen a tremendous upsurge in co-operation and expansion into the Korean market. During his visit to Korea earlier this year, President Kalam called for greater co-operation in the field of science and technology to harness the potential for strengthening the relationship. He stressed on the fact that the Korean prowess in the field of computer hardware and the Indian software capabilities had great joint potential.

    The meeting between Prime Minister Manmohan Singh and President Roh Moo Hyun on the sidelines of the ASEAN summit last year resulted in an agreement for a Comprehensive Economic Partnership Agreement (CEPA) to further the economic relationship. The proposed agreement, to be signed next year, would further strengthen economic ties and add greater substance to the bilateral relationship. The CEPA would focus not only on improving trade ties but also look at improving co-operation in services and broadening the investment areas.

    Along with a convergence of interests in combating international terrorism, the two countries are strong supporters of the United Nations. Seoul, however, opposes the expansion of the Security Council to include the Group of Four comprising India, Japan, Brazil and Germany. Its opposition is Japan centric for historical reasons. South Korea and India also share common concerns about the proliferation of WMD technology, given the past experience of the North Korean regime transferring missile technology to Pakistan and the unearthing of the "AQ Khan cartel". This is something that is bound to adversely harm the security interests of both nations. South Korea, which is a signatory of the NPT, has looked for a peaceful resolution regarding the denuclearisation of the Korean peninsula, a move supported by India. India has also welcomed the efforts of the South Korean government to engage Pyongyang under the "Sunshine Policy."

    There is a synergy in the relationship between the two economies, which indicates tremendous potential for growth. Indian and Korean companies are currently actively involved in joint exploration for energy resources and have joint collaboration in researching for cleaner fuels. Oil companies from the two countries have jointly explored gas reserves off the Myanmar coast. There are opportunities for Korean small and medium enterprises (SME) to synergise with Indian SMEs in the areas of semi-conductors, plastics, auto parts, agricultural instruments, textiles, multi-media, ceramic products, software etc. The two countries could set up joint collaborations in the infrastructure sector -- power, ports, telecommunications, ship building & repair, petrochemicals, automobile ancillary, electrical & electronics, banking & financial services, software as well as iron & steel. With the Indian government's emphasis on infrastructure development (roads, ports, communications, energy), in the coming years, there will be a huge growth in infrastructure development activity, which will involve a lot of co-operation.

    The Indo-South Korean relationship is one that has and will be defined by economic ties. As emphasized by President Abdul Kalam during his Korea visit, there will be an increase in joint research between the two countries to harness their combined strength. The growth of the Indian economy will offer the potential for greater trade and opportunity for Indian companies to acquire Korean companies in keeping with their international strategy, while at the same time providing Korean companies the chance to expand further. There exists a convergence of views between the two on topics that affect the world such as terrorism, WMD proliferation, energy security and the hegemony of any single power in the Asian region. It is in itself a unique relationship, one in which geography has not dictated the relationship but common interests and economic ties have. It is the fruition of India's "Economic Reforms" and 'Look East" policy. What the relationship offers is a successful model for India to replicate with other countries, as the Indian economy becomes a powerhouse in the global economy.