From an elephant to a lion: India, the next China

By Kim Jung-gwan

India is in the process of transforming itself from an elephant into a lion.

For some time, the country has been likened to an elephant, large in size and slow in its gait. But under the leadership of Prime Minister Narendra Modi, who took office in May 2014, the country is starting to take on the image of a lion, an animal that symbolizes power, courage, strength, agility and wisdom.

As part of Prime Minister Modi’s vision to turn India into a global manufacturing hub, his “Make in India” initiative aims to attract foreign capital through business-friendly policies, including the reduction of corporate taxes. By designating 25 key sectors including autos, aviation, electrical/electronic systems, construction and food processing, this ambitious campaign plans to raise the share of manufacturing in India’s GDP from its current 15 percent to 25 percent, and create 100 million jobs by the year 2022.

With an immense market of over 1.3 billion, India has signaled its readiness for change and the entire world is paying attention. Moreover, according to recent numbers released by the U.N., the median age in India as of 2015 is 26.6 years, significantly lower than China (37.0) and Korea (40.6). In other words, as a country that is a good ten years younger than China, India is expected to evolve into a major economic power that drives manufacturing and consumption.

From April to June, India’s current account deficit narrowed to its lowest level of 1.2 percent of GDP and during the 2014-2015 fiscal year (April 2014-March 2015), foreign investment increased 27 percent to reach 30.9 billion dollars, breaking the 30-billion-dollar mark in 3 years. Consumer prices have also stabilized, falling to a record low of 3 percent.

As a result of Prime Minister Modi’s campaign to attract more foreign capital through active summit diplomacy, the country has been promised investments of 100 billion dollars from key markets over the next five years, as well as 19.7 billion dollars by private enterprises. Should these investments come to full fruition, 100 smart cities and a nationwide digital infrastructure can be established under the overarching framework of “Make in India” and Digital India, propelling the country onto a rapid growth path.

Global corporations in countries such as the U.S., China, Taiwan, Japan, Germany, U.K. and Sweden have welcomed the “Make in India” initiative and are seeking to invest. Honda (Japan) will expand its existing factory operations to boost local production, and Ford (U.S.) has announced plans to open a new R&D center. Foxconn (Taiwan), which manufactures electronics such as the iPhone, has also expressed interest in building a local factory and R&D center, and Ericsson (Sweden) will set up its second manufacturing unit in India for communication devices.

For Korea, India is our 9th largest export destination and 17th largest import market, and accounts for 2.2 percent of Korea’s total exports to the world. Korea’s current share in India’s import market is 3.0 percent, which is higher than Japan (2.2 percent), but much lower than China (13.3 percent). Korea’s investment in India also stands at a mere 0.6 percent out of Korea’s total outward FDI, and in contrast to the growing investment activities by countries including China and Japan, Korea has been somewhat slow-moving in this regard.

Of course, doing business in India is not easy. According to the World Bank, India’s business environment is ranked 142 out of 189 countries, and since the country’s 29 provinces operate under individual systems, there are gaps among the business environments in different regions. Prime Minister Modi aims to bring this ranking up to 50 and nowadays, the central government staff and state government employees in India have also joined in the effort by starting their work days earlier to convene and develop new measures for promoting FDI inflow.

India’s slow, steady steps are starting to speed up. There will undoubtedly be obstacles ahead; legislative reform of labor laws and the land acquisition bill will be difficult due to strong opposition from farmers and laborers, and the introduction of the Goods and Services Tax has run into problems.

However, with Prime Minister Modi’s bold determination, India will continue to surge forward and reinvent itself. It is also noteworthy that the Indian government has set up a Korea Plus Desk to provide exclusive support for Korean investors.

In addition to careful research and strategic preparation, Korean businesses will have to act quickly and move into the Indian market, which is being projected as “the next China.” In the meantime, the Korean government must take on a more proactive role in initiating negotiations for the revision of the Korea-India CEPA in order to help minimize business risks for Korean companies operating in India.

The writer is executive vice chairman of the Korea International Trade Association.