India-Korea business summit: PM Modi rolls out red carpet for Korean FDI

Prime Minister Narendra Modi in Hyundai’s fuel cell e-SUV NEXO along with Hyundai Motor Company Vice-chairman Euisun Chung. Photo: Official twitter account of the Embassy of India in Seoul
Even as Prime Minister Narendra Modi rolled out the red carpet for Korean investors, the government has made it clear that the existing trade deal between the two countries hasn’t helped India as much as it should have.

On Tuesday, Modi addressed a mega delegation of more than 150 Korean companies, in town to attend the India-Korea Business Summit organised by the Confederation of Indian Industry. Addressing the major ‘chaebols’ or large family-owned mega-conglomerates from Korea such as Samsung, Hyundai, and LG, Modi asked Korean firms to further expand the $2.55 billion worth of investments they have in the country, mostly in the automobile and engineering sectors. 

“We are already the third-largest economy by purchasing power. Very soon, we will become the world’s fifth-largest economy by nominal GDP. We are also the fastest-growing major economy of the world today. We are also a country with the one of the largest start-up ecosystems” he said.

However, India may have a tough time adding to the list of 600 Korean companies that already have operations here owing to investors’ reservations about capital availability and complications regarding the goods and services tax (GST). On Tuesday, firms said that their local partners find it difficult to receive loans from banks, while the new GST structure is too complicated.

A senior executive from power producer and engineering major Doosan told Business Standard that their local partners are worried about the wobbling pace of supplies from smaller firms affected by the GST. Finance Minister Arun Jaitley, also present at the event, said that banks have become cautious over the last few years because they’ve been at the receiving end of their clients, possibly hinting at the issue of non-performing assets Indian banks are mired in.

“India has been a significantly tax non-compliant society. That has to be improved,” Jaitley said on the GST, arguing that the four rates were necessitated by the vast difference in taxes earlier in place for different items. He added that once the topmost bracket of 28 per cent tax has been thinned further, he did not see the other two rates starting to converge any time soon.

Commerce Secretary Rita Teaotia told the same audience that India’s exports have continued to reduce, while imports from Korea have risen steadily. “It is not a sustainable relationship,” she said, referring to trade figures from 2016-17 which show $4.24-million Indian merchandise exports being dwarfed by $12.58 billion worth of imports from Korea.

A senior official from the Commerce Department told Business Standard that India may now push for tweaking the Comprehensive Economic Partnership Agreement (CEPA), currently in place between the two countries since 2009. This may represent a significant change in the official policy whereby India had last year decided to expand the CEPA despite domestic industry repeatedly expressing concerns that the agreement disproportionately favours Korea. Currently, more than 78 per cent of items from India’s list of goods and 88 per cent of the Korean list are placed in the zero-duty category.

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