South Korean cos head to Delhi as Modi pushes for investment expansion

On Tuesday, Prime Minister Narendra Modi will pitch for greater FDI from the nation at the India-Korea business summit

A massive investment and trade summit with South Korea on Tuesday is expected to bring the who's who of Korean industry to Delhi. India will hard sell itself as the next big investment destination for the East Asian nation.

At the India-Korea business Summit, Prime Minister Narendra Modi is expected to push Korean firms to further expand the $2.55 billion worth of investments that the country has in India, mostly in the automobile and engineering sectors. More than 150 Korean companies from the automotive, heavy industry, food processing and textiles sectors are set to reach Delhi. This will include all the major 'Chaebols' or large family-owned mega-conglomerates, which dominate the Korean economy such as Samsung, Hyundai and LG.

Also, apart from 200 Indian firms, Finance Minister Arun Jaitley, Commerce and Industry Minister Suresh Prabhu and his Korean counterpart will also participate, among others. "Bilateral talks on trade and investments will also be held. Both governments expect now to upgrade ties in the economic sphere", a senior diplomatic source from the country said. The event is also expected to see the participation of a senior advisor to the Korean government, close to Korean President Moon Jae, he added.

India Inc against more 'free trade' with Korea

This may prove to be significant as India has decided to upgrade its existing trade pact with South Korea despite domestic industry expressing concerns the agreement disproportionately favouring that country. This follows Commerce and Industry Minister Suresh Prabhu’s visit to Seoul last year to review the Comprehensive Economic Partnership Agreement (CEPA), currently in place between the two countries since 2009. Both parties have decided to finalise the negotiations to upgrade CEPA at the earliest, possibly before the end of 2018.

But any move by India to widen the CEPA runs the risk of further angering domestic exporters, who claim the pact has disproportionately helped Korean exporters. For example, while India imported $12.58 billion worth of goods from Korea in 2016-17, its exports to the east Asian nation totalled only $4.24 billion, a trend which has only strengthened with time.

“Korean companies such as Samsung and LG have penetrated deep into the Indian consumer goods market. Automobile major Hyundai has become the second largest manufacturer as a direct result of CEPA,” a senior business leader from the Federation of Indian Chambers of Commerce and Industry said, requesting anonymity.

However, a senior commerce ministry official argued on Monday that a focus on enhancing market access and strengthening the rules of origin will be the key to India’s position to improve the chances of Indian exporters in any talks with the country. But that may be easier said than done.

“While our import dependency can be brought down in major categories such as plastic and related products ($ 1.2 billion) and organic chemicals ($700 million), the same is not true for India’s reliance on machinery products ($2.8 billion) from South Korea or select iron and steel imports ($1.5 billion) — the two largest imported categories,” a Delhi-based trade expert said.

Other tricky issues

The issue of gold imports from Korea will also be discussed within the larger framework of the CEPA, he added. The Directorate General of Foreign Trade (DGFT) has in August 2017 notified the withdrawal of the zero-duty import facility for gold, silver, and their coins and articles. The facility was allegedly being misused for importing duty-free gold from Korea since July 2017 when the Goods and Services Tax swung into effect.

Delhi is bogged down in a slow trade negotiation with the country and others as part of the Regional Comprehensive Economic Partnership (RCEP). The proposed free trade agreement (FTA) between the 10 countries of the Association of Southeast Asian Nations (Asean) and six of its current FTA partners — Australia, China, India, Japan, South Korea, and New Zealand has dragged on since 2012. India has found its push for greater ease in services trade opposed by South Korea which has also batted for India removing its tariff controls.