Korean investors shying away from India due to unfriendly policies

Excessive red tapism, land acquisition problems, poor infrastructure, complex tax policies, high licensing and inspection costs, protectionist labour laws and congested judicial system are the major bottlenecks forcing Korean investors to opt for other emerging markets in Asia over India, according to a study.

“With just 1.25 per cent share i.e. about $2.6 billion of Korea’s $215 billion worth total overseas investments till the end of 2012, India figures quite low on the list of favoured investment destinations for Korean firms evidently as investors from Korea have pumped in $39.67 billion in China, $14.18 billion in Hong Kong, $8.38 billion in Vietnam, $6.73 billion in Indonesia, $4.65 billion in Singapore, $3.95 billion in Malaysia and $3.81 billion in Japan,” noted a report titled ‘India-Korea: Eliminating Barriers and Increasing Investments,’ by the Associated Chambers of Commerce and Industry of India (ASSOCHAM).

“Though the bilateral trade between India and Korea reached $19 billion clocking nearly 20 per cent growth during 2012, it is relatively low compared to the size and structural complementarities of the two economies,” said the report.

“Korean FDI inflows have been growing at a very tardy pace as their companies seem to be keener to explore other emerging markets as many of them feel that if big company like POSCO can face difficulties, despite government assurances, it would be even tougher for smaller companies to survive in India,” highlighted the report.

ASSOCHAM has also suggested the government for speedy administrative processes for approval and clearance of big-ticket investment projects through fast track process, development of dedicated world-class industrial parks and supporting infrastructure like logistics, power and water supply, carrying out tax reforms like early introduction of goods and services tax (GST) and developing social infrastructure like Korean restaurants, recreational facilities and others.

“South Korean companies can forge business alliance with their Indian counterparts to become partner in infrastructure development as India plans to tap $1 trillion in infrastructure sector by 2017,” suggested the ASSOCHAM report. Moreover, there is vast scope to boost trade in services like information technology (IT), information technology enabled services (ITeS), communications, banking, insurance, education, broadcasting, tourism and healthcare.

The chamber study further states that automobile, infrastructure, nuclear and renewable energy, defence, small and medium enterprises (SMEs) and shipbuilding are some of the key areas with significant potential for investments and co-operation between India-Korea.

Besides, there is tremendous potential for India and South Korea to work together and explore possibilities of promoting third country exports by taking advantage of the various rationalised procedures and investment norms applicable to the Special Economic Zones (SEZs), added the report.

India may act as an ideal destination for Korean companies to relocate to counter growing labour scarcity and rising wages back home thereby taking advantage of India’s cost-effective human resources, it added.

Further, there is also scope for the two Asian giants to take leverage from complementarities in case of India’s growing knowledge-based service industry and Korea’s hardware and manufacturing-based economic structure. Besides, India’s capabilities in pharmaceutical industry, IT software and auto components indeed complement Korean competence in heavy engineering, automobiles, machinery and electronic hardware.

Also significant opportunities for bilateral co-operation also exist in the area of internet and e-governance.