Germany and India are perfect partners to collaborate for Industry 4.0
Boris Alex, Director, Germany Trade & Invest is confident that the strong foundations for economic cooperation between India and Germany will help accelerate revival of trade and investment post-COVID. He believes that Germany’s leadership in machinery and automation, coupled India’s stature as an IT powerhouse make them perfect potential partners in the field of Industry 4.0.
IBT: What is your perspective on the current stature and future trajectory of Indo-German trade relations? How can these be bolstered in the future?
Boris Alex: Over the past years, trade between India and Germany has been steadily increasing and peaked in the fiscal year 2018-19 at US$ 24.1 billion. Germany is India‘s main trading partner in the European Union and usually ranks among the top ten countries in exports as well as imports from an Indian standpoint.
Having said that, in the last fiscal year, the bilateral trade has lost its trajectory. Indian exports to Germany went down by 7% to US$ 8.3 billion and imports from Germany even suffered a loss by 12% to US$ 13.4 billion compared to 2018-19. Since more than 90% of the trade volume falls into the pre-COVID-19-time, there are other reasons to consider for this setback.
If you look at the trade structure between our two countries, Germany‘s main exports to India are machinery and equipment as well as intermediate products for the industry. With India‘s industrial production slowing down over the past 1-2 years, there are growing overcapacities in certain industry sectors. Companies are cutting down on capital investments due to difficulties with financing their expansion projects. German manufacturers of machinery are especially vulnerable. This development is reflected in the last fiscal’s trade numbers where these catagories were hit the hardest.
On the other hand, India’s exports of industrial goods to Germany remained stable while textiles, ready made garments, leather articles and other consumer goods declined substantially. This was caused by the deteriorating demand for these products in the EU due to growing uncertainty with the start of the COVID-19-pandemic in the Spring of 2020.
Currently there is very little room for bolstering bilateral trade – global uncertainty amidst COVID-19, sinking consumer confidence and many companies putting investments on hold in both our countries will continue to have a negative impact on the trade betweeen India an Germany in the coming six to twelve months.
But especially in this time of crisis, it’s important to keep the trade relations intact and stay in close contact with your business partners, so that trade can be re-started quickly if our economies improve again.
IBT: What impact has COVID-19 had on bilateral trade? What areas can the two countries explore to reconstruct their economies in a mutually beneficial manner?
Boris Alex: With April 2020 being the first complete month of the lockdown in India, trade between our two countries was severly impacted. Exports to Germany went down by 60%, while imports from Germany fell by 65% compared to April 2019. This comes as no surprise since physical trade routes were heavily disrupted. Since then, numbers have gradually improved but it’s difficult to say when we will reach pre-COVID-level.
Over the past years, India and Germany have deepened their economic ties and expanded the areas of cooperation to a broad range of industries and services. More and more German companies consider India an important – though not easy – market with a high growth potential. Especially the German Mittelstand – small and medium sized family owned businesses – have ventured into the Indian market over the past 20 years with great success in many cases.
So the foundation for a close economic cooperation is already there and in the long run, trade between India and Germany will pick up again. For now, it’s very important that although business is slow, companies maintain their relations with their partners in India and Germany and support each other. Trying to find common solutions, for example, if the supply chain is disrupted or if one of the business partners faces legal or financial problems, will help get them through these challenging times.
IBT: What are the major sectors where Germany is looking to enhance exports to India? Conversely, what are the critical sectors where you see scope for Indian companies to enhance trade and investment with Germany?
Boris Alex: German companies have ventured into a broad range of industry sectors like automotive, machinery, chemicals and energy as well as services like ICT, banking and insurance over the past years and will continue to do so in the future. With the modernisation of India’s industrial base and investments in infrastructure, new business opportunities are evolving. Parts of the demand for industrial and construction machinery, for example, need to be met by imports and German companies are well positioned to fill this gap. The Indian government has announced that it will rev up its investments in the healthcare sector. Since Germany is one of the leading manufacturers of medical technology, this would be an area that offers growth potential in the next years.
Indian investments in Germany have shown a substantial increase in the last few years. Besides trading, Indian companies have set up value chain activities in Germany, manufacturing goods and services as well as engaging in R&D and innovation activities. Indian companies are operating in Germany, mainly in the sectors of IT, automotive, pharma, biotech and manufacturing.
The presence of Indian software companies in the German market is growing and major providers like HCL, TCS, Infosys, and Wipro, have operations in Germany. Companies like Bharat Forge, Mahindra & Mahindra, Tata Steel, Novelis, Ranbaxy, Lupin Pharma, Hinduja Group, Piramal, Essar, Kirloskar, Dr. Reddy’s Laboratories or Biocon have either acquired German companies or started their own subsidiaries.
From an Indian point of view, I would say it’s necessary to bring more value added products to the table in areas that have not been in focus so far. One example would be the food industry where there is a lot of room for growth for Indian companies in the German market. With the goverment‘s “Aatma Nirbhar Bharat” mission that focuses, amongst other things, on the development of the food processing industry, this could be achieved.
IBT: Of late, the Indian government is embracing quite a few initiatives (eg. land availability, Make in India, initiatives related to sectors like electronics industry, etc.) in order to project itself as an attractive manufacturing hub. What investment opportunities does this present for German companies in India?
Boris Alex: The COVID-19-crisis has compelled a lot of German companies to reassess their risk exposure with regard to disruptions in their global supply chains. Many companies will try to lower this risk by diversifying their dependency on geographic regions, specific countries and suppliers. This, of course, opens up opportunities for India to establish itself even more as an attractive investment destination.
In the medium term, I don’t expect a big rush though. But if companies are looking at new production capacities again in a couple of years, then India should be ready. Now is the time to improve the infrastructure, remove red tape for international investors and invest in workforce training. Since these are the main obstacles for many German companies that consider entering the Indian market, this would definitely help attract investments.
IBT: What are the areas where both governments can collaborate to improve bilateral ease of doing business?
Boris Alex: Over the past five years India has climbed from rank 142 to 66 in the Worldbank’s “Doing Business Report”, which is quite impressive. Germany is well aware of the steps that India has taken to accomodate investors from abroad. Both governments cooperate closely in many areas, and especially in regards to bilateral investments, a lot of initatives are already in place.
For example the “Make in India Mittelstand” has so far supported 125 German SMEs with their investments in India totalling € 1.2 billion. The “Fast Track Mechanism”, which aims to expedite resolution of issues faced by German companies in India has been set up in 2016. This has further built the trust shown by German companies in the Indian economy, leading to many businesses expanding their presence in India.
A similar system for Indian investors in Germany has been initiated in April 2019. This will pave the way for identifying and resolving issues faced by Indian companies and investors in their operations in Germany, as well as serve as a platform for discussing any challenges being faced by Indian investors in the German market.
IBT: How does Germany view the changing landscape of manufacturing in the coming decade with the rising prominence of Industry 4.0, especially post-COVID? How can Germany and India collaborate to leverage this impending paradigm shift?
Boris Alex: The COVID-crisis will definitely speed up the integration of Internet of Things (IoT) solutions and automation into Indian‘s manufacturing sector. German companies like Siemens are amongst the global leaders in the Industry 4.0 movement and well positioned to offer their products and services for the digital transformation in India as well.
At last year’s Intergovernmental Consultations, both sides agreed to create linkages between the German Platform Industrie 4.0 and India’s Smart Manufacturing Platform for cooperation and exchange of information including standardization, IT-security in networked systems, testbeds and use cases, business models and B2B-platforms, and on topics shaping future digital ecosystems for Industry 4.0. The importance of a rapid convergence of start-up ecosystems in both countries and initiatives that allow entrepreneurs to exchange ideas and share projects are also supported.
Therefore Germany as a world leader in machinery and automation and India as an IT-powerhouse are perfect partners to cooperate in the field of Industry 4.0 in the future.
Boris Alex has been with Germany Trade and Invest since 2003. After heading the regional GTAI-offices in New Delhi and Toronto, he once again took over the Delhi office as Director for South Asia in August 2019. He is a graduate of business administration and Japanese of the University of Mannheim and has previous work experience in the investment banking and consulting sector. The views expressed here are his own. Usual disclaimers apply.