Population (2019): 51.7 million
GDP (2019): US$ 1.64 trillion
World Bank “Ease of Doing Business” Rank (2019): 5
Bilateral trade with India (2018-19): US$ 20.5 billion
Incentives for FDI
Foreign direct investment (FDI) in South Korea has been steadily increasing, hitting a record high of US$ 21.3 billion in 2016. The strong growth in FDI has been encouraged by cash assistance and incentives for overseas companies entering the market.
Improved credit rating
Despite the global economic downturn, South Korea’s sovereign credit rating has been improving over the years. Both Moody’s and Fitch increased South Korea’s sovereign credit rating in 2012 to AA3 and AA- respectively, with Moody’s later raising it to AA2 in 2015. Standard & Poor’s raised it in 2015 and then again in 2016, to the current rating of AA.
Strong domestic demand
With growing affluence among Koreans, a strong wave of consumerism is sweeping through the country, with many international retailers reporting a healthy growth in sales.
Venture to South Korea
South Korea’s economy is heavily dependent on international trade and the country is a major exporter of electronics, automobiles and robotics.
Trade and economic relations between India and Republic of Korea (Korea) have gathered momentum in recent years with bilateral trade reaching US$ 20.5 billion in 2019-20. The bilateral Comprehensive Economic Cooperation Agreement (CEPA) set in place since 2010 has spurred trade and investment both ways. In 2018, Korea’s investment into India crossed the US$ 1 billion mark for the first time, recording US$ 1.053 billion. In 2019, exports from India accounted for US$ 5.6 billion and exports from Korea accounted for USD 15.1 exhibiting a slightly negative growth rate anf reduction in trade deficit over the year 2019. Korea’s total FDI to India up to September 2019 stood at $6.29 billion.Investment from India to Korea stand approximately at USD 3 billion led by Tata Daewoo, Ssangyong and Novelis.
Bilateral economic ties received a visible boost from the visit of Prime Minister Shri Narendra Modi to Republic of Korea from 18-19 May 2015. India and Korea decided to commence negotiations to amend the CEPA, strengthen cooperation on energy, electronics and shipbuilding industries, including setting up of a Joint Working Group for Cooperation on the shipbuilding sector and another in the field of Electronics Hardware manufacturing. ROK offered to provide US$ 10 billion financing (development assistance and concessional credit) to India for infrastructure projects.
Recognizing the importance of shipping industry in the bilateral relationship, the PM also visited the shipyard of Hyundai Heavy Industries in Ulsan. Leaders of both countries addressed the inaugural session of India-Korea CEOs Forum to promote the bilateral economic cooperation, while PM also met the leadership of the top Korean conglomerates. ‘Korea Plus’ desk was created as a single window in India to address all the issues raised by Korean companies as a result of PM visit. State visit of President Moon Jae-in during 10-12 July, 2018 to India has boosted bilateral engagement with joint vision of people, peace and prosperity. Further, in September 2019, a Korea-India SME and start-up centre was also launched. A target of bilateral trade worth US$ 50 billion to be achieved by 2030 was set up by Prime Minister Modi and President Moon during this visit.
Status of Korean Economy and Synergies with India
In less than four decades, Korea has achieved remarkable progress, transforming its economy into an export-driven powerhouse. Its GDP has crossed US$ 1 trillion from a mere US$ 2.3 billion in 1962, and recorded as the 12th largest in the world according to 2019 GDP. Its per capita income in 2019 was US$ 28,605.7 Services, manufacturing and agriculture account for 56.77%, 32.97% & 1.69% of its GDP respectively.. The economic transformation has been achieved despite Korea’s high dependence on import of natural resources including crude oil and essential minerals.
Korea became the 29th member country of the Organization for Economic Cooperation and Development (OECD) in 1996. Korea is now the 7th largest exporter and 9th biggest importer in the world as of 2019. Its exports reduced by 10% between 2018-19 to US$ 542.3 billion and imports also reduced 6%% to US$ 503.2 billion. Over 40% of Korea’s trade is with China, USA and Japan. Korea’s other major trading partners are Vietnam, Hong Kong, Saudi Arabia, Taiwan, Australia, Germany, Singapore, and Indonesia. Korea has the world’s 9th largest foreign exchange reserves at US$ 408.22 billion as of September 2020. It has world’s largest shipbuilding industry, and ranks among the top producers of semiconductors and electronic products. A major auto manufacturer, Korea produces over 4.5 million vehicles annually.
India and ROK, having pursued different economic paths for development since their independence, currently share considerable synergies. ROK is an export-driven economy and is drawn by India’s huge market. ROK developed considerable expertise in shipbuilding, steel, nuclear energy, heavy electrical machinery etc. and is keen to invest in India in these areas. Similarly, ROK wants to take advantage of India’s prowess in IT software and to combine it with its expertise in IT hardware, designing, engineering and manufacturing. However, 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. Even in textiles and garments where India used to have an edge, ROK has closed the gap and is exporting its own finished products to overseas markets. It is encouraging that the two countries are exploring commercial opportunities in space, defence and nuclear energy areas.
India’s share in Korea’s global trade was 1.89% in 2018, India’s contribution in Korea’s global imports increased from 0.78% in 2001 to 1.10% in 2019. India is Korea’s 21th biggest source for imports and 7th biggest export market as of 2019. In the last four decades, pattern of Korean exports has undergone significant transformation. Exports moved up the value chain from primary goods to light industrial products, to heavy industrial, high-tech and knowledge-based products. One barrier that India faces is Korea’s restrictive policy towards import of primary agricultural products such as fruits and vegetables. These matters are being discussed in the annual CEPA review meetings. There is also a need for diversification of the export products which at present are driven overwhelmingly by petrochemical products, mainly Naphtha, which accounts for more than half of India’s total exports to Korea.
Korean Model of Investment
According to Korea Trade Investment Promotion Agency (KOTRA), about 88% of all Korean subsidiaries established in India are wholly-owned while approximately 11.3% are joint ventures. The joint ventures are mostly between Korean companies themselves, and joint ventures with Indian companies are rare. This is mainly due to the indifferent experience in mid 1990s of Korean SMEs when they tried to enter India through JVs with Indian companies. Korean enterprises, including Hyundai Motors, LG and Samsung decided to have wholly owned subsidiaries with large scale investments, which allowed them to operate on economies of scale, establish their brand image at early stage, and gain negotiating power with local government. The Korean model of investment of working through wholly-owned subsidiaries is in contrast with the Japanese model, which followed the typical process of technical tie ups, participation as minority stake holder and subsequently expansion of stakes.
According to statistics of KOTRA and Korean Exim Bank, Korean investment in India is concentrated mainly in the manufacturing sectors accounting for 83.8% with wholesale and retail trade at 5.9%, financial and insurance activities at 1.9% and electricity, gas, steam and water supply at 1.5%. Korean FDI to India (up to Dec 2019, latest data as of Sept 2019) stood at $6.29 billion, according to the Export-Import Bank of Korea, of which $198 million was received in 2010, $452 million in 2011, $311 million in 2012, $342 million in 2013, $325 million in 2014, $314 million in 2015, $330 million in 2016 and $514 million in 2017, 1,053 million in 2018 and 340 million in Jan-Sep 2019. Major centres of investment are NCR (Delhi, Noida, Gurgaon), Chennai, Mumbai /Pune. USA continues to be Korea’s main investment destination with a total of $102.9 billion (accumulated until September 2018); and China its main destination in Asia with an overall investment of about $62.7 billion (Source: Exim Bank Korea). Korea’s accumulated worldwide investment as of September 2018 is $437.8 billion. Korea’s other major investment destinations are: Hong Kong -$25.2 billion and Vietnam – $19.8 billion. The average investment in India during the last four-year period (2014-2017) was $370.8 million per year.
Korean Industrial Park in the State of Rajasthan: ROK has proposed to establish a Korean Industrial Park at Ghiloth in the State of Rajasthan. Details are in the process of being worked out between KOTRA and RIICO (Rajasthan State Industrial Development and Investment Corporation).
Indian investments in South Korea
Novelis Inc., a subsidiary of Hindalco Industries Ltd., the flagship company of the Aditya Birla Group, acquired Alcan Taihan Aluminium Ltd. in January 2005. Novelis Inc. holds 68% share amounting to about US$ 600 million in Novelis Korea Ltd, which is Asia’s number one manufacturer of aluminium rolled products with state of art production facilities in Yeongju and Ulsan, and employs more than 1,200 employees. Novelis’ total investment in Korea is over $700 million.
Tata Motors Limited, acquired Daewoo Commercial Vehicle based in Gunsan, Korea for a total price of KRW 120 billion (approximately US$ 102 million) in March 2004. Its cumulative investment now is over US$ 400 million.
Mahindra and Mahindra (M&M) in August 2010 acquired a majority stake in ailing Ssangyong Motors with an estimated investment of about US$ 360 million. Its cumulative investment now has crossed US$ 1.5 billion and it has made the acquired company profitable in 2016-17.
Nakhoda Ltd, one of the large Indian producers of yarn acquired Kyunghan Industry Company which has a capacity for 150 tons per day of partially oriented yarn (POY), 90 tons per day of fully drawn yarn, and 60 tons of polyester fibre, with an investment of US$ 40 million.
M/s Creative Plastic, invested US$ 2 million in ROK and set up a 100% Alchemy Mold & Plastic Ltd. in Pyeongtaek.
In addition, Indian IT majors including Tata Consultancy Services (TCS), L&T Infotech and Mahindra Tech set up operations in ROK and have been serving both Korean and other foreign clientele in this country.
Market Access for Indian Agricultural Products in Korea
Technical data for Pest Risk Analysis (PRA) in respect of agricultural products including walnut, mangoes, grapes and vegetables such as Okra and Brinjal (aubergine), was submitted to the Korean authorities from time to time since September 2004. These are at different stages of processing. PRA process was completed only in respect of mangoes and Indian mangoes were launched in ROK in 2017. ROK also applied for PRA clearances for fresh mushrooms, pear, apple, grape and paprika and these are under consideration of the Indian authorities. Korean Organic standards team, Ministry of Agriculture, Farmers and Rural Affairs has visited India in 2018 for onsite visit and provided report on equivalency standards determination as step towards Mutual Recognition Agreement in organic products.
Top items of export by India (2-digit HS Code):
Aluminium, Mineral fuels, organic chemicals, iron & steel, machinery and mechanical appliances, cotton, electrical machinery and equipment, ores, slag and ash, zinc & articles of zinc.
|HS Code||Product Label||India’s exports to Korea, Republic of (Value in 2019 in US$ million)|
|76||Aluminium and articles thereof||807.1|
|27||Mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral||744.2|
|72||Iron and steel||309.2|
|84||Machinery, mechanical appliances, nuclear reactors, boilers; parts thereof||194.4|
|85||Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television . . .||169.4|
|23||Residues and waste from the food industries; prepared animal fodder||155.6|
|26||Ores, slag and ash||139.5|
|79||Zinc and articles thereof||137.7|
Untapped Trade Potential
According to ITC Trade Map, the products with greatest export potential from India to Korea, Republic of are aluminium, motor vehicles and medicaments.
|Product code||Description||Export potential|
|760110||Aluminium, not alloyed, unwrought||US$ 332.9 million|
|8703XX||Motor vehicles for the transport of persons, nes||US$253.4 million|
|3004Xb||Medicaments consisting of mixed or unmixed products, for retail sale||US$ 208.6 million|
|84XXXa||Other machinery||US$168.8 million|
|0306Xb||Shrimps & prawns, frozen||US$ 152.6 million|
|720241||Ferro-chromium >=4% of carbon||US$ 110.9 million|
|29XXXX||Other organic chemicals||US$ 104.5 million|
|100630||Semi-milled or wholly milled rice||US$ 97.9 million|
|100620||Husked or brown rice||US$ 91.6 million|
|230649||Oilcake & other solid residues, whether or not ground or in pellets||US$ 89.5 million|
Machinery, mechanical appliances, iron & steel, organic chemicals, plastics, mineral fuels, vehicles, zinc, opticals and ships are some of the major items that India imports from ROK.
|Product code||Product label||India’s imports from Korea, Republic of (values in 2019 in US$ million)|
|85||Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television . . .||2939.05|
|72||Iron and steel||2472.20|
|84||Machinery, mechanical appliances, nuclear reactors, boilers; parts thereof||2296.58|
|39||Plastics and articles thereof||1678.48|
|87||Vehicles other than railway or tramway rolling stock, and parts and accessories thereof||883.41|
|27||Mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral . . .||839.68|
|90||Optical, photographic, cinematographic, measuring, checking, precision, medical or surgical . . .||453.36|
|73||Articles of iron or steel||348.33|
|40||Rubber and articles thereof||289.75|
EMBASSY OF INDIA SEOUL
101, Hannam Dong, Dokseodang-ro, Yongsan-gu
Republic of Korea (Working hours: 0900-1730 hrs)
Annex building (Consular, Commercial and Cultural Wing)
102, Hannam Dong, Dokseodang-ro, Yongsan-gu, Seoul 04419, Republic of Korea.
Working hours: 0900- 1730 Hrs.
Telephone: +82-2-792-4258, 792-4257.