Federal Economics Minister Habeck wants to give India priority over China in economic terms and is campaigning for Germany in New Delhi. His goal: more investment and a free trade agreement.
When a German Federal Minister of Economics travels to India for the first time in more than ten years, it should be clear that the subcontinent is once again attracting more attention than was the case at times. And if the minister travels there without having previously been to the economic powerhouse of China, where many of his predecessors were drawn first or exclusively, that is also a signal.
More India – less China
The German economy should position itself more broadly and become less dependent on China, according to the hopes of politicians. The companies, in turn, hope that a free trade agreement with the fifth strongest economic power, India, and the European Union will finally come about in order to make trade with India easier for them.
But Germany and the EU are not alone: India is also negotiating free trade agreements with Canada and Australia. And many other economies want to strengthen relations with India, such as the USA. You have offered India cooperation on the energy transition. India is increasingly relying on renewable energies and wants to be climate-neutral by 2070.
Habeck emphasizes opportunities and necessities
The EU has been striving for free trade with India for more than 15 years. The last talks failed in 2013. Germany had also turned away from India and towards China. Now Robert Habeck wants to make progress on the subcontinent. The trade agreement is complicated “because India has a long tradition of protecting its market,” he said on site in New Delhi. That’s why no progress was made. “The interests are not automatically synchronized in detail,” he said, but emphasized the opportunities and necessities.
For German companies, India is a large sales market for machines, electronics, automobiles and consumer products as well as for infrastructure, because India needs to expand both its transport routes and its energy supply. At 16 percent of gross domestic product, the costs of transport and logistics in India are significantly higher than in China at ten percent. In addition, large parts of the rapidly growing population need a connection to electricity. In addition to the opportunities, there are also risks: To date, the tariffs that India has been levying have been a problem.
According to the Federal Association of Industry (BDI), the automotive industry bears 66 to 110 percent of the tax burden for fully assembled vehicles from Europe. India’s tariffs on components imported from the EU put the industry at a disadvantage compared to its Asian competitors. “With the free trade agreement between India and the Association of Southeast Asian Nations (ASEAN), in which Japanese and Korean manufacturers are well represented, some components can be exported to India duty-free,” the BDI had already complained about last year. However, he also emphasized positively that mechanical engineering is benefiting from the tariffs that have been falling since the beginning of the decade. Currently, the customs duty for most machine builder product groups is between 5 and 7.5 percent.
Failure again is not an option
In the summer of last year, the EU and India resumed negotiations on free trade. “Unlike the talks that failed in 2013, the current negotiations are characterized by the paradox of being both simpler and more complicated at the same time,” the Stiftung Wissenschaft und Politik describes the situation. They are easier because the EU and India now have more agreement than ever on geopolitical issues, especially with regard to China. But they are also more complicated because the success of the negotiations still depends on difficult concessions on both sides. “But failing again is not an option for either India or the EU in terms of the future of their strategic partnership.”
Forecast: In 2075, India will be the second strongest National economy
A look at the economic data is enough to realize this: India generates goods and services of 3.4 trillion US dollars per year, the country has achieved steady economic growth in recent years, in 2022 it was almost seven percent. According to forecasts by the International Monetary Fund (IMF), India will continue to grow – by 6.1 percent this year and by 6.8 percent in 2024. The IMF predicts that the country could replace Germany as the fourth largest economy in the world in 2025/26 at this rate. The investment bank Goldman Sachs even expects India to overtake the USA by 2075 and become the second strongest economy in the world.
For Germany, an important signal for a location that is becoming increasingly important. India is democratic – and an alternative to China, on which one would like to become less economically dependent. The government presented a new China strategy just a few days ago.
The fact is: Not only is the Indian economy growing – the population is too. India’s population is huge at 1.4 billion, according to Pew Research, and will likely reach 1.7 billion by 2064 – significantly more than the Chinese. Most Indians are young: More than 40 percent of the people in India are younger than 25. The average age is 28. For comparison: Americans are 38 years old on average, Chinese 39.
Hope for big orders
These are just a few of the reasons for moving forward with the free trade agreement. Ideally, it should be ready for signature by the end of the year, because elections are due in Europe and India in 2024. The increasing tensions between Western Europe – including Germany – and China are viewed critically and with concern by companies. Siemens, for example, recently announced investments of one billion in Germany.
At the beginning of the year, the group had received a record order from India: the Indian railway company India Railways had ordered 1,200 electric locomotives from Siemens. According to the company, this was the largest single order for locomotives in its history. Siemens hopes for further orders.
In the morning, the Swiss electrical engineering group ABB reported that orders in China, the company’s second largest market, had fallen by nine percent. Orders in India, on the other hand, have increased.
With information from the dpa