Earlier this week, commerce minister Piyush Goyal said that India and South Korea were working towards bilateral trade while reviewing a 16-year-old trade agreement between them.
Signed in 2010, the Comprehensive Economic Partnership Agreement (CEPA) has seen bilateral trade more than double, but with a greater share of gains accruing to South Korea. Speaking to the media at an India-Korea business forum, Goyal said this agreement “has not worked for India” and that a review was being undertaken to bring about “more balanced trade between the two countries”. That is also a larger question for India as it enters into more free trade agreements (FTAs), the latest being with the European Union this January.
Widening imbalance
Total trade between India and South Korea increased from $12 billion in 2009 to $27.4 billion in 2024. South Korea has mainly reaped these gains. What India buys from South Korea (imports) has increased at an average of 5.8%, while the sale of Indian goods to South Korea (exports) has grown at a compounded annual rate of 2.6%. As a result, India’s trade deficit with South Korea—exports minus imports—has more than tripled.
Between 2010 and 2020, India’s annual exports to South Korea remained rangebound between $4 billion and $5 billion. Meanwhile, imports from South Korea saw two surges, one immediately after the signing of the CEPA and the other in 2017. Post-2020, as world economies reopened after the covid pandemic lockdowns, both countries saw an increase in bilateral trade, before Indian exports tapered again. The long-term trend suggests a structural gap where India’s demand for Korean industrial goods far outpaces South Korea’s intake of Indian commodities.
Room for growth
A tripling of the trade deficit in a decade and a half is not an outcome to the liking of any producer economy, especially one as large as India. This also becomes critical, given that India is signing more FTAs, which essentially set more liberal trade terms between the signatory countries or blocs. In the past year, India has signed such agreements with the European Union, the UK, and Oman. It is also negotiating agreements with the US, Canada, and six West Asian countries under the banner of the Gulf Cooperation Council (GCC).
In 2006, India had only about 4.6% of its trade with its then-FTA partners. It has progressively added FTA partners, and that figure increased to about 29% in 2024. However, with over 70% of India’s trade still outside FTA frameworks, the benefits of such agreements remain underexploited. For example, a recent publication by Niti Aayog shows that India’s exports to FTA partner countries fell 7% in the December quarter over the September quarter, while imports rose 7%.
Export limits
For a producer country like India, exports make new markets available to Indian goods. Between 2010 and 2023, India’s exports to South Korea grew at an anaemic pace, even as there were changes in the export basket that suggest a structural shift toward industrial value-addition. On the one hand, the share of some traditional sectors fell, notably fuels (down 10 percentage points) and textiles (down 5.7 percentage points). On the other hand, the share of capital goods climbed from 4.4% to 14.6%, driven by strong growth in machinery and electronics, and chemicals.
Metals further consolidated their position as the largest export category, accounting for almost 27% of the basket, keeping exports partly commodity dependent. At the same time, labour-intensive sectors such as textiles and food products lost share, indicating weakening competitiveness or demand constraints. Overall, India has diversified and moderately upgraded its export mix, increasingly supplying intermediate and capital goods. Yet, its presence in high-complexity sectors within South Korea’s manufacturing ecosystem remains limited.
Import dependency
On the other side of the trade equation, India’s imports from South Korea between 2010 and 2023 suggest a deepening, production-oriented dependency. The import basket, which was $21.5 billion in 2024, is dominated by machinery and electronics (35.3%) and metals (21.8%), underscoring South Korea’s role as a key supplier of high-value industrial inputs. A major structural shift is the rise in intermediate goods, whose share increased by over 6 percentage points to 44%, indicating stronger integration into manufacturing supply chains and reliance on Korean components for domestic production.
Capital goods imports remained consistently high at around 42%, reflecting continued dependence on Korean technology and equipment. Meanwhile, the declining share of transportation and consumer goods suggests a move toward domestic assembly rather than finished imports. Overall, the trend points to a supply-chain partnership where India imports critical inputs to support its industrial growth. However, this also reinforces an asymmetric relationship, with India positioned as a downstream manufacturer reliant on Korean upstream capabilities.
Services advantage
In services, the India-South Korea relationship presents a more balanced dynamic, with India maintaining a consistent surplus. Between 2009 and 2024, India’s services exports to South Korea grew about three times. Imports kept pace till 2018 but have since grown at a slower pace and diverged. Thus, India’s surplus has widened steadily, especially after 2020.
The key driver is computer services, where India has a clear advantage. Exports in this segment surged from $275 million in 2007 to $1.73 billion in 2024, increasing its share of total services exports from 17% to 30%. But there are other areas where India has not been able to press an advantage.
For example, under the CEPA, South Korea waived the requirement of English being the mother tongue to be eligible as an assistant English teacher in primary and secondary schools, but not many Indians have been employed for this. As India renegotiates, with South Korea and beyond, these are areas where it can negotiate better terms—and follow up better.
www.howindialives.com is a database and search engine for public data