Pic credit: German Embassy, New Delhi
India is rapidly becoming a focal point for German businesses, with a significant increase in planned investments this year. According to the “German Indian Business Outlook 2024,” a survey conducted by KPMG in Germany and the Indo-German Chamber of Commerce (AHK India), 59% of German companies are set to ramp up their investments in India during the current financial year. The report was introduced during a press conference hosted by Germany’s ambassador to India, Dr Philipp Ackermann and Dr Stefan Halusa, Director General, Indo-German Chamber of Commerce, and Georg Ettiyil, President of the Indo-German Chamber of Commerce, India.
Rising Sales and Profits
The optimism among German companies is palpable, with 78% expecting rising sales and 55% forecasting higher profits this year. These figures represent a 7% increase compared to the previous year. Looking ahead, expectations are even higher, with 82% of companies anticipating turnover growth and 74% expecting increased profits over the next five years.
Long-Term Investment Plans
India’s growing importance as an investment destination is evident, with 78% of companies planning new investments by 2029, a significant jump from 36% in 2021. Only 7% of respondents are considering reducing their investments in 2024. Andreas Glunz, Managing Partner International Business at KPMG in Germany, emphasized the strategic shift, stating, “German companies are increasingly diversifying and regionalizing their business operations across the globe, engaging with new locations. In Asia, they prioritize India as one of their preferred locations for new investments.”
Key Factors Driving Investment
Competitive Advantages
German companies are attracted to India primarily due to its low labor costs (54%), political stability (53%), and the availability of qualified specialists (47%). However, wage costs are expected to become less advantageous by 2029, with only 36% of companies anticipating cost benefits.
Economic Growth
India’s steady economic growth is another appealing factor, with 69% of German companies viewing it as a significant advantage, especially compared to China’s slowing economy.
Production and Market Potential
Local and Regional Production
India’s potential as a production hub is substantial. Currently, 33% of German companies use India for local production, a figure expected to rise to 45% by 2029. Additionally, India’s vast consumer market of over 1.44 billion people presents a major opportunity, with 27% of companies targeting this market, projected to increase to 40% by 2029.
Competence and Service Centers
India is also emerging as a global competence center, with 21% of German companies having established such centers and 35% planning to do so within the next five years. Stefan Halusa, Managing Director of AHK India, highlighted, “India continues to show enormous potential. And further to this, continues to gain in importance as a location for regional production and global development.”
Challenges and Government Expectations
Despite the positive outlook, German companies face significant challenges in India. Bureaucratic hurdles (64%), corruption (39%), and the complex tax system (27%) remain major issues. Companies are calling for the new Indian government to address these concerns by improving the regulatory framework, increasing legal certainty (67%), enhancing infrastructure (55%), and facilitating trade (48%).
“With Modi’s re-election, German companies hope that many structural problems will be tackled. These include the infrastructure deficits in the areas of transportation, energy, information and communication, the complex tax system, and the highly varying regional regulations. Only by solving those topics will it be possible that the growth expectations can be achieved in the medium term,” explained Andreas Glunz.
Future Risks
German companies also identified rising import duties (52%), non-tariff trade barriers (43%), cyber-attacks (40%), and air pollution (37%) as potential risks. Increasing protectionism and bloc formation were named by 36% of respondents as further concerns.
“India offers a unique combination of market size, market potential, and a talent pool for German companies. However, bureaucratic and regulatory hurdles are still the biggest problem. A more efficient administration, the continuous fight against corruption, and a simplified tax system would further increase India’s attractiveness for German companies,” explained Stefan Halusa.
India’s growing market size, potential, and talent pool present a unique opportunity for German companies, despite existing challenges. Simplifying regulations, combating corruption, and overhauling the tax system could further enhance India’s attractiveness as a prime investment location for German businesses.
