PM ROLLS OUT RED CARPET FOR SOUTH KOREAN FDI
Investors unsure about GST, capital availability
Even as Prime Minister Narendra Modi rolled out the red carpet for South Korean investors, the government has made it clear that the existing trade deal between the two countries has not helped India as much as it should have.
On Tuesday, Modi addressed a mega delegation of more than 90 South 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 South Korea such as Samsung, Hyundai, and LG, Modi asked South 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 thirdlargest 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 one of the largest start-up ecosystems” he said.
However, India may have a tough time adding to the list of 600 South 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 were finding it difficult to receive loans from banks, while the new GST structure was too complicated.
A senior executive from power and engineering major Doosan told Business Standard that their local partners were worried about the wobbling pace of supplies from smaller firms affected by the GST. Finance Minister Arun Jaitley, also present at the event, said banks had become cautious because they had been at the receiving end, hinting at the issue of non-performing assets.
“India has been a tax noncompliant society. That has to be improved,” Jaitley said on the GST, arguing that the four rates were necessitated by the differences in tax rules earlier in place. He added that once the top bracket of 28 per cent tax was trimmed, 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 had continued to decline, while imports from South Korea had 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 South Korea.
An official from the commerce department told Business Standard that India may now push for tweaking the Comprehensive Economic Partnership Agreement (CEPA) between the two countries. This may represent a change in the official policy whereby India had decided to expand the CEPA despite domestic industry expressing concerns that the agreement favoured South Korea.