Chancellor Olaf Scholz is leading a high-level delegation to New Delhi this week, aiming to strengthen economic ties with India as Germany looks to reduce its dependence on China. German companies see India’s vast market, skilled workforce, and strong economic growth as key to diversifying their operations. The visit comes at a critical time for Germany, as its export-driven economy faces contraction and potential fallout from a trade dispute between the European Union and China.
Germany’s strategy to reduce reliance on China is in line with its broader efforts to limit exposure to risky dependencies, particularly after the country’s problematic reliance on Russian gas before the Ukraine war. “India is a key partner of the German economy in the Indo-Pacific and plays a vital role in diversifying Germany’s economy,” said Economy Minister Robert Habeck.
India’s Growing Role In German Business Strategy
While German direct investment in India was around €25 billion in 2022, just 20% of the amount invested in China, this share is expected to grow significantly by the end of the decade. According to Volker Treier, head of foreign trade at the German Chamber of Commerce, India’s share of German investments could rise to 40%.
“China will not disappear, but India is becoming more important,” said Treier. He added that India’s market size and economic dynamism make it the key to Germany’s “de-risking” strategy, where India plays a crucial role alongside China.
Opportunities And Challenges For German Firms In India
Although German companies see potential in India, many note hurdles such as bureaucracy, corruption, and the tax system. Nevertheless, optimism prevails, with 82% of German businesses expecting revenue growth in the next five years, and 59% planning to expand their investments.
Companies like DHL, which plans to invest €500 million in India by 2026, are positioning themselves to tap into the fast-growing e-commerce market. Similarly, Volkswagen is exploring joint production opportunities in India, while engine maker Deutz has partnered with Indian tractor manufacturer TAFE to produce 30,000 engines annually.
As Jonathan Brown, managing director at BCG, pointed out, “India offers political stability and low labour costs,” making it a vital part of a “China + 1” strategy, where India complements existing investments in China.
Strategic Talks And Future Prospects
Chancellor Scholz will meet with Indian Prime Minister Narendra Modi on Friday to oversee the seventh round of Indian-German government consultations. This visit also coincides with the biennial Asia-Pacific Conference of German Business, where Economy Minister Habeck will open discussions on expanding German-Indian ties.
Trade between Germany and India hit a record high in 2023, with India poised to overtake Germany and Japan as the world’s third-largest economy by the end of the decade. While negotiations for an EU-India free trade deal remain ongoing, experts believe India’s market offers significant opportunities for those willing to overcome the initial challenges.
(With Inputs from Reuters)
