The future of South Korea–India relations will depend less on diplomatic rhetoric than on the political economy of investment. For more than a decade, Seoul has regarded the revision of the Korea–India Comprehensive Economic Partnership Agreement (CEPA) as the principal mechanism for upgrading bilateral ties. Yet negotiations have remained slow, and there is little evidence that technical trade talks alone can generate a breakthrough. The core problem is not institutional delay. South Korea and India approach the bilateral economic relationship with fundamentally different priorities.
The CEPA has long been seen as incomplete. Earlier assessments in Korea emphasized that the agreement fell short of a high-level free trade arrangement because major Korean export sectors, including automobiles, did not receive sufficient liberalization. The implicit Korean expectation has therefore been that CEPA revision should eventually produce outcomes closer to a full-fledged free trade agreement, or at least to the level of more recent regional trade frameworks. In practical terms, Korea wants improved market access and a meaningful expansion of exports to India.
India’s position is markedly different. Indian officials and experts have repeatedly viewed the bilateral relationship through the lens of trade imbalance. In this view, further liberalization is difficult to justify if it merely enlarges India’s deficit with Korea. This concern is not a narrow bureaucratic objection. It reflects a broader political reality. India remains, in important respects, an agrarian democracy in which the political influence of rural constituencies and farmers is substantial. In such a system, the domestic incentives for tariff reduction are inherently weak. Free trade is politically costly unless it can be linked to visible domestic gains.
What Does India Really Want?
This is the first point that must be clearly stated: India does not evaluate economic cooperation with Korea primarily through the same trade logic that Seoul does. Korea seeks greater access to the Indian market. India, by contrast, seeks investment that strengthens domestic manufacturing capacity. The priorities are asymmetrical. That asymmetry explains much of the long stagnation in CEPA renegotiation.
This interpretation becomes even more persuasive when placed in the context of India’s contemporary party politics. Since 2014, Prime Minister Narendra Modi and the Bharatiya Janata Party (BJP) have built a large part of their governing legitimacy on the promise of manufacturing revival under the banner of Make in India. Whether one regards that project as fully successful is a separate question. Politically, however, its importance is beyond dispute. Manufacturing expansion, foreign direct investment, and employment generation have become tied to the BJP’s narrative of competent rule and national economic renewal.
This political background is crucial because trade policy in India cannot be separated from the incentives of the ruling party. Modi’s third administration began after the 2024 general election in a context that was more politically competitive than the BJP had hoped. The party retained power, but its performance was weaker than expected, while the opposition Congress improved its position. Under such conditions, the ruling party has even stronger incentives to defend those policy areas that most directly support its claim to effective governance. Manufacturing is one of those areas. Trade liberalization that does not clearly contribute to employment or industrial expansion is therefore unlikely to receive priority.
Trade Issue is Political Issue
The implication for Korea is straightforward. If Seoul wants progress in trade talks, it must first address the political conditions under which India would find such progress beneficial. In the current environment, that means investment in India must come before meaningful liberalization through CEPA. In other words, the sequence matters. Korea cannot assume that better trade terms will produce better economic relations and then later stimulate investment. The more plausible sequence is the reverse: credible investment commitments can create the domestic political space in India for trade negotiations to move forward.
At this point, however, a second issue arises. Even if one accepts that investment is necessary, not all investment is politically equivalent. From the perspective of individual firms, the rational strategy is obvious. Companies tend to invest in locations where information is already available, infrastructure is reliable, and industrial ecosystems are established. In India, this has typically meant areas such as the Delhi metropolitan region, where major Korean firms have already operated, or Tamil Nadu, where Hyundai Motor and related suppliers have built a dense industrial presence.
Yet what is rational at the firm level is not always optimal at the political level. If investment in India is expected to serve not only commercial purposes but also diplomatic and strategic ones, then its location and sectoral composition must be evaluated differently. This is where a federal perspective becomes essential.
India is a federal system in which central and state governments are intertwined, and many states are shaped by strong regional parties. For that reason, investment outcomes are politically distributed. A foreign investment project creates jobs, revenue, and symbolic credit, but those benefits can strengthen not only the host locality but also the political actors who claim responsibility for bringing the investment in. The central government has limited incentive to support large foreign projects if the benefits are likely to accrue mainly to rival regional forces.
The Lesson from POSCO’s Failure
The failed POSCO steel project in Odisha illustrates this logic clearly. POSCO began its major investment initiative in the mid-2000s with the ambition of building one of the largest steel plants in Asia. The project was approved at the state level, but over time it encountered mounting obstacles and eventually collapsed. The standard explanation emphasizes land issues, environmental conflict, and local opposition.
But the broader political setting also mattered. The project unfolded within a federal environment in which the central government and the state-level political leadership did not share the same incentives. Under such conditions, administrative procedures, can easily become indirect instruments of political contestation.
The broader lesson is not that foreign firms should avoid politically complex states. Rather, the lesson is that investment in India is inherently political investment when it is tied to a wider diplomatic objective. If Korea seeks a strategic breakthrough in bilateral relations, its investment decisions must be designed in ways that are compatible with the interests of the ruling coalition at both the central and state levels.
What should Korea do next: Invest to India
This leads to a more precise policy recommendation. Korean investment should not simply follow existing business geography. It should also consider where political returns are most likely to be recognized by the BJP-led central government. In practice, this means paying close attention to the relationship between the center and the host state. Investment in regions where the ruling party or its allies maintain substantial political influence is more likely to be incorporated into the broader narrative of manufacturing success that underpins the current government’s legitimacy.
This is not unusual in comparative perspective. Korean investment in the United States has increasingly been interpreted in political terms. Large-scale investments in states such as Georgia have been understood not only as commercial decisions but also as politically salient contributions to local employment and electoral incentives.
The same logic is visible in India. Recent attention to semiconductor and supply-chain investment in Gujarat is instructive. Gujarat is not merely an economically attractive site; it is also closely associated with Modi’s own political trajectory. That does not mean every investment decision is reducible to partisan favoritism. It does mean, however, that the political geography of investment matters.
Such an approach would contain at least three elements. To begin, Korea should recognize that investment in Indian manufacturing is not a side issue but the central precondition for progress in bilateral economic relations. Without credible investment, CEPA revision is likely to remain slow and limited.
Second, Korean policymakers and firms should assess Indian states not only in terms of labor costs, infrastructure, and market access, but also in terms of center–state political alignment. In a federal democracy such as India, those political relationships shape the feasibility and value of foreign investment.
Third, Korea should prioritize investments that can be clearly linked to the BJP government’s manufacturing agenda. Projects that generate visible employment, strengthen supply chains, and support industry are likely to produce diplomatic leverage than investments whose benefits are diffuse or politically invisible.
This does not mean that trade negotiations are unimportant. Nor does it imply that Korea should abandon its long-term objective of securing broader market access. The argument is narrower and more realistic. Under present conditions, trade gains are unlikely to precede politically meaningful investment. They are more likely to follow it
The future of South Korea–India relations should not be understood as a simple question of whether CEPA can finally be revised. The more important question is whether Korea is prepared to invest in India in a way that matches the political logic of the current government. As long as the BJP remains in power and manufacturing remains central to its governing legitimacy, this condition is likely to remain decisive.
The absence of major progress in bilateral relations is not surprising. South Korea has wanted better trade terms, but India has been waiting for stronger investment signals. Until that gap is narrowed, expectations for a major breakthrough should remain modest. If a breakthrough is to occur, it will begin not with tariff schedules, but with strategically placed investment in India’s manufacturing economy.