By Dr Sojin Shin*
India and South Korea upgraded their bilateral relationship as ‘Special Strategic Partnership’ when India’s Prime Minister Narendra Modi visited Seoul in May. The new partnership addresses the needs for closer ties in various industries including the defence sector of both countries. However, I would like to raise a question of how the special strategic partnership can be built.
The optimist investors considering Modi’s visit to South Korea as an opportunity to enhance India-South Korea relationship have expectations of the Narendra Modi government in supporting their investments into India. This excitement created a synergy effect when Modi showed his great interests in inviting more South Korean investors to India during his visit to Seoul.
Modi’s excitement was based on his strong belief and idea on the needs for advanced technology for India’s further growth, as he mentioned “Korea’s economic miracle and global leadership in technology has made the promise of the Asian Century more real.” His visit to the shipyard of Hyundai Heavy Industries in Ulsan during his stay in South Korea supports the point of view. In Hyundai’s Ulsan shipyard, Mr Modi said, “Your ship-building capacity and our agenda of port led development can become driver of our growth.”
As such, India craves the cutting-edge technology from South Korea and South Korea needs the Indian market for its business group. Such expectations have made policymakers and business groups from the two countries have a rosy view about the bilateral economic relations between India and South Korea.
The Government of South Korea also sees that Mr Modi’s visit to South Korea contributed to the development of political, economic, and cultural dimensions. It pointed to the two countries’ efforts to enhance the defence sector for the security of Asia Pacific region; trade and investments in the area of new frontier such as manufacturing, infrastructure, energy, shipbuilding, and health; cultural exchange and cooperation.
Despite such optimism about India-South Korea’s economic relationship, there is a group of pessimistic investors that are not simply excited about the Modi government’s promise. They are those who have learnt an important lesson on the ground in India. Pohang Steel Company (POSCO), the world’s fourth largest steel producer from South Korea, is one of them.
POSCO signed an MOU with the Government of Odisha in India in June 2005 for its foreign direct investment project. The project was proposed to establish an integrated 12 million ton-per-annum steel plant at Paradip in Jagatsinghpur district of Odisha with an investment of US$12 billion. When POSCO-India, the local subsidiary of POSCO in India, was incorporated in August of the same year, not only the South Korean investors but also political leaders, both at the central government and the Odisha government, were excited about the expectations of project.
However, POSCO soon encountered the social opposition organized by the left-wing extremists and local people in the process of acquiring lands for its steel manufacturing factory. The protest group deployed agitation against the POSCO project while the state government of Odisha attempted to acquire lands from local citizens near the Paradip port. Even though the substantial part of required lands was public land, many local people in the area were depending on the public land to cultivate betel vine as the primary source of their income. Despite POSCO’s offer of compensation package for the local people in return for the lands, the agitation became more severe.
The real problem of the challenge for POSCO, in fact, was the state government. The local government was not proactive in dealing with both local government-related policies to push forward the project. In addition, it made less commitment to pacifying the social opposition. POSCO expected the state of Odisha to provide substantial support and institutional incentives such as tax cuts for securing natural resources within the state. However, POSCO heard the news on the progress of the required licenses only in 2014, which was nine years after the first Memorandum of Understanding (MOU). It has managed to resolve the land acquisition problem through substantial struggles and enormous economic spending so far. Nevertheless, the issue of mining leases has still remained unclear.
The lesson that the POSCO case has provided to investors from South Korea and policymakers in India is clear: political commitment and efficient bureaucracy are necessary to make investments viable. It is something that the Prime Minister of India can never provide alone. Mr Modi should remember that there have been many summit meetings for the past ten years from the two countries in order to pursue the POSCO project in Odisha, which hardly made any substantive progress. Strong support from the state government is a prerequisite for attracting foreign investments. It is time for Modi to build his teamwork with other political leaders at the state level to make his ideas and leadership for “Make in India” transferable.
Dr Shin is Visiting Research Fellow in the Institute of South Asian Studies at the National University of Singapore. Her research focuses on India’s political economy.
Fii-news.com
