India and Germany share a strategic partnership, with Germany being India's biggest trading partner in the European Union. Germany recognizes India's significance in the Indo-Pacific region, particularly given the current political and economic tensions in the region. The two countries have enjoyed close ties since 2001 and have identified new areas of cooperation, including digitalization, agriculture, clean energy, e-mobility, smart cities, Industry 4.0, and start-ups. On April 25, 2023, India and Germany signed the Work Plan 2023, which covers a range of topics, including global harmonization solutions and sector-specific cooperation in areas such as artificial intelligence, cybersecurity, circular economy, and smart farming.
This article briefly discusses the latest trade and investment trends between India and Germany.
India is positioned as a pivotal partner for German and European foreign policymakers in the Indo-Pacific amid geopolitical and economic developments in the region. While Germany does not have a standalone trade agreement with India, it is its largest trade partner in the European Union (EU). At the same time, India is Germany’s fourth largest trading partner in the Indo-Pacific region, albeit having much room for growth.
Key vision documents like the EU-India Roadmap to 2025, the Connectivity Partnership of May 2021, and the Indo-Pacific Strategy of Autumn 2021 – are indicative of how the EU, including Germany, seek closer partnership with India.
For German businesses and entrepreneurs, the Indian market offers significant prospects – in the areas of digitalization, agriculture, clean energy, e-mobility, urban development, smart cities, railways, Industry 4.0, start-ups, skill development, and water and waste management. India and Germany have also agreed to collaborate on artificial intelligence (AI) start-ups as well as AI research and its application in sustainability and healthcare.
In the following sections, we round up key events and trade and investment data underpinning bilateral ties between India and Germany.
Work Plan 2023: Enhanced quality infrastructure and sector-specific cooperation
During the 9th Annual Meeting of the Indo-German Working Group on Quality Infrastructure held on April 25, 2023, India and Germany signed an agreement known as Work Plan 2023. The agreement focuses on enhancing quality infrastructure (QI) by addressing the various aspects of QI, such as standardization, accreditation, conformity assessment, legal metrology, product safety, and market surveillance.
The Work Plan 2023 aims to address topics related to QI through both global harmonization solutions and sector-specific cooperation, including digitalization (covering areas such as artificial intelligence and cybersecurity), circular economy, smart farming, and machinery safety.
India-Germany bilateral relations
India was one of the first countries to establish diplomatic relations with Germany after the Second World War. The two early trips to Germany by Indian prime ministers in 1956 and 1960 in fact set the tone for what has remained a strategic diplomatic relationship. Germany is among India’s most important trading and investment partners following the economic reforms and market liberalization of 1991.
In May 2000, Germany and India agreed on the “Agenda for the Indo-German Partnership in the 21st Century.” In 2001, both countries signed a strategic partnership, was further strengthened by the Intergovernmental Consultations (IGC) between the two governments. The IGC has since facilitated comprehensive review of bilateral cooperation by providing a platform to identify fresh areas of engagement.
The sixth IGC was held last year in Berlin, on May 2, 2022, which saw Indian Prime Minister Narendra Modi lead a ministerial delegation and co-chair a CEO forum alongside German Chancellor Olaf Scholz.
Additionally, since 2011, both Indian and German governments have held bilateral consultations every two years. Among other things, the two countries are committed to multilateralism and seek to reform the United Nations (UN) and its Security Council (UNSC).
Moreover, recent news reports indicate that senior officials and leaders from India and Germany may soon have access to a dedicated hotline, enabling swift communication and improved coordination between the two countries.
India-Germany two-way trade and investment
Germany is India’s largest trading partner in Europe. India was ranked 25th in Germany’s global trade in 2018. The total bilateral trade between the two countries stood at US$24.8 billion during the financial year (FY) 2021–22, while it was valued at US$21.76 billion in FY 2020–21.
India’s major exports to Germany include machinery and mechanical appliances, textiles, and chemicals. At the same time, principal commodities imported by India from Germany include optical and medical instruments, machinery and mechanical appliances, vehicles, and accessories.
Additionally, Germany is the ninth largest investor in India, with cumulative foreign direct investment (FDI) inflows of US$13.8 billion during the April 2000–September 2022 period. Key areas of German investment in India have been transportation, electrical equipment, and metallurgical industries, the services sector (insurance), chemicals, construction activity, trading, and automobiles.
In 2020, over 1700 German companies created more than 400,000 jobs in India. At the same time, more than 200 Indian companies had registered offices in Germany, investing more than US$7.07 billion in that country.
To further boost investment, the Department for Promotion of Industry and Internal Trade (DPIIT) established a Fast Track Mechanism in 2015 for German companies in India to expedite the resolution of issues encountered by German companies in India.
The Make in India Mittelstand (MIIM) Programme was launched in 2015 to facilitate the entry of German micro, small, and medium enterprises (MSMEs). Currently, 135 MSMEs are being facilitated through the MIIM Program.
In 2018, India and Germany also launched the German India Startup Exchange Program (GINSEP), a non-monetary platform set up to foster Indo-German economic relations in the start-up sector.
Recent German investments in India
- In February 2022, Robert Bosch announced its plans to invest a total of US$260 million in India over a five-year period towards the localization of advanced automotive technologies and in building digital platforms like the mobility marketplace and the mobility cloud platform.
- German packaging solution provider Multivac invested US$7.4 million to establish a production site in Ghiloth, Rajasthan.
- In 2021, German automotive components manufacturer Webasto invested US$33.9 million to set up a sunroof manufacturing facility in Pune.
- German lifestyle brand Birkenstock launched its 1774 collection through the e-commerce route with an Indian partner, Seva Group.
- Bayer, a German agrochemical group, launched a new manufacturing plant at Vapi, Gujarat, with an investment of US$28 million.
- German auto component major ZF Friedrichshafen AG has lined up a US$217.68 million investment in India to increase its share in connected and autonomous technologies adopted by automakers, and a fifth of the investment volume will be allocated for a tech center in Hyderabad for doing global research and development (R&D) for the company.
Recent Indian investments in Germany
There are more than 213 Indian companies operating in Germany that are involved in trading, manufacturing, R&D and innovation, and providing services. Indian companies have invested in Germany mainly through mergers and acquisitions (M&A). Investments are mostly in IT, automotive, pharma, biotech, and manufacturing. The penetration of Indian software companies in the German market is increasing. Major clusters of Indian companies are in the states of North Rhine Westphalia, Hesse, Bavaria, and Baden-Württemberg.
Recent Indian investments in Germany include:
- Announcement by Wipro Limited to set up a Digital Innovation Hub in Düsseldorf.
- Acquisition of full-service IT provider, Postbank Systems AG, from Deutsche Bank by Tata Consultancy Services (TCS).
- Infosys has opened a new Digital Innovation Center in Düsseldorf to assist their clients with digital transformation.
- JBM Group’s acquisition of the majority stake in German auto component manufacturer Linde-Wiemann GmbH.
- Establishment of the first global R&D center near Munich by Hero MotoCorp.
- Larsen and Toubro’s (L&T’s) acquisition of German IT firm Nielsen+Partner will strengthen its banking and financial services software segment.
(This article was originally published on January 23, 2023 and last updated on May 3, 2023.)