The current government of India is pushing ahead with a series of economic reform policy, named ‘Modinomics’ after its chief executive, focusing on high growth and being business-friendly. Modinomics emphasizes the virtuous circle of investment that promote employment and consumption, which induces additional investment. The Indian government has been concentrating on improving the business environment through easing or removal of various regulations related to investment, and also establishing a reliable and efficient leadership. Especially, the government of India has placed a priority on attracting private and foreign investment into development of infrastructure and promoting manufacturing sector, based on key policies of Modinomics such as the ‘Smart City’ and development of the Industrial Corridor, and finally, the “Make in India” campaign. 

As a part of his increasingly active ‘sales diplomacy,’ Narendra Modi, prime minister of India, has visited several countries, including Japan and China; holding summit meetings with its leaders and receiving promises of massive investment. Meanwhile, although India’s manufacturing ratio to GDP is approximately half that of Korea, its growth rate in the sector is fastest among emerging countries and advancements in manufacturing structure is also progressing swiftly. The ratio of registered manufacturers employing more than 10 workers ratio to GDP has increased by 2.8 times, from 3.7% in 1950/51 to 10.6% in 2013/14, and the ratio of non-traditional registered manufacturing such as petrochemical and automobiles, etc. to GDP increased to 75% in 2007/08 from 39% in 1950/51. Also, elasticity of employment in private manufacturing is also rising at a rapid pace, though overall elasticity of employment is decreasing. 

Investment into infrastructure has been increasing after the conclusion of the 11th 5-year development plan (2007-2012), as the ratio of investment into infrastructure ratio to GDP initially crossed the 5% mark during 10th5-yeardevelopmentperiod, and subsequently recording 7.2% and 8.2% respectively during 11th and 12th 5-year development periods. However, it would take considerable time for India to emerge as a world class manufacturing hub like China because current investment ratio of India is still only around half that of China. 

After Prime Minister Narendra Modi was elected in May 2014, India’s economic cooperation with Japan and China has been enhanced significantly. The Indian government received promises for investments of 35 billion and 20 billion dollars, respectively, from Japan and China. Japan and China are also pushing forward development of 11 and 2 industrial zones, respectively, for their national companies and are also actively involved in development of a rapid transit railway and a ‘smart city.’ Especially, Japan has already completed a feasibility study into operation of Shinkansen-type train, and several projects for the creation of a DMIC-based smart city projects are also in progress. Also, it is expected that nuclear cooperation agreement, which would mean increased opportunities for Japan to participate in the development of nuclear power generation in India, would be signed between Japan and India at the India-Japan summit planned for the second half of 2015. Japan’s investment into India showed a dramatic increase starting in the late 2000s and as of 2015, its accumulated amount is more than 10 times in comparison with Korea. This represents a direct threats for Korean firms in the Indian market, and it would jeopardize their chances for pre-occupancy in a country widely expected to become ‘the Next China.’. It is amidst such a background that this report places great emphasis on the strategic importance of India. Considering the ongoing slowdown of economic growth in China, it is necessary to enhance cooperation with India. Also, in order to overtake the gap between Korea and Japan in terms of economic cooperation with India, it is urgent that strategies be established for expediting such cooperation.

Also, development of specific and concrete projects and strategies by make good use of the 10 billion dollars available, including the 1 billion dollars of EDCF funds as agreed to at the Korea-India submit on May 2015 must be undertaken with great urgency.

This research report suggests development of a ‘Korean Industrial city’ as the new economic cooperation project with India. It dovetails neatly with key policies of Indian government, namely their focus on promotion of manufacturing, development of infrastructure and industrial corridors. Also, Korea can take advantage of its extensive experience and knowhow regarding development, including those for industrial cities, new towns, innovative cities, administrative cities, etc. Development of a ‘Korean Industrial city,’ in particular, would provide a marvelous opportunity to promote investment of Korean firms into India.

To minimize development risk, as many stakeholders should participate as possible. Especially, participation of firms who are specialized and well-suited for entry into manufacturing-oriented new towns, along with their affiliated and cooperating firms is needed. In addition, government, public and private sector, financial institutes of both India and Korea also should participate. Development of manufacturing-oriented new towns based on cooperation with large firms and cooperative firms can simultaneously minimize investment risks, such as vacancy problems. By utilizing the total of 10 billion dollars of infrastructure development fund including 1 billion dollars from EDCF, along with KSP based project, such activities as Feasibility study, building master plan and urban infrastructure, organizing related institution and transferring operating knowledge can proceed smoothly and efficiently with minimum risk.

In order to develop ‘the Korean Industrial city’ efficiently and expeditiously, related policies must be prepared and formulated beforehand. First, of these preparations involve selecting a state and city, followed by negotiations with relevant organizations and agencies. Especially, cooperative involvement of cities should start at the very beginning, as the development plan is being conceived, so that there would be greater possibility of securing ‘high return’ cities and regional projects in advance. Although some countries have already established themselves in 15~16 cities, there are still many opportunities available as 20 new cities are selected and provided with budgets annually.

Also, due to the difference in fiscal conditions and willpower in connection with development, and awareness of land acquisition by the state, selection of target city should proceed carefully. So far, it is the most reasonable to consider 6 states included in DMIC project as a prior selection. The said list of 6 states include Gujarat, Maharashitra, Uttar Pradesh, Haryana, Rajastan, and Madhya Pradesh. Other states that can be considered in addition are Punjab, and Andhra Pradesh.

Second, it is important to organize a consortium consisting of firms moving into industrial zones in combination with government, public and private sector, financial institutions, and international organizations. Especially, due to the lack of experience of Korean firms in overseas project involving investment development, the government and public organization should communicate the necessity for such projects to all actors, and create a favorable atmosphere for participation. Furthermore, they should lead the way in building the consortium through cooperating actively with firms that move into new cities and industrial zones.

Most of all, a system needs to be organized that can drive development projects forward by searching for target cities or states, and build a consortium step by step. And discussions for organizing enforcement system should begin where government and public sector must first provide support for related consultative groups, followed by formation of a consultative group that brings together large and small-medium sized firms, and financial institutions. It is expected that attracting participation of firms would be relatively easier considering that 10 billion dollars, including 1 billion dollars from the EDCF, is available as development funding.

Lastly, strategy of developing projects of reasonable scale, focusing on high quality-low cost industry oriented smart city and taking advantage of Korea’s experience in short-term development, is necessary. This strategy offers a practical direction where Korea can differentiate itself from massive development models of Japan and China, and also spread out to other states and cities using the Korean industry-oriented smart city.