Soon enough India will be offering a larger potential market, attracting greater inflows of the world¡¯s Foreign Direct Investments (FDI) into its economy.Although India may take a few more years to transform the major impediments to the ease of doing business, it willshortlybecome the most famous destination for the world trade and investment.
However, India is currently far behind in comparison to other emerging economies in the world, especially China. Therefore, it is particularly vital to provide a secure environment to both attract greater inflows of FDI and to maintain its high competitiveness
In spite of the current state, Prime Minister Modi has been arduously working on major economic reforms; he campaigned economic growth as his top priority. India has opened up numerous new sectors for the FDI, such as defense, power, and insurance. Most importantly, India does possess an abundant talented and skilled young labor force, a large market and relatively low wages.
ANALYSIS (Source: Department of Industrial Policy and Promotion, Government of India)
Even though the inflow of Korean FDI to India has grown 10 times (USD 20.67 million in 2000-01 to USD 223.99 million in 2012-13) since India has started attracting Korean investors, the flow of FDI from Korea to India is anawfully small percentage of its total FDI inflows, accounting only 0.61percent share.The percent share of Korean FDI in 2013-14 has sharply decreased to USD 159.64 from USD 223.99 from 2013-14 (up to February, 2014).
With regard to the total FDI inflows, the services sector performed the best in 2013-15 (up to May, 2015) for approximately 17%, Construction Development (9%), Telecommunications (7%), Computer Software and Hardware (7%) and Automobile Industry (5%).
Korea presently ranks 14th among the 70 countries providing FDI inflows in India. Considering the special India-Mauritius trade relationship, Mauritius has been the largest investor in India accounting for 35% of the total FDI inflows.
The top 5 sectors of South Korea are Metallurgical Industries (24%), Prime Mover (other than Electrical Generators, 9%), Automobile Industry (7.57%), Machine Tools (7.21%) and Hospital & Diagnostic Center (6.36%). It followed by Singapore (14%), U.K (9%), Japan (7%), Netherlands (6%) and the US (6%).
According to the Global Competitiveness Report, the most problematic factors for attracting investors in India are identified as inadequate supply of infrastructure, corruption, inefficient government bureaucracy, policy instability, tax regulation and restrictive labor regulations. Consequently, India needs to focus on revising and implementing various reforms in order to be fully equipped for the upcoming larger inflows of FDI, such as reforming in labor laws, corporate tax, bureaucratic regulatory systems and liberalizing FDI policies. Moreover, a unified Goods and Services Tax is likely to be introduced mid-year of 2016.
Japan has announced plans to invest approximately 34 billion USD into India over the next five years, and India has promised to set up a special management to facilitate investment proposals from Japan. China also has committed to invest 20 billion USD into India over the next five years. The US-India Business Council (USIBC) has specified more than 41 billion USD of planned investment by its members in India over the next three years
Major economic giants are aware of the growth potential in India and that India¡¯s GDP will continue to stabilize. According to the Statista, India¡¯s GDP will continue to be in the upper 7% through 2020.
In order to host the increasing number of Korean companies, it is vital to provide ample opportunities to seek joint ventures with Indian companies.It is noteworthy that Korea has world-renowned companies from IT, shipbuilding, transportation (railroad) and general manufacturing industries; therefore, India should encourage the Korean companies in the aforementioned industries to bid for larger FDI projects in India. More importantly, India should offer favorably incentives to Korean investors, such as, tariff concessions, R&D support, possibly financial subsidies for small and medium enterprises, low tax rates, etc.
It is time for Korea to acknowledge the rapid advancement of the FDI market in India and to start anticipating the valuable investment opportunities in India for the betterment of the Indo-Korea bilateral relationship.
- Jimmy Younserves as Research Fellow at the Indo-Korea Business and Policy Forum.
Mr. Youn served as a legislative intern/aide for U.S Senator Arlen Specter in 2009 in Washington, DC. He received a Master¡¯s Degree in Public Health in Health Policy from Brody School of Medicine, East Carolina University. He is currently preparing for a Ph.D program in security studies in the U.S.
PriyankBedi and EktaKharbanda, ¡°Analysis of Inflows of Foreign Direct Investment in India- Problems and Challenges,¡±Global Journal of Finance and Management, 2014: Vol. 6, No. 7, pp. 675-684. http://www.ripublication.com/gjfm-spl/gjfmv6n7_10.pdf (accessed July 23, 2015).
Anita Gill, ¡°Internationalization of Firms: An Analysis of South Korean FDI in India,¡± Seoul Journal of Economics, 2014: Vol. 2, No. 1. http://www.sje.ac.kr/modules/repec/issue_view.html?vol=27+(2014)&num=1&p=1&no=552 (accessed July 21, 2015).
See, PriyankBedi and EktaKharbanda, ¡°Analysis of Inflows of Foreign Direct Investment in India- Problems and Challenges,¡±Global Journal of Finance and Management, 2014: Vol. 6, No. 7, pp. 675-684. http://www.ripublication.com/gjfm-spl/gjfmv6n7_10.pdf (accessed July 23, 2015).
Department of Industrial Policy and Promotion, Government of India, ¡°Factsheet on Foreign Direct Investment for Korea,¡± up to May, 2015. http://dipp.nic.in/English/Publications/FDI_Statistics/2015/india_FDI_May2015.pdf (accessed July 22, 2015).
World Economic Forum, ¡°Global Competitiveness Report 2014-2015,¡±http://www3.weforum.org/docs/WEF_GlobalCompetitivenessReport_2014-15.pdf (accessed July 22, 2015).
ING Commercial Banking, Economic Department, ¡°The Indian Challenge with Modi,¡± https://www.ingcb.com/insights/research/the-indian-challenge-with-modi (accessed July 22, 2015).
On the Ground, Standard Chartered, ¡°India – Silent but Powerful Reforms,¡± November 6, 2014. http://static.financialexpress.com/frontend/fe/pdf/Reforms.pdf (accessed July 21, 2015).
Statista, ¡°India: Real Grow Domestic Product (GDP) Growth Rate from 2010 to 2020,¡± http://www.statista.com/statistics/263617/gross-domestic-product-gdp-growth-rate-in-india/ (accessed July 23, 2015).