Author(s)
November 9, 2023
► As the significance of the Indo-Pacific region gains prominence, India's strategic importance is on the rise.
► In this article, we will explore two key areas (renewable energy and service industry) where Korea should focus its attention in the near future.
As the significance of the Indo-Pacific region gains prominence, India's strategic importance is on the rise. With its substantial population and economic potential, India offers numerous opportunities for cooperation in various sectors. In this article, we will explore two key areas where Korea should focus its attention in the near future.
Renewable Energy
The first area is the renewable energy sector in India. The significance of new and renewable energy has been gaining attention since the adoption of the Paris Climate Agreement in 2015. The primary objective of the Paris Agreement is to maintain the global average temperature increase below 2°C compared to the pre-industrialization period and to strive to limit it to 1.5°C or lower. Following the agreement's adoption, many countries have taken various measures to promote environmentally friendly energy sources, including renewable energy, and have implemented policies to support the development of low-carbon industries. This trend also applies to India’s case. India is actively expanding its renewable energy sector to resolve its severe air pollution issues and to meet the demand for increasing energy from economic growth. At present, India has the world's second-largest renewable energy sector, following China.
So, when we consider India's rapidly expanding renewable energy market, India's renewable energy sector stands out as a significant area for potential cooperation with Korea in the near future. This is because India hosts numerous Clean Development System (CDM) projects, offering multiple opportunities for Korea to achieve National Determined Contribution (NDC) reductions through collaborative projects with India. Moreover, there is a substantial demand in India for products like electric vehicles, batteries, hydrogen, and secondary batteries, providing Korean companies with a path to expand their market presence in India.
However, there are several significant obstacles to achieving cooperation between Korea and India in the field of renewable energy. First, there is no established and consistent communication channel between Korea and India dedicated to the renewable energy sector. This absence of regular dialogue can hinder the development of cooperative initiatives. Second, India's trade and investment policies within the renewable energy market tend to be protective for its domestic firms. This can create challenges for foreign entities, including Korean companies, looking to invest and operate in the Indian market. Third, the large scale of renewable energy projects in India and the way incentives from Indian government are granted make it difficult for foreign companies to enter the Indian renewable energy market. Fourth, the Indian renewable energy market is experiencing price competition, and the firm has no choice but to reduce the price of electricity generated from renewable sources. This intensified competition can pose financial challenges for companies operating in the sector. Addressing these obstacles will be crucial to fostering successful collaboration in the renewable energy sector between Korea and India.
In order to enhance cooperation between Korea and India in the renewable energy sector, this article suggests the following ideas. First, it is imperative to initiate a dedicated platform for ongoing dialogue between the two countries, specifically focusing on energy-related matters. Establishing a consistent and dedicated communication channel between Korea and India could serve as the initial step in nurturing renewable energy cooperation between the two nations. This would facilitate more effective coordination and the exchange of ideas to promote collaboration in the renewable energy sector. Second, it is important to develop a Korea-India Climate Change Cooperation Agreement. In the context of the Paris Agreement, the collaborative approach to carbon reduction between countries is referred to as the Internationally Transferred Mitigation Outcome (ITMO). To obtain ITMO through the cooperative approach, it is crucial to engage in discussions about long-term cooperation goals, target National Determined Contributions (NDCs), and long-term strategies for low-carbon development between participating parties. Consequently, to ensure overseas NDC reductions within the framework of the Paris Agreement, it is necessary to establish a bilateral climate change cooperation agreement between Korea and India. Such an agreement would serve as a formal commitment to work together in achieving their climate change goals and reducing carbon emissions. Third, it is important to undertake significant collaborative pilot projects in the renewable energy sector, such as solar and wind power generation, or the production of hydrogen and ammonia. These projects can serve as tangible demonstrations of the cooperative efforts between Korea and India in the transition to cleaner and more sustainable energy sources.
Service Industry
Another area that Korea and India need to pay attention to is service industry. The service industry plays a significant role in India's domestic production. Despite the Modi government's efforts to foster the manufacturing industry, the service industry continues to be a key driver of the Indian economy. The IT sector has traditionally been a vital area of India's service sector, but now, software, internet services, and e-commerce have emerged as major areas in India’s service industry. This reflects the ongoing structural changes in India's service industry over recent years. Both quantitative and qualitative data concerning India's service industry demonstrates that, apart from the IT and software sectors, a wide array of diverse service industries are on the rise in India. Indian service companies are witnessing an increase in productivity, and the proportion of skilled labor is on the rise.
The driving force behind the growth of India's service industry can be attributed to the Indian government's policies aimed at cultivating technology-centric human resources and facilitating economic reforms that encourage private sector participation and deregulation. Since gaining independence in 1947, the Indian government has consistently implemented support measures to nurture a technically skilled workforce. Additionally, in 1991, India initiated economic reforms that shifted towards a market-oriented economy and opened up the service trade and investment sector. Over time, the government gradually broadened the scope of permissible foreign direct investment, currently allowing 100% foreign direct investment in most industries. These policy measures led to a surge in demand from abroad during the early 1990s, as India's abundant and skilled IT workforce became increasingly attractive. Currently, the Indian government actively supports fields like telecommunications, IT, software, finance, and education, and this leads to the expansion of various service sectors in India.
Amidst the ongoing structural changes in India's service industry, it's evident that Korea's integration with the Indian service industry lags behind that of other countries. This is because information regarding India's current market conditions, potential, challenges, and firm-level experiences are not effectively communicated to Korean public or private enterprises. This lack of information sharing contributes to deteriorating perceptions between the two countries. Consequently, this results in low levels of economic, diplomatic, and cultural engagement between Korea and India in both the public and private sectors. Historically, the cooperation between Korea and India has been predominantly centered on manufacturing. Korean companies, particularly in sectors like electronics and automobiles, have been increasingly expanding their presence in the Indian market. However, to strengthen the relationship between Korea and India to the next level, it is imperative to extend cooperation across various industries, including services sectors.
To promote and enhance collaboration in the Korea-India service industry, this article highlights the following key points. First, it is crucial to fortify economic and diplomatic relations between Korea and India at the government level. This includes bilateral agreements, trade negotiations, and initiatives to boost mutual trust and cooperation. Second, providing increased support to Korean private companies operating in India is essential. This support can be in the form of market research, financial incentives, and guidance on navigating the Indian business landscape. Third, policies should be established to improve the network between Korean companies in India and the local manufacturing industries. Fourth, facilitating the exchange of human resources between Korea and India is vital. Encouraging domestic companies to employ more Indian service personnel can promote cultural understanding and help build stronger ties between the two countries. By addressing these key policy tasks, Korea and India can work toward more robust and diversified cooperation in the service industry.