India: The New “Perfect Fit”? The Up-and-Coming Collaboration of Germany and India

published on 10 August 2023 | reading time approx. 4 minutes

by Rahul Oza and Valentin Ketterer

India has always been a crucial long-standing economic partner for Germany. Last year alone, the trade volume increased to around 30 billion Euros, making India the essential trading partner for Germany in South and Southeast Asia. Therefore, the partnership has been constantly developing and improving. On July 19, for the first time in 10 years, the German Minister of Economic Affairs and Climate Action visited India. Robert Habeck is also the vice-chancellor of Germany. He aimed to further increase cooperation and collaboration between the two countries, all in light of the recent political developments and the upcoming G20 summit.

Geopolitical challenges »
Unlimited Potential »
Further Challenges »
Outlook »

Geopolitical challenges

One of the influencing factors is the Ukrainian War. Ever since the start of the conflict, Western countries have condemned Russia's actions. However, India has not officially condemned the actions of Russia and has always kept a neutral stance whilst promoting a peaceful resolution of the conflict. This has not been in the West's interest, and Robert Habeck partially used his visit to discuss this. However, the Vice-Chancellor also mentioned that he would respect the long-lasting relationship between India and Russia.

Additionally, the current Free Trade Agreement negotiations (FTA) between the EU and India were a point of discussion. The Minister confirmed to the Indian Government that he would support the FTA and try to expedite the negotiations. Partially, this is due to the recent release of the German China Strategy, which aims to decrease German dependency in the Asian region. In order to succeed with their newly formed strategy, new economic partners have to be found, something for which India would be exceptional, given its reliability and increasing economic power.

The upcoming G20 summit also played a vital role in the visit of the German vice-chancellor. Since the beginning of this year, India holds the presidency. During his three-day visit, subjects such as sustainability, trade, and energy policies were discussed. All of which are on the upcoming G20 agenda of India and are of particular interest since India plans to become a leading country for the Global South during its presidency.

Unlimited Potential

In recent years, India has provided foreign countries with various incentives to shift their production plants to India. Given the current economic and political situation, these projects could experience exponential results – indeed, some already have.

One of the initiatives launched by the Indian government is the “Make in India Mittelstand” (MIIM) initiative. This project was launched by the Indian Embassy in Berlin and the Department for Promotion of Industry and Internal Trade (DPIIT) and aims to promote and support the German “Mittelstand” in India. For exactly these reasons we as Roedl & Partner are delighted to announce that we are supporting this effort as the programme’s official Knowledge Partner. Through this project, India hopes to receive further economic aid in the form of capital, promoting and supporting India’s position as a major manufacturing hub in Southeast Asia. The initiative provides a network and support for companies interested in setting up or expanding their business in India and brings together government, non-profit and private entities for comprehensive support MIIM also serves as a knowledge platform and offers access to a wide range of specially curated and exclusive industry reports, newsletters, webinars, events and much more. The mission: Ensuring that the German Mittelstand is well-equipped to thrive in India and to make use of its manifold opportunities.

Additional advantages for German companies would be the Indian Tax law. This law states that companies are only taxed in India based on income. Additionally, there are royalties, interest, capital gains, and many more taxes, but they are all very favourable to foreign Investments (FI). One of the most potent examples is that the Indian government forfeits all import taxes on raw materials if these are then used for a manufacturing process in which the final product is then exported abroad again. This shows that India is doing everything it can from a regulatory side to increase FI into India.

In addition to these mentioned projects, India provides various foundations for economic success. Not only does the large population play a key role, but also the fact that India is renowned for its countless high-ranking universities and, therefore, a highly skilled labour force which presents unlimited potential when combined with the willingness to promote reforms and the stability of democracy. In addition, the lower pricing guideline results in cheaper labour cost compared to Western countries. For precisely these reasons, the German Federal Labour Minister, Hubertus Heil, also visited India around the same time as the Vice-Chancellor. Together, they actively called upon Indian specialists to come to Germany. With this initiative, the two ministers aimed to compensate for Germany's lack of specialists in the healthcare industry. They promoted lucrative pay, and the newly reformed immigration law which allows specialists of different sectors a quicker entry and faster access to work permits.

Further Challenges

Despite these overwhelming positive aspects of India, it also has to be noted that specific challenges remain.

For example, India does have a growing economy and values that can relate to the West when looking at human rights for example. However, the Indian infrastructure is still lagging. Despite rapidly growing investments (currently amounting to 33 billion Euros), India still has a long way to go until it can compete with countries like China.

Additionally, the unemployment figures are relatively high (currently 7.4 per cent). Nonetheless, this is also due to the fact that India has the world’s biggest population by size. The challenge, however, remains.

Outlook

Overall, the visit can be viewed as a steppingstone in the long and ongoing path of expanding the connection, cooperation, and collaboration between India and Germany. It is also important to highlight that other influential German politicians have been visiting India in the past months, for example, the Minister of Defence, Boris Pistorius. Theses visits can not only be considered a sign of increasing cooperation, but they also underline the fact that India is beginning to make full use of its solid foundation to become one of the top international players. And that is exactly why this is a supreme match in cooperation and collaboration. When combining the sheer potential of an up and coming economic superpower with the know-how of an established one, one can only imagine the possibilities.