By Ahn Choong-yong
India and South Korea have almost equal GDPs and rank among the world’s top 14 economies, showing highly commendable growth performance in the past two decades. In recent years, the countries have been deeply committed to sharing common values on democracy, the market economic system, outward and global orientation, and putting an emphasis on high-level learning in an IT environment.
The countries share past colonial experiences as well. And both belong to the G-20, playing an important role in shaping a new global economic architecture. Against this backdrop, it was historic and significant that Korea and India enforced the Comprehensive Economic Partnership Agreement (CEPA) in January of 2010. The almost two-year-old bilateral CEPA has provisions for the substantial reduction of both tariffs and non-tariff barriers in a phased manner.
Despite their many similarities, India and Korea have almost opposite factor endowments in terms of land and population. Until the late 1980s, the two countries pursued different paradigms of development; while India pursued an inward-looking development path, Korea followed an outward-looking development strategy.
As a result, the two countries show differences over time in their stages of industrial development, manpower development, and trade and investment liberalization regimes. In light of the inherent differences in both economies, the CEPA opened up new opportunities to deepen bilateral relations on trade, investment, and R&D collaborations with the free movement of professionals.
In this context, the 10th India-Korea Dialogue organized by the Seoul Forum for International Affairs (SFIA) and the Indian Council for Research on International Economic Relations (ICRIER), was held in Chennai last week with a focus on post-CEPA evaluation and further utilization. It turned out to be very timely and productive.
Since the historic effectuation of the Korea-India CEPA, Korea’s exports and imports to and from India increased sharply in 2010 ― by 43 percent and 37 percent, respectively ― compared to 2009’s performance, amounting to $11.4 billion and $5.6 billion. Given this immediate visible increase in bilateral trade, the two countries must work together to make the agreement of higher quality than the original through active implementation of the agreement by establishing necessary institutional and administrative measures.
It is well known that the Indian economy has grown by 7-8 percent annually in the past several years to provide an important engine of global growth alongside China while the U.S. and most EU economies were severely hit by the recent global economic meltdown and subsequent sovereign debt problems. As the silver lining amid a gloomy world economic outlook, China and India, the most populous two nations, recorded 10 and 7.6 percent growth, respectively, last year. China is rapidly aging but India maintains the youngest population structure. With a rising per capita income, India offers a blue ocean in the domestic market.
Beyond the inherent expanding of market access to manufactured goods to each other’s economy, the two countries need to work on collaborative measures for respective service sector development not only to upgrade their economic structure but also to create jobs. It is well known that India and Korea have comparative advantages in the IT sector, India being an IT soft powerhouse and Korea being an IT hard power. A synergistic combination of the two in this IT era is likely to bring in tremendous value-added to both economies.
For example, the Delhi-Mumbai Industrial Complex, an ambitious corridor for India’s future growth pole in the global information age, requires a variety of collaborations between the two countries. Korea has rich experiences in modern SOC development projects overseas as well as IT-based new town developments domestically.
Both countries have already proven that the Hyundai Automotive Plant in Chennai and India’s Tata Daewoo in Gunsan have been excellent examples of bilateral business success. India’s back office functions and competitive cloud computing service in its finance sector and Korea’s new initiative to become a regional financial hub could be effectively combined to ensure much-needed financial development in both countries. Indeed, both India and Korea, as likeminded economies, can create an “Asian knowledge platform” to benefit themselves and Asia as a whole.
The writer is currently the Foreign Investment Ombudsman and Chair of the Presidential Regulatory Reform Committee.