28 May 2015

Second wave of engagement

Skand Tayal & Sandip Mishra
May 28 2015

For Prime Minster Modi, the visit to the Republic of Korea (RoK) formed an important part of his quest to spur growth in the manufacturing sector. Korea has compelling reasons to respond because in India Chinese companies are giving a stiff competition to its ‘chaebols’ in infrastructure, power and even mobile handsets. China also offers attractive credit and long-term payment facilities in the power sector. It was to meet this challenge that RoK agreed to provide $9 billion as tied credit in infrastructure, including smart cities, railways and power. Korea will also create a separate Economic Development Cooperation Fund of $1 billion.

Moreover, India-ROK trade that had touched $20 billion in 2011 has now slipped to about $18 billion. As the growth in bilateral trade continues to be sluggish, the target of $25 billion trade in 2015 has been abandoned and no numerical target fixed.

The Korean side advocates an early revision of the Comprehensive Economic Partnership Agreement (CEPA), which came into force in January 2010. However, the Indian industry maintains that CEPA has failed to promote Indian exports to ROK and the trade gap is tilted against India. Displaying caution, the two sides agreed to begin negotiations on amending CEPA a year later to achieve ‘qualitative and quantitative increase of trade through an agreed road map’.

It is in this broad context that Modi had a brief and business-like visit to RoK on May 18-19. Modi and RoK President Park Geun-hye raised the bilateral relationship to ‘special strategic partnership’ and India acknowledged RoK as 'an indispensible partner' in Modi’s Act East Policy.

Modi focused on inviting Korean corporate leaders to invest in India and become 'privileged partners' to pursue the national objective of 'Make in India'. While participating in the first India-ROK CEO Forum on May 19, in which a 21-member delegation from India met corporate leaders from ROK, Modi announced a ‘Korea Plus’ fast track, besides individually meeting CEOs of Korean chaebols such as Hyundai, Samsung, Lotte and POSCO. Many of them were early movers in India and are reaping rich dividends.

Modi hoped to convince them into launching a second wave of Korean investments and one major objective was to attract chaebolsto commence private sector collaboration for constructing LNG carriers in India. However, the Koreans are unlikely to come to India in a joint venture mode. If the Modi government wants them to build ships here, it will need to offer a functioning shipyard on an outright sale or lease basis. Earlier, Hyundai Motors went for a highly successful greenfield project only when the Narasimaha Rao government allowed 100% FDI. But under the current regulatory and political environment land and environmental clearances for a new shipyard are impossible.

To advance the cause of 'Make in India' the proposed establishment of a Korean Industrial Park in Rajasthan will be pursued. This would facilitate the entry of Korean small and medium enterprises into India's manufacturing sector.

A noticeable silence was on the POSCO project in Odisha. This $12 billion project in the steel sector has been languishing since 2005 and its absence from the joint communiqué indicates that this potentially largest foreign investment in India has sunk in the quick sand of India’s land and mining laws. Apparently the promised Modi magic has failed to breathe any life into this ambitious project.

Despite close understanding on political and security issues, strategic content remains thin. The two leaders agreed to have annual summits, annual meetings of the Foreign Ministers-led Joint Commission and regular consultations between the National Security Councils. However, it is for the future to tell how these meetings shape commonality of strategic interests of the two countries. On global and regional issues, both have differing perceptions. RoK did not endorse India's quest for a permanent UNSC membership because it has tied up with Japan with whom Koreans continue to nurse historical grievances. RoK is also increasingly adopting a stance of equidistance between the US and China.

Modi must have been intrigued by the Korean belief that a princess from Ayodhya travelled by sea in the 1st CE to marry their King. The two countries will now jointly upgrade the monument for the Queen in Ayodhya, erected by her Korean descendents.

In evaluating the significance of the visit, it must be emphasised there were three important characteristics. The first was its symbolism — it was the first time an Indian PM visited ROK in the first year of his term. Before his official meetings, his first stop was a war memorial and then a meeting with people of Indian origin in ROK. Thus, symbolism was strong and his visit was reported by the Korean media with more prominence than any other Indian visits in the past.

Content wise, India and ROK signed seven bilateral agreements, expressed several common concerns in the Joint Statement and the resolve to hold annual 2+2 meetings (Foreign and Defence Ministers) underlines that India gives Korea the same importance as it gives to Japan, which was the first to hold meetings with India in the 2+2 format.

It is interesting that both countries recognised the connection between ROK's Northeast Asia Peace and Cooperation Initiative and India's Act East Policy. It also means that a common vision of multipolar Asia, rule-based inter-state relations and cooperative security framework will be the guiding principle of both countries in conducting their foreign policy.

The third important dimension is the goodwill generated will reverse some trends such as the recent years of lean economic exchanges and ROK not being appreciative of Modi's closeness with Japanese PM Shinzo Abe. However, it seems that the Indian PM's energetic intervention in RoK may restore the confidence of both countries in each other.

It would be wise to wait and see how Modi's promises at various fora are followed up. The future course of relations would depend on the vigorous and timely implementation of various agreements and statements. India has to radically improve the investment climate and reduce the time between conceptualisation and implementation of a project. Only then will the full potential of India-ROK partnership be realised.

Skand Tayal is a former Ambassador to the Republic of Korea and Sandip Mishra is an Assistant Professor, Department of East Asian Studies, Delhi University

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