Chancellor Olaf Scholz is reportedly leading a high-level delegation to New Delhi, with the aim of increasing Germany’s access to India’s vast market as part of a strategy to reduce its reliance on China. While India may not emerge as the "new China," German companies remain largely optimistic about its growth potential, drawn by a skilled young workforce, lower costs, and an economy growing at around 7%. The visit comes at a challenging time for Germany, whose export-oriented economy faces its second consecutive year of contraction, amid concerns over a potential trade dispute between the European Union and China, which could negatively impact German businesses.
Germany has been working to lessen its reliance on Beijing, a strategy shaped by its previous dependence on cheap Russian gas before the Ukraine war in 2022. Economy Minister Robert Habeck is said to have highlighted India's importance, noting that as the world’s most populous country, it is a key partner for the German economy in the Indo-Pacific and essential for the diversification of supply chains. Habeck reportedly emphasised the need for reducing critical dependencies and enhancing the resilience of German companies operating in and with Asia.
However, China remains Germany's largest trading partner, and German direct investments in India, which stood at approximately €25 billion in 2022, are about 20% of the volume invested in China. Volker Treier, head of foreign trade at the German Chamber of Commerce (DIHK), reportedly suggested that this figure could rise to 40% by the end of the decade. Treier also noted that while China will continue to play a major role, India’s importance to German companies is expected to grow significantly, positioning it as crucial to the success of Germany's efforts to de-risk from China.
Scholz, accompanied by a majority of his cabinet, including the foreign and defence ministers, is expected to meet with Indian Prime Minister Narendra Modi before overseeing the seventh round of Indian-German government consultations.
German firms reportedly face challenges investing in India, citing bureaucracy, corruption, and the tax system, according to a study by KPMG and the German Chambers of Commerce Abroad (AHK). Nevertheless, there is optimism, with 82% of German companies in India expecting revenue growth over the next five years, and 59% planning to expand their investments, a marked increase from 36% in 2021.
Examples of this optimism include DHL, which is planning to invest €500 million in India by 2026, capitalising on the fast-growing e-commerce market. Volkswagen, facing falling sales in China and high production costs at home, is reportedly exploring new partnerships for joint production in India. The company already operates two factories in the country and has signed a supply deal with local partner Mahindra. Similarly, engine maker Deutz is said to have struck a deal with TAFE, India’s third-largest tractor manufacturer, to produce 30,000 engines under licence.
