Germany Eyes India as Key Economic Partner in Bid to Reduce Reliance on China

GG News Bureau
New Delhi, 25th Oct. German Chancellor Olaf Scholz is leading a high-level delegation to New Delhi this week, aiming to enhance Germany’s access to the Indian market and reduce reliance on Beijing, despite uncertainties about India becoming the “new China.” The visit highlights German companies’ optimism about India’s growth potential, driven by a skilled workforce, lower costs, and a robust economic growth rate of around 7%.

This visit comes at a critical juncture for Germany, which faces a second consecutive year of economic contraction and concerns over a trade dispute between the European Union and China that may affect German firms. The experience of relying heavily on cheap Russian gas before the Ukraine war in 2022 has prompted Germany to seek diversification strategies. “India, the most populous country in the world, is a key partner of the German economy in the Indo-Pacific and plays a key role in diversifying the German economy,” said Economy Minister Robert Habeck.

Habeck emphasized the need to reduce critical dependencies and enhance the resilience of German supply chains linked to Asia. Although China remains a dominant player, German investments in India reached around €25 billion ($27 billion) in 2022, representing about 20% of investments made in China. Volker Treier, head of foreign trade at the German Chamber of Commerce (DIHK), predicts this share could rise to 40% by the decade’s end.

“China will not disappear, but India will become more important for German companies,” Treier noted, describing India as a litmus test for Germany’s de-risking strategy. Scholz is set to meet Indian Prime Minister Narendra Modi on Friday and will lead the seventh round of Indian-German government consultations, bringing most of his cabinet, including the foreign and defense ministers.

Habeck will attend the biennial Asia-Pacific Conference of German Business ahead of the main events. Despite concerns about bureaucracy, corruption, and India’s tax system, a recent KPMG study indicates that 82% of German firms anticipate revenue growth in India over the next five years, with 59% planning to expand their investments—up from 36% in 2021.

German logistics giant DHL has announced plans to invest €500 million in India by 2026 to capitalize on the rapidly growing e-commerce market. Volkswagen, facing declining sales in China, is exploring new joint production arrangements in India, building on its existing factories and a supply deal with local partner Mahindra.

Political stability and low labor costs position India as an attractive destination for foreign investments, prompting a “China + 1” strategy for many firms, as highlighted by Jonathan Brown, a managing director at BCG.

Trade between Germany and India hit a new record in 2023, with India expected to surpass Germany and Japan to become the world’s third-largest economy by the end of the decade. However, negotiations for a long-awaited EU-India free trade deal are still ongoing, presenting challenges for German businesses seeking a foothold in the Indian market. As Brown pointed out, “The hurdles to gaining a foothold in the market are high, but once you’re there, you have great potential.”