Is Korea’s $10 billion India plan pure chimera?

When Indian Prime Minister Narendra Modi wrapped up his two-day visit to Korea this week, the Blue House announced a new package of economic support for investments in India.

It said it would support $10 billion in projects, particularly Korean companies participating in India’s infrastructure construction projects.

It was a nice, big and round number. The Blue House, economy-related government organizations and the local media competed to portray India as the new China for Korea, a knight in shining armor for Korea’s exporters and construction companies coming to the rescue just as China sinks to the “new normal” of less-than-stellar growth.

But the grand $10 billion plan seems more like a wish if not an outright chimera.

According to the Blue House on Monday, the Ministry of Strategy and Finance and the Export-Import Bank of Korea (Korea Eximbank) will together prepare $10 billion to support Korean companies that obtain Indian government-led infrastructure construction projects, including the building of 100 “smart” cities, railways for bullet trains, purification of the Ganges River, and electricity generation and distribution.

Of the $10 billion, $1 billion comes from the Ministry of Strategy and Finance’s Economic Development Cooperation Fund, which are government loans given to other countries, and which have interest rates as low as 0.01 percent and maturities of up to 40 years. The remaining $9 billion comes from the Eximbank’s export financing program, from which the state-run policy bank lends money to Korean companies for overseas business projects.

However, working-level government organizations in both finance and trade have been given no clear direction as to how to invest such large amounts.

Several government officials and state-run financial institution officials said the Korean government hasn’t prepared any plans related to India, and at least a couple of years will be needed before the fund is actually approved and executed. This guarantees delays in any infrastructure projects.

“India has never received international aid from Korea, which requires us to start from the very bottom, [with an aid agreement],” said an official at the Finance Ministry. “I would say it will take at least a couple of years until an aid agreement for India gets final approval, because the approval requires a bilateral agreement and detailed business plans, which again need to undergo feasibility studies. So far, nothing has been done.”

Officials at the Korea Eximbank said they never heard of the plan before they read news reports from Monday’s summit.

“The $10 billion plan came from the government [Blue House], and we’ve never heard of this deal before,” a high-level official at the bank who asked not to be named told the Korea JoongAng Daily. “I understand that the number $10 billion is only a rough estimate of investments determined in a diplomatic sense. I assume that the $10 billion includes all kinds of possible exports and foreign direct investment to India.”

President Park Geun-hye may have wished to promise $10 billion to India, he said, because China promised to invest $20 billion in India just few days earlier.

“Because India is a huge market, Korean companies would be able to fill the investment proposal with many kinds of projects,” he said.

Another official at the Korea Eximbank added that the bank will organize a task force to explore possible business projects in India and structuring a master plan of how to provide a multi-billion-dollar loan.

A lack of preparedness was also found in the trade area, especially in expanding the relatively narrow Comprehensive Economic Partnership Agreement (CEPA) trade pact between Korea and India.

A high-level official at the Ministry of Trade, Industry and Energy on Monday said the ministry hopes to expand Indian market, but revisions to existing trade agreements aren’t easy.

Actually, Korea’s economic cooperation in Indian infrastructure construction and revision of the CEPA were promoted during President Park’s first visit to India in January 2014 at a summit with former Prime Minister Manmohan Singh.

It was surprising to see two identical issues being discussed in the same way a year later with a new prime minister.

China showed a lot more savvy.

Last weekend, China promised to invest about $20 billion towards infrastructure construction, railways and joint industrial complexes in India.

Modi’s second visit to China actually left him and many Indian companies with substantial contracts. Even some additional economic cooperation in areas like mineral drilling were made.

According to the Wall Street Journal, Chinese solar panel maker Trina Solar sealed a panel supply contract with Indian oil pipe maker Welspun, while the Indian maker decided to build a special-purpose steel factory in China.

Indian software developer Wipro decided to open an additional distribution storage facility in northeastern China, while an Indian commercial bank and an Indian outsourcing company each will open a branch in Shanghai.

BY KIM JI-YOON [kim.jiyoon@joongang.co.kr]