Bilateral ties
June 21, 2012
The foreign minister is traveling to India and Bangladesh from June 21-24 with a large business delegation. India, as Asia's third largest economy, is an important growth market for the future, and the German export industry is paying a lot more attention to the region in light of Europe's debt crisis and faltering growth prospects.
But for Germany, the role of India is not just restricted to markets and business. Foreign Minister Westerwelle underscored that point before heading to the region.
"India is an important strategic partner and emerging political force, whose influence will only grow in future. India's contribution to security and Asia's developing affluence will play an important role in global stability and development," he said.
Germanyand India have been working closely together for quite some time to reform the UN Security Council. Berlin and New Delhi both are seeking a permanent seat on the body.
Repercussions of the global crisis
Since the start of India's reform efforts two decades ago, the country has remained mostly outside the reach of the international financial crisis. That was due mainly to the robust growth of its domestic market and the growing purchasing power of the middle class. Its promising market and huge reservoir of highly qualified workers have also attracted foreign companies.
Compared to China, India's exports have remained modest, but the economy is not dependent on foreign investment. Major Indian companies have been investing domestically rather than going abroad to try their luck.
Even so, the current European debt crisis and other international crises have not left India unaffected. Rajesh Nath, director of the Indian liaison office to the German Engineering Federation (VDMA), admits that the Indian economy is experiencing a downturn at the moment, but this situation, he says, is the result of several factors.
"For one thing, there is no investment in India at the moment. Not long ago, the state announced plans for major investments in infrastructure, but these measures will likely only help temporarily," Nath explains.
"High interest rates at the banks are another problem for industry. And the Indian rupee's exchange rate in recent weeks has been heading south, so that importing equipment and technology has become a lot more expensive."
German exports hardly affected
Nearly all branches of industry with ties to international markets are feeling the effects of the euro crisis. The negative impact, however, has still not been all that bad, according to Nath. In 2011 alone, the export of German machines and equipment to India rose nearly 18 percent. German firms are still working on fulfilling existing contracts. If the downturn in India lasts longer, then, of course, it will affect the German export business, he warns.
Economic and financial crises are not the only problems India faces at the moment. The decision-making process in the world's largest democracy is rather arduous, compared to neighboring China with its one-party system. Tenuous governing coalitions with highly populist regional parties are now routine in Indian politics. Courageous reform decisions tend to be postponed or not made at all for tactical reasons.
Nevertheless, India's free market economy allows companies to pursue their business plans and resolve problems on their own, despite the political standstill. Lokesh Bopanna, from Hawe Hydraulics, an Indian subsidiary of a German manufacturer of pumps, cylinders and other hydraulic components, differentiates between the political and economic situation.
"The costs for financing are one thing; the standstill in the government is another. Many of my customers are in financial straits. But even if they had enough orders on the books, they couldn't make much because they don't have the money," he notes. For this problem, however, the government couldn't really be blamed, he added.
First stop: Bangalore
Minister Westerwelle is traveling to Bangalore in southern India at an economically difficult time. More than 150 German businesses have offices in the city. In 2008, Germany opened a consulate there - the first country to do so. The aim of this trip, according to the foreign ministry, is to "expand the consulate in one of the world's most important IT centers, to advertise Germany and to advance Indo-German economic relations."
Author: Sanjiv Burman / gb
Editor: Sarah Berning