Let Korea start 'Act India' policy

By Rahul Raj

The world economy is witnessing a major economic slowdown which includes the European debt crisis and the Chinese stock market decline. South Korea is also going through difficult times, with one of the slowest economic growth rates in recent years. However, in the midst of such a gloomy economic environment, India has become the exception. It is the only emerging economy which is continuously posting a growth rate above seven percent and predictions are that this will accelerate in coming years.

South Korea has played a major role in the development of India since the early 1990s when India opened its economy and initiated its "Look East Policy." The success stories of the South Korean chaebol are well known in India. However, the Indian economy lost its economic growth trajectory in the last ten years because of its regressive tax policies, policy paralysis, massive corruption and notoriously complex bureaucracy. The uncertainty in the Indian economy was also reflected in the mood of South Korean investors who were concerned about their investments in India. Korea's Pohang Steel Company (POSCO) is a shining example of how slow the Indian system can be, as the company has been waiting for the last 10 years to start work on a proposed project to build a steel plant in India.

Even though India and Korea have enjoyed a healthy economic relationship over the past several years, this achievement is far below its potential. The South Korean investment in India is far behind the other East Asian economic giant, Japan. For the last 15 years, Japan has ranked fourth in the world in terms of foreign direct investment (FDI) in India, whereas Korea ranks only 14th by comparison.

Since last year the new government in India has thrown a welcome banquet for foreign investors with the promise of a friendly business environment. India and South Korea have negotiated an upgrade to their trade agreement, commonly known as the Comprehensive Economic Partnership Agreement (CEPA) in order to galvanize bilateral trade. South Korea has also promised to support India's infrastructure with a $10 billion investment. However, the reality is that of the $10 billion promised, only $1 billion will come from the Ministry of Strategy and Finance’s Economic Development Cooperation Fund. The remaining $9 billion will come from the Export-Import Bank of Korea (Eximbank), which doesn't have any clue of how to invest such a large amount of money. It seems that enthusiasm for the Indian market is not exactly moving forward as quickly as had been expected.

One of the major problems of doing business in India is the lack of infrastructure, for which the Indian government needs huge investments to develop. Japan has already clinched several projects including constructing a high-speed rail corridor to introduce India’s first Shinkansen-type bullet train as well as a dedicated freight corridor throughout the country. China is close behind and has been conducting surveys for rapid transit systems in several parts of India. In comparison with these two countries, South Korea has yet to fulfill its investment potential in India.

There have been problems in India, particularly regarding the problem of doing business there. The Indian government has been trying hard to streamline the process by removing hurdles and making it more efficient and with greater transparency. And indeed, a number of financial and ratings agencies have recently reported that India has improved its position as a business-friendly country.

It is time for South Korea to take advantage of India's new openness, to invest in India and reap the benefits of an energized Indian economy. The slowdown in the Korean economy could be addressed by utilizing the opportunities from the Indian market. India in fact has already started its Act East Policy in which Korea is an important player. Now, South Korea should start its Act India Policy, which has the potential to unleash boundless potential for mutual economic cooperation.

Rahul Raj is assistant professor, School of Liberal Arts, Gyeongju University, and adjunct professor, Korean Studies, Hanyang University.