Strategies for South Korean investment in India

    By Suneeth Katarki, Saurav Kumar, and Swathi Sreenath, IndusLaw

    South Korea and India have significantly strengthened their economic and geopolitical ties in the past decade. In 2009, the countries entered into a bilateral Comprehensive Economic Co-operation Agreement to propel trade and investment, protecting investors against unlawful appropriation of investment and non-discriminatory treatment, with a choice of dispute resolution platform. As of March 2022, South Korea is one of India’s largest foreign investors, with total foreign direct investment (FDI) of more than USD5 billion.

    Given its hospitable manufacturing climate and foreign investment regime, India has emerged as a favourable destination for South Korean investors. This article discusses opportunities for South Korean investors, along with a brief on the regulatory and legal regime governing investment.


    Suneeth Katarki
    Suneeth Katarki
    Founding Partner

    South Korea investment revolves around a diverse set of areas such as fintech, edtech, health-tech, retail, logistics, food and gaming. Apart from investment by conglomerates such as Samsung, LG and Hyundai, private equity (PE) and venture capital (VC) funds such as Mirae Asset and KB Financial Group have also invested significantly in the budding startup arena. Some of these sectors where investment opportunities continue to grow are discussed below.

    Mobility and battery technology. India currently depends on imports to meet growing domestic demand for high-tech electric vehicle (EV) components and batteries. India’s central government intends to localise this production to reduce reliance on imports and ensure the affordability and adaptability of EVs. Most Indian states have published policies to incentivise EV manufacturers and consumers to boost demand.

    With a dearth of charging infrastructure, battery swapping is also a lucrative area where ambitious startups, backed by prominent global funds, are focusing on developing a network of battery swapping stations. The government has already announced a battery swapping policy draft to simplify adoption of this system.

    Saurav Kumar
    Saurav Kumar

    Electronics manufacturing. India is one of the world’s largest markets for consumer electronics, with Samsung and LG being household names. Given India’s young population and rapid digitalisation, demand is expected to grow, with South Korean investment welcomed in this sector.

    Speciality steel. Despite being one of the biggest steel producers, India highly depends on imports for its speciality steel needs. The government has floated a production-linked incentive scheme for this sector, with a USD848.9 million budget for 2024-2025. Further investment from South Korean firms, including market leaders such as POSCO, could yield significant returns for both countries.

    Healthcare. Investment opportunities in sub-sectors such as hospitals, medical appliances, diagnostic appliances, online pharmacies and pharmaceuticals are constantly attracting foreign investment. South Korean investors have started exploring this industry, with NF Healthcare, the leading manufacturer of medical-grade oxygen generators, introducing its products.

    Investment firms like Redwood Global Healthcare Fund are also acquiring stakes in online pharmacy startups.

    Logistics. The logistics sector is growing dynamically with the application of high-grade technology for efficient supply-chain visibility, route planning and optimising operations. The growth trajectory in this sector is lucrative for South Korean giants such as CJ Logistics, which has adopted its automated distribution system for warehouses for various countries.


    Swathi Sreenath
    Swathi Sreenath
    Principal Associate

    Regulatory landscape. Foreign investment in India is regulated by the Foreign Exchange Management Act and rules under the Consolidated FDI Policy of 2020, which provide sectoral caps, pricing guidelines, reporting requirements and other conditions for investment. Additionally, investors must comply with relevant sectoral laws, rules, security conditions and state regulations.

    Investment routes. Investment in India is through two modes: unincorporated entities such as liaison, branch or project offices; or incorporated entities like wholly-owned subsidiaries, joint ventures (JVs) or limited liability partnerships.

    Unincorporated entities have a restricted functional scope, whereas incorporated entities are considered independent and can perform business activities according to their charter documents.

    FDI up to 100% is permitted for most sectors under the “automatic route”, where government approvals are not required, including sectors like automobiles or EVs, steel and electronics.

    However, the laws prescribe tighter controls and regulations for certain sensitive sectors like mining, broadcasting, defence, insurance and pharmaceuticals (brownfield), which require government approval for investment beyond certain limits.

    Since the pandemic, investors have started adopting a more cautionary approach in negotiating JVs. A clear understanding of aspects like governance rights, board representation, restrictions on share transferability, veto rights, resolution of deadlocks, capitalisation and exit rights has become fairly important.

    Further, in situations of change in control or ownership of the JV, safety nets in the form of deferred consideration, share swapping and such can be adopted while framing the price adjustment clauses or exploring the closing structures in a transaction.

    Foreign investment is also allowed through foreign portfolio investment (FPI) in the following ways:

    • Up to 10% equity share capital of listed companies (individual limit);

    • Units of domestic mutual funds, alternative investment funds or offshore funds; and

    • Units of real estate and infrastructure investment trusts (real estate investment trusts and infrastructure investment trusts).

    Prescribed aggregate limit for FPI is the applicable sectoral caps or statutory ceiling (unless increased or decreased by board and shareholders’ resolutions). FPI offers the freedom of portfolio diversification and access to markets with different risk-return characteristics.

    The government also allows investment through foreign venture capital investment (FVCI) routes, in the following ways:

    • Securities of unlisted companies engaged in certain prescribed sectors such as biotechnology, infrastructure, IT, pharmaceuticals, etc.;

    • Units of venture capital and alternative investment funds; and

    • Equity or debt instruments issued by startups irrespective of the sector.

    There is no individual or aggregate limit for FVCI prescribed. However, sectoral limits and attendant conditions are to be followed. FVCI is exempted from entry and exit pricing norms, and is relaxed from the lock-in requirements if the target company becomes public.


    Compliance that businesses need to undertake may become a little complex given several sectoral regulations coupled with various labour, environment, electricity, excise and land laws. For instance, there are more than 20 distinct labour laws that are compliance-heavy, requiring employers to seek registrations and make several statutory payments such as the employee provident fund, gratuity and employee state insurance under various laws. To simplify this compliance for companies, the government has proposed consolidating labour legislation into four codes, thus improving the ease of doing business for foreign investors.

    Litigation in India is often prolonged, causing problems with enforcing contracts, IP rights and arbitral awards. However, the government has taken several initiatives to overhaul the judicial system by introducing commercial courts, decriminalising several corporate offences, and amending arbitration and insolvency laws. These measures have received positive feedback from investors.

    Land acquisition can also be arduous due to such issues as land fragmentation, regulatory approvals and compliance with local land ceiling laws. To overcome this, the concept of industrial parks has been introduced, providing readymade land for industrial use, equipped with basic infrastructure amenities like power, water and internal roads.


    Given the country’s diversity and federal structure, investors must also consider the prevailing social, cultural and political conditions. Several states have implemented liberal economic policies or projects to address longstanding investor problems.

    For instance, Gujarat International Finance Tec-City, a state government project, is a designated special economic zone with an international financial services centre where certain taxes related to financial transactions and income have been waived or abolished. The state of Haryana has also developed land for industrial use, exempted certain labour law compliance, and invested in state infrastructure to attract investments.

    With countries worldwide committing to becoming carbon-neutral, there is also growing consensus among the government, industry and public about the need to be sustainable. Indian company law makes contributions towards social or environmental causes mandatory under corporate social responsibility provisions.

    The focus is also shifting towards environmental, social and governance (ESG) impacts of business. The Securities and Exchange Board of India recently introduced business responsibility and sustainability reporting for the top 1,000 publicly traded companies by market capitalisation. Smaller businesses have also begun considering their ESG risks and potential, especially those looking for private investment from VC and PE funds.


    India’s prowess in offering business services at a low cost, along with the availability of a skilled workforce, a liberalised foreign exchange framework, and smooth entry and exit option structures, is encouraging more India-centric investment.

    There is no denying that investors will increasingly be looking for various opportunities in the lucrative market. Careful analysis of the entry options, while keeping in mind key influencing factors in the current investment setup, will help South Korean investors establish a strong foundation in India.


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