Germany’s Chancellor Olaf Scholz heads to New Delhi this week with a delegation that looks to expand trade with India’s burgeoning economy. Trade with India is already at a record high level but the German authorities want to strengthen business ties between the two. A trade deal would also help alleviate Berlin’s concerns about its perceived over-reliance on the Chinese market.
Even if India does not prove to be the “new China“, just having access to the huge Indian market would help reduce Germany’s reliance on Beijing. German companies are mostly optimistic about India’s growth potential, its pool of skilled young workers, a cheaper cost base and an economic growth rate of around 7%.
Chancellor Scholz, will be accompanied by most of his cabinet including the foreign and defence ministers. On Friday, he meets India’s Prime Minister Narendra Modi before presiding over the seventh round of Indian-German government consultations. The visit comes at a time when Germany’s export-oriented economy is facing a second year of contraction, with real concerns that a trade dispute between the European Union and China might adversely affect German companies. Meanwhile, alert to how its reliance on cheap Russian gas before the Ukraine war in 2022 played out, Berlin is actively seeking to lessen its exposure to and dependence on Beijing.
Noting that India, “the most populous country in the world, is a key partner of the German economy in the Indo-Pacific”, Economy Minister Robert Habeck declared the need to “reduce critical dependencies and strengthen the resilience of German companies and their supply chains to and from Asia.”
Trade between Germany and India hit a new record high in 2023. India is expected to overtake Germany and Japan to become the world’s third-largest economy by the end of the decade.
According to the German Chamber of Commerce’s foreign trade chief Volker Treier, direct German investments in India totalled some 25 billion euros in 2022, about 20% of the volume invested in China. This could reach 40% by the end of the decade. “India is the key if “de-risking China is to work”, he said, because of the size of the market and the country’s economic dynamism.
Current investment hurdles cited by German firms include bureaucracy, corruption and India’s tax system, according to a study by the consultancy KPMG and the German Chambers of Commerce Abroad (AHK). Nonetheless, they see a bright future in India, with 82% expecting revenues to grow in the next five years. Some 59% plan to expand their investments, up from 36% in 2021.
Examples include: the German logistics giant DHL, which plans to invest half a billion euros in India by 2026, tapping into a fast-growing e-commerce market; Volkswagen, which has been hit by falling sales in China and high production costs at home, and is considering new tie-ups in India for joint production and signeda a supply deal with local partner Mahindra early this year; and the Cologne-based engine maker Deutz which announced a deal this year with India’s TAFE, the world’s third-largest tractor maker, to produce 30,000 Deutz engines under licence.
