KOTRA and the Architecture of Korean Investment in India: A Legal and Regulatory Appraisal
Summary: The economic relationship between the Republic of Korea and India has evolved into one of structural interdependence, with bilateral trade resuming strong growth and both governments targeting US $50 billion in bilateral trade by 2030. At the institutional centre of this relationship is the Korea Trade-Investment Promotion Agency (KOTRA), whose role is primarily promotional and facilitative rather than regulatory. KOTRA supports Korean enterprise through trade exhibitions, business matchmaking, investment facilitation and sector-specific initiatives, while the Korea Plus mechanism operates as a bilateral single-window arrangement to address regulatory friction. The article examines the legal and regulatory architecture underlying Korean investment in India, beginning with the India-Korea Comprehensive Economic Partnership Agreement (CEPA) and its ongoing upgrade negotiations. It then considers the principal statutory and fiscal frameworks governing Korean subsidiaries and investors, including foreign investment under FEMA, reporting through Forms FC-GPR and FC-TRS, the India-Korea DTAA, Production-Linked Incentive schemes and customs valuation of related-party imports. The discussion also addresses the sectoral diversification of Korean investment into logistics, defence manufacturing, cosmetics, steel, gaming and digital content, as well as investment structures relevant to Korean private equity sponsors. The concluding observations emphasise that KOTRA’s promotional role operates alongside a broader Indian legal framework comprising liberalised foreign investment rules, tax-treaty provisions, production incentives and customs facilitation mechanisms. The pending CEPA upgrade is identified as a significant development that may affect rules of origin, market access and supply-chain structuring, making flexibility important for Korean subsidiaries, joint ventures and private equity sponsors considering or expanding their Indian presence.
Introduction
The economic relationship between the Republic of Korea and India has, over the last decade, moved from the register of cordial diplomacy into that of structural interdependence. Bilateral trade, which stood at approximately US $21.49 billion in 2018 and had contracted to US $16.85 billion by 2020 amid the pandemic, has since resumed an emphatic upward trajectory. Korea’s cumulative exports to India through August 2026 touched US $16.8 billion, a year-on-year increase of 30.8%, with August alone recording US $2.34 billion — the highest figure for that month on record, driven substantially by a 177.5% surge in semiconductor shipments. Both governments have now set a formal target of US $50 billion in bilateral trade by 2030, a figure jointly announced during President Lee Jae-myung’s state visit to India in April 2026.
At the institutional centre of this expanding relationship sits the Korea Trade-Investment Promotion Agency — KOTRA — a state instrumentality whose function in facilitating Korean capital, technology and enterprise into the Indian market merits closer legal and regulatory examination than it customarily receives. This article examines KOTRA’s institutional role, the treaty and statutory architecture that renders India an attractive destination for Korean subsidiaries and private capital, and the practical compliance dimensions — under the Foreign Exchange Management Act, 1999 (“FEMA”), the Customs Act, 1962, and the Income Tax Act, 1961 — that govern the life cycle of such investment.
KOTRA: Institutional Mandate and Evolution
KOTRA was established in 1962 as the Korea Trade Promotion Corporation, a body created to support the export ambitions of a Korean economy then in the early stages of industrialisation. In August 1995, its mandate was substantially widened to encompass cross-border investment promotion and technological and industrial cooperation, and it was correspondingly renamed the Korea Trade-Investment Promotion Agency. It functions today under the administrative control of Korea’s Ministry of Trade, Industry and Energy, and operates Invest KOREA — the agency’s dedicated inbound-investment promotion arm — alongside allied platforms for export facilitation and business matchmaking.
KOTRA’s significance for the Indian practitioner lies in its outward-facing function: the agency maintains offices in Delhi, Mumbai and Chennai, through which it organises trade exhibitions, sector-specific business fora and matchmaking exercises between Korean enterprise and Indian counterparts. It was, for instance, a KOTRA-facilitated exhibition that led the Vedanta Group to sign memoranda of understanding with twenty South Korean display-glass manufacturers toward the development of an electronics manufacturing hub in India. More recently, KOTRA has positioned itself as an active participant in the India-Korea Comprehensive Economic Partnership Agreement (“CEPA”) upgrade process, framing the renegotiation as a springboard for deeper supply-chain integration, and has convened sector-specific initiatives such as a “Korea-India Semiconductor Partnership Day” in step with India’s Semicon India programme.
It bears emphasis that KOTRA is not itself a regulator, nor does it possess power to confer statutory benefit or exemption. Its role is properly understood as that of a trade and investment facilitator operating alongside — and in coordination with — India’s own institutional counterpart, the “Korea Plus” facilitation desk, a bilateral single-window mechanism established jointly by the two governments (operating in coordination with India’s Department for Promotion of Industry and Internal Trade and Invest India) specifically to resolve regulatory friction encountered by Korean investors. The substantive benefits that accrue to Korean subsidiaries and private equity sponsors in India flow not from KOTRA’s promotional activity as such, but from the underlying legal and fiscal architecture that KOTRA’s activity is designed to publicise and de-risk.
The Treaty Architecture: CEPA and its Pending Upgrade
The original India-Korea CEPA, in force since 2010, eliminated tariffs on approximately 85 to 90% of traded goods between the two economies and opened Indian services sectors — including telecommunications, construction, real estate and financial services — to Korean participation on preferential terms. It has, over the intervening fifteen years, functioned as the principal legal instrument facilitating Korean trade with India, though it has also drawn persistent criticism from Indian industry for what is perceived as an asymmetric benefit structure favouring Korean exporters.
That asymmetry has become the central subject of the ongoing CEPA upgrade negotiations. The twelfth round of talks, held in New Delhi from 25 to 27 May 2026 and co-chaired by Joint Secretary Kapil Chaudhary for India and Director-General Park Geun-oh for Korea, proceeded against a backdrop of a widening trade deficit — India’s imports from Korea reached approximately US $21.35 billion in FY 2025-26 against exports to Korea of under US $6 billion, a deficit approaching US $15.35 billion, driven principally by electronics, automobiles, machinery, steel and chemicals. The negotiating agenda now extends beyond the conventional trade-in-goods and trade-in-services chapters to specifically constituted sub-groups on digital trade, supply-chain cooperation and strategic industrial collaboration in semiconductors, clean energy, electric mobility, artificial intelligence, batteries and advanced manufacturing. For counsel advising Korean clients, the upgrade process is of direct consequence: rules of origin, sanitary and phytosanitary standards, and investment-chapter commitments are all under live renegotiation, and structuring decisions made today — particularly as to manufacturing location and value-addition thresholds — should be undertaken with an eye to the revised text that is expected to emerge from this process.
The Statutory and Fiscal Framework Governing Korean Investment
Foreign investment route. Manufacturing in India is, in the overwhelming majority of sectors, open to 100% foreign direct investment under the automatic route, requiring no prior approval from the Reserve Bank of India or the Government of India. This liberalisation has been the principal enabler of the greenfield and brownfield manufacturing entries that characterise Korean investment — from Hyundai Motor Company’s original Chennai facility and its more recent acquisition of General Motors’ erstwhile Talegaon plant in Maharashtra, to Samsung’s Uttar Pradesh manufacturing complex, publicly described at its 2018 inauguration as the world’s largest mobile-phone factory. Downstream FDI, pricing of instruments on arm’s-length/fair-market-value principles certified by a chartered accountant or merchant banker, and reporting obligations through Form FC-GPR (on issuance of capital instruments) and Form FC-TRS (on transfer of capital instruments) remain the operative compliance checkpoints under the FEMA (Non-Debt Instruments) Rules, 2019, and require careful attention at every funding round, particularly where deferred consideration, escrow arrangements or optionality clauses — permissible subject to a minimum one-year lock-in — are contemplated in the transaction documents.
Double Taxation Avoidance Agreement. The India-Korea DTAA, revised and brought into force with effect from 12 September 2016 (applicable in India from the financial year commencing 1 April 2017), materially improved the fiscal position of Korean investors as against the original 1985 treaty. Under the revised text, withholding tax on dividends is capped at 15% of the gross amount, down from the earlier treaty’s less favourable structure; withholding on interest was reduced from 15% to 10%; and withholding on royalties and fees for technical services was similarly reduced to a cap of 10%, subject to applicable surcharge and cess. The revised treaty also introduced a broadened dependent-agent permanent establishment provision aligned with India’s source-based taxation policy, source-based taxation of capital gains on the transfer of shares exceeding 5% of paid-up capital, a mutual agreement procedure and bilateral advance pricing agreement mechanism under a new Article 9(2), and — significantly for treaty-shopping concerns — a limitation-of-benefits clause restricting treaty access to genuine residents. For structuring inbound Korean private equity or strategic investment, the DTAA’s rates now compare favourably with several of India’s other major tax treaties, and the availability of bilateral APAs offers a meaningful avenue for advance certainty on related-party pricing.
Production-Linked Incentive schemes. India’s suite of Production-Linked Incentive (“PLI”) schemes has proved a decisive draw for Korean manufacturers in electronics, automobiles and batteries. The PLI scheme for large-scale electronics manufacturing, together with the Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors and the broader Semicon India programme, has anchored continued expansion by Samsung and LG; the PLI scheme for the automobile and auto-component sector has drawn participation from Hyundai and Kia; and the PLI scheme for Advanced Chemistry Cell batteries dovetails with the electric-mobility ambitions both governments have identified as a pillar of the CEPA upgrade. These schemes operate as fiscal instruments distinct from FEMA or the DTAA — cash disbursements or incentives tied to incremental production and investment thresholds, governed by their own scheme guidelines and eligibility conditionalities — and require dedicated compliance tracking quite separate from a subsidiary’s ordinary tax and exchange-control obligations.
Customs valuation and related-party imports. A less publicised but practically significant dimension of Korean subsidiary operations in India concerns customs valuation of related-party imports. Where an Indian subsidiary imports components, sub-assemblies or finished goods from its Korean parent or group affiliate, the transaction is liable to scrutiny by the Special Valuation Branch of Indian Customs under the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, to determine whether the relationship between buyer and seller has influenced the declared transaction value. SVB registration, periodic renewal and the underlying transfer-pricing documentation therefore form a recurring compliance obligation for Korean manufacturing subsidiaries with significant intra-group procurement. Correspondingly, Authorised Economic Operator accreditation — available at multiple tiers under the Central Board of Indirect Taxes and Customs’ AEO programme — offers such subsidiaries tangible benefits in the form of expedited clearance, reduced bank guarantee requirements and deferred duty payment facilities, and has been adopted by several larger Korean manufacturing operations in India as a means of mitigating the friction that related-party import scrutiny would otherwise impose on just-in-time manufacturing schedules.
Sectoral Footprint and the Private Equity Dimension
The breadth of Korean investment in India now extends well beyond the automobile and electronics manufacturing for which it is best known. Mirae Asset Global Investments has acquired logistics assets near Mumbai; Hanwha Aerospace has entered India’s defence-manufacturing space in partnership with Larsen & Toubro on infantry combat vehicle programmes; Amorepacific and Innisfree have established a presence in the cosmetics market; POSCO retains a long-standing steel-sector interest; and Krafton’s investments in India’s gaming and digital-content sector illustrate the diversification of Korean capital beyond traditional manufacturing. Notably, a substantial majority of Korean subsidiaries in India — by some estimates as high as 88% — are structured as wholly owned entities rather than joint ventures, a pattern that reflects both the comfort Korean parents have developed with India’s regulatory environment and the automatic-route liberalisation discussed above.
For Korean private equity sponsors specifically, the relevant entry vehicles remain the conventional foreign portfolio investment and foreign venture capital investor routes, cross-border share acquisitions, slump sales and asset purchases, each carrying its own FEMA pricing and reporting consequences, and — where the transaction meets the relevant thresholds, including in certain foreign-to-foreign transactions with an Indian nexus — mandatory notification to the Competition Commission of India under the Competition Act, 2002. Sponsors will also need to factor in Section 281 of the Income Tax Act, 1961, which requires a no-objection certificate for asset transfers occurring during the pendency of tax proceedings against the transferor — a provision of particular relevance in secondary buyouts of Korean-promoted assets.
Concluding Observations
KOTRA’s function, properly understood, is promotional and facilitative rather than regulatory; it is the institutional voice through which Korean enterprise is introduced to, and encouraged toward, an Indian market whose genuine attractions lie in a liberalised FDI regime, a materially improved tax treaty, a maturing suite of production-linked incentives, and — for those subsidiaries prepared to invest in compliance infrastructure — a customs framework that, through AEO accreditation, can be made to work with rather than against related-party manufacturing supply chains. The pending upgrade of the CEPA, driven substantially by India’s insistence on redressing a trade deficit that now exceeds US $15 billion annually, is likely to reshape aspects of this architecture over the next eighteen to twenty-four months, particularly as to rules of origin and market access in services. Counsel advising Korean subsidiaries, joint ventures or private equity sponsors contemplating or expanding an Indian presence would therefore be well served to treat the current framework as a floor rather than a settled ceiling, and to structure new investment with sufficient flexibility to accommodate the revised commitments that the twelfth and subsequent rounds of CEPA negotiation are expected to yield.
References
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