[Post-China India]④ "Building Government-Level Cooperation Infrastructure Is Important"

Kim Jeonggon, Head of India-South Asia Team at KIEP
"This Year Marks the 50th Anniversary of Korea-India Diplomatic Relations... Must Be Strategically Utilized"

Junggon Kim, Head of the India and South Asia Team at the Korea Institute for International Economic Policy (KIEP). Photo by Dongju Yoon doso7@

"This year, marking the 50th anniversary of diplomatic relations between Korea and India, presents an opportunity to solidify the relationship between the two countries. While in Southeast Asia it was possible for companies to enter first and the government to support them, South Asia is different. A strategic perspective must be established, and a strategy to expand the government's role should be formulated."

Kim Jeong-gon, head of the India-South Asia team at the Korea Institute for International Economic Policy (KIEP), emphasized in an interview with Asia Economy on the 9th that with India emerging as a global production base amid US-China tensions, the 50th anniversary of Korea-India diplomatic relations this December should be strategically utilized. Under the strong Hindu nationalist leadership of Prime Minister Narendra Modi, who is expected to secure a third term in next year's general election, political stability has been achieved. India recently surpassed the UK to become the world's 5th largest economy, increasing its influence as a post-China power.

Kim particularly stressed that the existing export-oriented perspective of Korea is inadequate for establishing appropriate economic relations when entering India. India has been pursuing 'Make in India,' an economic policy prioritizing the development of its manufacturing sector. Unlike Korea, which succeeded in economic growth through export-led industrialization, India has operated a domestic demand-oriented policy despite liberalization. Considering India's strong protectionist tendencies, a strategy focused solely on increasing exports to capture the Indian market is unlikely to succeed. Below is a Q&A with Kim.

-There are criticisms that Korea-India cooperation is insufficient compared to the potential and strategic importance of the South Asia region.

▲Since the implementation of the Korea-India Comprehensive Economic Partnership Agreement (CEPA) in 2010, productive economic cooperation discussions have not been realized due to ongoing controversies over trade imbalances. Particularly, government-level interest and efforts toward economic cooperation with South Asia have been lacking. While in Southeast Asia it was possible for companies to enter first and the government to support them, South Asia is different. A strategic perspective must be established, and a strategy to expand the government's role should be formulated. Japan, which is expanding its influence in India, is the largest official development assistance (ODA) donor to India, Bangladesh, Nepal, and Bhutan, and has long recognized the importance of South Asia beyond Southeast Asia.

-Considering India's geopolitical uniqueness, what strategies should Korea pursue?

▲During CEPA improvement negotiations, cooperation areas such as infrastructure, energy, and digital new industries should be included to elevate the Korea-India CEPA to a comprehensive platform for bilateral economic cooperation. If it is difficult to conclude CEPA improvement negotiations through additional liberalization, new cooperation areas must be actively explored. India desires investment and technological cooperation in core industries such as semiconductors and batteries, but from the perspective of domestic companies, immediate feasibility is low. Therefore, it is necessary to seek new cooperation beyond traditional manufacturing. Korea should increase investment in the service industry toward India, which has been somewhat neglected, and explore cooperation tasks in advanced technologies such as 5G, which India strategically prioritizes, as well as in marine economy and security, aerospace, and food (agriculture and fisheries). Small and medium enterprises, technology transfer, and defense industries, where India has high cooperation demand, also appear promising.

-India is considered the biggest beneficiary of the US-China conflict. What advice would you give to companies entering the market?

▲Looking at macroeconomic indicators, the current gap between China and India is about 15 years. Although India's growth rate is fast, it will take time. From the government and corporate perspective, the external environment has changed significantly, making it difficult to perceive India solely as an 'opportunity.' India also views the world differently and tries to leverage its elevated status as much as possible. The government should strive to establish a mid- to long-term framework for cooperation with India. Unlike the past boom when Korean companies entered China or Southeast Asia, it is important to build government-level cooperation infrastructure for India. Companies should also recognize that the Indian market yields significant returns proportional to effort and proceed with a long-term approach to market entry.

Junggon Kim, Head of the India and South Asia Team at the Korea Institute for International Economic Policy (KIEP). Photo by Dongju Yoon doso7@

-It seems the approach to the Indian market should differ from the existing approach to China.

▲The difficulty of entry is much higher in India than in China. China is geographically close to Korea, making entry easier and beneficial, but India is distant and culturally different, making it a challenging country for companies. However, with continued sluggish exports to China, there are few alternatives for us. This is why we must focus on India. Particularly, the Indian market is difficult to succeed in if approached solely with an export-led economic logic. Recently, Piyush Goyal, India's Minister of Commerce and Industry, expressed a negative perception of Hyundai and Kia, which are performing well in the Indian market. He criticized that Hyundai and Kia in India import a large volume of parts from Korea, causing a trade deficit of billions of dollars for India. Japan, on the other hand, holds the number one position in the Indian automobile market. When India Suzuki celebrated its 40th anniversary last year, Prime Minister Modi attended and supported the market by offering various incentives for electric vehicles. Surprisingly, the trade volume between Japan and India is not large. Japan has approached India by strengthening local investment rather than exports for a long time. India, having experienced colonial exploitation, tends to be exclusive toward foreign products. It is not a country actively open to imports like China. At a time when India's importance is rising, the government should reconsider Korea-India relations and strive to become a more strategic partner country.

-The Indian startup market is also evaluated as having high potential.

▲Korea's fintech startup Balance Hero is performing well in India. Balance Hero operates the fintech platform 'True Balance' in India in the 'microfinance' sector. Starting in 2016 with a prepaid telecom balance checking app, it gained recognition and has provided small loans to low-credit users since 2019, achieving profitability this year. With nearly 10 million subscribers, it is expanding. According to Morgan Stanley, the Indian e-commerce market is expected to grow from $51 billion in 2021 to $226 billion by 2031.