India finds a new friend
South Korea's prowess in shipbuilding should be of interest to India, particularly as it looks to combat China in the Indian Ocean Region.
The rapid engagement between India and South Korea (officially, Republic of Korea, ROK) started with India's Look East Policy in the early 1990's. Since then, bilateral trade between India and ROK has been steadily increasing. It reached its zenith when India signed the Comprehensive Economic Partnership Agreement (CEPA) with ROK in 2010. At the strategic level, the geo-strategic security environment in the region has a high potential to converge security concerns and cooperation between the two democratic countries. In fact, shipbuilding is one of the major areas where new vistas can be explored by shifting the shipbuilding cluster from the western to the eastern shipyards because of the relatively low cost of labour.
India's defence and energy security
Presently, at the domestic level, most existing vessels are ageing and would necessitate decommissioning within the next 10 years. At the same time, the increasing Chinese submarine activity in the Indian Ocean would also require a vehement counter strategy plan. Although, as a part of its strategic outlook, the Indian Navy has embarked on a modernisation and expansion plan to build 200 ships by 2027. However, based on past experience, delays in acquisition would place an unfortunate dent in India's security for the future. In this regard, the Korean vessel expertise and its timely delivery of shipping orders can be a viable option for India.
The demand for Liquid Natural Gas (LNG) in India is expected to rise exponentially in the coming years. The demand-supply gap in 2017 was estimated to stand at over 30 million metric cubic metres per day. In India, so far, it has been assumed that nearly 200 new LNG tankers are to be built by 2020 to meet the rising demand. LNG carriers are highly complicated ships to manufacture and only numbered shipyards have the required capacity and infrastructure to build them.
However, the Liquid Petroleum Gas (LPG) ship construction might take a little lesser time than the LNG ones. To meet the growing demand, India has to buy LPG ships either from the global market, including second-hand purchases or by accomplishing these ships constructed at domestic yards. So far, two state-run firms — Shipping Corporation of India Ltd (SCI) and Cochin Shipyard Ltd (CSL) — will be involved in exploring the possibility of building LPG tankers locally. Foreign yards will provide the delivery of a vessel in 30 months, whereas the Indian yards will take a longer time to deliver the first ship since they have to start all processes right from scratch.
In this regard, India and South Korea can together develop a shipyard by building a robust public-private partnership that would meet the market challenges. On the other hand, shipbuilding giants China, South Korea and Japan have their yards completely booked with overflow waiting to be grabbed by India through a joint venture with South Korea. The growth potential is further enhanced with the Indian government aiming for its overall shipbuilding sector to attain a 5 per cent share in the global market by 2022.
So far, India and South Korea were limited to the import of three Sukanya Class offshore patrol vessels (OPV) supplied by South Korea's Tacoma firm in the early 1980s. However, in the shipbuilding sector, both defence and commercial enterprises have a huge potential for cooperation. The Korean shipbuilders have the best technical knowledge in ship-designing and assembling in the world. As a part of the 'Make in India' initiative, the present government has allotted over Rs 4000 crore as Shipbuilding Financial Assistance Policy for the next 10 years (2016-2026). The Korean Shipbuilding Cluster started with almost nothing in the 1950s. However, it has emerged as the world's leading shipbuilding nation by overtaking Japan and the European nations who dominated the industry for centuries. Being the largest shipbuilding nation in the world with a share of 36 per cent share in the shipbuilding market, South Korea is looking for substantive investment in shipbuilding where the ground is full of promise and where there is potential for both the parties. India is an important choice since the cost of labour is cheap and does not match any other country's, not even China's.
Though India's share in the global shipbuilding market in 2017-18 is not less than 1 per cent, it has huge potential to increase by collaborating with South Korean companies. Moreover, keeping India's economic growth rate in mind, domestic shipping lines are expanding their fleet and placing the requisite orders with the global yards. On the other hand, India has an efficient supporting industry infrastructure to provide necessary assistance to South Korean shipbuilding industries. By having competitive iron ore in its backyard, Indian IT/ITES industries can offer the required products at relatively economical costs for Korean shipbuilders. On the other hand, India enjoys a long coastline and is conducive to setting up new shipyards. At the same time, keeping the potentiality in the growth of the shipbuilding industry in mind, India's ship repair industry also has a vast scope where Korean companies can join hands with India. In fact, the entire oil shipments of East Asia with over 60,000 vessels including South Korean vessels are passing through the Indian Ocean. Considering India's location at the intersection of major sea lines of communication and the abundant availability of cheap labour, India has an edge over the rest of the world in the ship repair industry.
Overall, the South Korean business strategy is distinctive and rather apparent in nature when compared to other foreign investors in the Indian market. In India, the foreign investors only aim to establish manufacturing operations to serve the purpose of the domestic Indian market; however, the South Korean business success strategy is to integrate Indian manufacturing into their worldwide operations. This would ensure a larger global relevance for South Korea and provide access to better and more cost-effective resources across the world while simultaneously also building upon greater diplomatic relations with other important countries of the globe. In this regard, the opening of Samsung's world's largest mobile manufacturing plant in India is a classic example of their business model which has proven to be quite successful.
In conclusion, this Korean success strategy is quite visible in the Indian automobile and electronic segments and South Korean shipmakers can produce ships in India for both the domestic as well as the global market. South Korea, with its expertise in shipbuilding including commercial warships and other defence equipment, can be a viable option for India's future requirements in defence and technology strategising. Perhaps, using Seoul's technological expertise in shipbuilding, the construction of ports and naval bases would be one of the prime areas of emphasis for both the countries to further build upon their strategic partnership in the future.
(Dr Sudhakar Vaddi is an Assistant Professor. The views expressed are strictly personal.)