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A Tale of Two Economies – The India Germany story!
Old friends at an inflection point…
India was amongst the first countries to establish a diplomatic relationship with Germany after the Second World War. The 2 countries have had a ‘strategic partnership’ since 2001, which was further strengthened with the launch of Intergovernmental Consultations (IGC) in 2011. Currently the relationship seems to be at an all-time high!
The two countries have evolved through different phases, and rather interesting trajectories of socio-economic growth and development. One might say that they have now emerged as economic powers that fit well like two pieces of the same puzzle.
According to the Indian Ministry of Commerce & Industry, in 2022-23, India’s bilateral trade with Germany reached $26 billion (+4.9%), with Indian exports clocking $10.1 billion (+2.5%), and imports from Germany reaching $15.9 billion (+6.4%). Germany was the 12th largest trading partner for India in 2022-23. It is the 9th largest investor in India, with cumulative FDI inflows of $14.37 billion from April 2000 to September 2023. Germany is also India’s largest trading partner in Europe and has consistently been among India’s top global alliances. As per the Confederation of Indian Industry (CII), more than 213 Indian companies are operating in Germany and are involved in trading, manufacturing, R&D, innovation, and services.
Emergence of a global power – India!
India’s economy grew by more than 8% in the fiscal year that ended in March 2024 (higher than the 7% in 2022-23), cementing India’s status as the world’s fastest-growing major economy. IMF's latest ‘World Economic Outlook’ report indicates that India's economic growth forecast for the current year has also been raised to 7%, maintaining its position as the fastest-growing economy amongst emerging markets and developing economies. For over a decade now, India's growth has outpaced other major economies. It surpassed the UK as the largest economy in 2023, and according to the analysts at Morgan Stanley, it is on track to overtake Japan and Germany to take the 3rd spot by 2027.
As per the statements of officials at IMF, and based on remarks by CEO of Niti Aayog at a conference, India is said to contribute close to 20% of the world's economic expansion in the next decade, and be a $35 trillion economy by 2047. He added that India needs to grow on the back of manufacturing, smart urbanization, and agriculture. Potentially India's next decade could resemble China's path of hyper-growth from 2007 through 2012, analysts from Morgan Stanley wrote in their widely discussed paper, “India Economic Boom: 2031 Growth Outlook”.
The government’s push for digital governance, stronger banks, ambitious ‘Make In India’ plan, better infrastructure (newer roads, airports, ports and metros) & energy, ‘Study in India’ plan, improved ease of doing business, etc. have been major growth catalysts for the country. The Indian economy has also witnessed several positive trends, including a burgeoning consumer base, increased local consumption and investment, and a growing working population. As per EY’s Insights – “Reaping the Demographic Dividend”, by 2030, India’s working-age population is expected to be 1.04 billion, with dependency ratio to be the lowest in its history at 31.2%, contributing just under a quarter of the incremental global workforce. This working-age population bulge is expected to last till 2055. In addition, the geopolitics around global de-risking from China, as well as India’s alignment with megatrends like digitalization, clean energy, and global offshoring offer significant growth potential. Albeit one could argue that success has been staggered.
Germany - A steady economic powerhouse!
With a GDP of over $4.6 billion approx. in 2023, Germany is Europe's largest economy and the 3rd largest economy in the world after the US and China. The export of motor vehicles & parts, and chemical products have strengthened Germany to become the 3rd largest exporting nation in the world. However, with a 70% share of the GDP, the service sector contributes by far the largest share of the country's economy (KPMG’s Key Insights & Facts on German economy).
Unfortunately, Germany’s economy has been weak lately due to a combination of temporary and structural factors. However, the times ahead don’t seem so grim. IFO Institute’s 2024 growth forecast stated that Germany’s GDP is expected to increase, and the second half of 2024 is expected to perform significantly better than the first due to the recovery of global trade and industrial production. At the same time, inflation is likely to subside, and the purchasing power of private households will continue to strengthen. The IFO Institute also mentioned that while the business expectations fell post the Russia – Ukraine war, the index recently saw an uptick of over 5 points.
The expectation remains that temporary headwinds should gradually fade over the next one to two years. However, fundamental structural factors such as sluggish productivity growth and a sharply accelerating ageing population still need to be addressed. Referring to a study by the Institute for Employment Research (IAB), the Labour Minister said that Germany will need seven million workers by 2035. The latest EURopean Employment Services (EURES) report on shortages and surpluses indicated that Germany is facing a talent crunch in over 70 occupations. The most affected sectors include transportation, manufacturing, construction, healthcare, engineering, and technology. Many remain optimistic about Germany’s policy levers that would support them to overcome the problems and secure a brighter economic future.
A partnership that is meant to last…
Moving forward, a stronger partnership between the two global economies does not only seem inevitable but is almost like a match made in heaven. Be it technical and technological collaboration, leveraging of talent arbitrage, or solidifying cooperation in key areas such as emerging technologies, digital platforms, renewable energy, etc. this partnership is likely to grow from strength to strength. So much has already happened, paving the way for more open dialogue and development. In 2023, the two nations signed the Work Plan 2023, focusing on global harmonization and sector-specific cooperation in AI, cybersecurity, circular economy, and smart farming. Germany has significantly simplified the licensing requirements for the sale of military equipment to India. It is also looking at ways to scale up defence cooperation with India, with several military-to-military engagements getting lined up between the two countries.
India has continued to evolve as a market of strategic importance for German companies and they have planned increased investments. Low labour costs, political stability, and a skilled workforce have been cited as the top reasons behind India emerging as a competitive choice over other Asian countries for increased business activities. According to the “German Indian Business Outlook 2024” survey by KPMG Germany and the Indo-German Chamber of Commerce (AHK India), nearly 59% of German companies plan to make new investments in India this year, and 78% of surveyed companies are planning new investments by 2029 (+19% compared to 2024). In addition, 45% of companies want to use India as a manufacturing centre for both, the local and the Asian market by 2029 (+12% compared to 2024). However, these organisations would expect further improvement of the regulatory framework and increased legal certainty, better infrastructure and greater trade facilitation from the Indian government in order to make the association and future endeavors more plausible. Other challenges that may perhaps take longer to resolve remain the bureaucratic hurdles, corruption and the tax system.
The leadership – a vital cog in the wheel!!!
With everyone rooting for the Indo-German business relations to strengthen, the need to have right leaders to steer organisations through this phase of enhanced collaboration and realize the true growth potential remains imminent. Some of the critical traits that would help business leaders to succeed, and build businesses of the future, would include strategic agility with a forward-thinking approach, an innovation mindset, cultural sensitivity & emotional intelligence, strong communication & influencing abilities, and a versatile personality that has the ability to expand horizons and foster collaboration & inclusiveness. As the two economies continue to forge a stronger partnership in the times to come, it becomes increasingly important for organisations to invest in building and developing a credible leadership talent pool that would help businesses to compete, succeed and sustain!
For more such insights or for collaboration on critical leadership & strategic talent advisory needs, please reach out to Angela Thomas.
“Great events cast shadows under the eyes.” - Udo Lindenberg. Hamburg really did show its best side at the opening of our newest Deininger office - but without around 100 customers and friends of our company, this special day would not have been so wonderful and we would not have been able to live up to Udo's motto!
Before the final stretch of the year begins and everyone is busy with client mandates and candidates, our second Consultants' Meeting 2024 took place in Düsseldorf, followed by a summer party for all employees. Once again, the weather was kind to us and after the rain the day before, we were able to enjoy a mild afternoon in the Nordpark.
𝐓𝐡𝐞𝐫𝐞 𝐢𝐬 𝐧𝐨 𝐩𝐥𝐚𝐜𝐞 𝐰𝐡𝐞𝐫𝐞 𝐭𝐡𝐞 𝐬𝐤𝐲 𝐢𝐬 𝐚𝐬 𝐛𝐞𝐚𝐮𝐭𝐢𝐟𝐮𝐥𝐥𝐲 𝐠𝐫𝐚𝐲 𝐚𝐬 𝐢𝐧 𝐇𝐚𝐦𝐛𝐮𝐫𝐠 - is a saying about the most beautiful city in the world. On the second day of our international consultant meeting, Hamburg showed its typical side - with a fine drizzle.