Companies are assuming positive economic development in India and are increasingly relying on the country.
(Photo: Bloomberg via Getty Images)
Bangkok The Cologne-based plastics specialist Igus needs more space in India. Because business is going so well in the world’s fifth largest economy, larger production capacities are needed. “We are currently investing in quadrupling our location in Bangalore,” says Artur Peplinski, who heads the international business of the medium-sized company. Double-digit growth rates have been recorded in the country for years. “We also expect a significant increase in the future,” says Peplinski.
The industrial supplier is not alone in his optimism: the vast majority of German companies doing business in India are optimistic about their business prospects in the country and are planning to expand investments, some significantly. This shows a survey of 120 companies by the auditing and consulting company KPMG and the Indo-German Chamber of Commerce, which is to be published on Tuesday and was available to the Handelsblatt in advance.
According to this, 83 percent of the managers surveyed expect sales to increase in India by 2028. 73 percent also expect profits in the country to grow by then. For the current year, 71 percent expect sales to be higher than in the previous year. Around every second company expects increasing profits.
A look at the foreign trade statistics also shows that business with India is going particularly well: In the first four months of this year, the value of German goods exports to India rose by more than 24 percent. The export business with India had already reached a new record last year with a volume of around 15 billion euros.
The good development is also making India the focus of companies that have had little contact with the country up to now. Stefan Halusa, head of the Indo-German Chamber of Commerce, reports that there is significantly greater interest in entering India. “Our team in Düsseldorf is now getting significantly more inquiries than before the corona crisis,” he says.
Lufthansa plans airlines to India
In the meantime, downright euphoric tones can also be heard from the executive floors of corporations. At the beginning of the month, Lufthansa boss Carsten Spohr described India as his group’s “new favorite country” in an interview with journalists. Among other things, Lufthansa is benefiting from an increase in business trips to India and is expanding its offerings to the country’s business hubs.
Lufthansa would like to strengthen its commitment in India.
(Photo: dpa)
Like the aviation group, the majority of German companies operating in India intend to increase their involvement in the country: According to the KPMG survey, 53 percent want to expand their investments this year alone. The willingness to invest has thus increased significantly. In the previous edition of the German-Indian Business Outlook, published in 2021, only 36 percent said they wanted to increase their investments in India.
The bets on a sustained boom in India, whose economy is forecast to grow by more than six percent this year more than any other major economy, are accompanied by growing skepticism about China. “The companies are not interested in leaving China,” says Andreas Glunz, Head of International Business at KPMG in Germany. “But they are looking for an alternative for new investments – and India is the obvious choice.” According to the companies surveyed in the study, the main arguments in favor of the location are the political stability, the availability of skilled workers and the relatively low wage costs.
>> Read here: India drives growth
However, the German investors are only likely to partially fulfill India’s Prime Minister Narendra Modi’s desire to make his country the world’s new workbench: They are primarily working on new production facilities in order to serve the local market from India.
According to “Business Outlook”, every third company surveyed is currently doing this. From 2028 more than half of the companies in India want to produce for India. According to the study, however, exports from the plants in India to the rest of the world will continue to play a subordinate role – only 29 percent want to supply other markets from India in five years. Currently, 24 percent do so.
India benefits from the trend to produce locally for the local market
Chamber of Commerce boss Halusa sees the positioning of German companies as part of a global trend to produce locally in individual countries primarily for the local market. From his point of view, using India as an export center is not easy, also because of the considerable backlog in the logistics infrastructure: the government has recognized the problems. At the moment, however, it is still expensive to export from India, he says. “The lack of a trade agreement with the EU also makes it difficult to integrate Indian production sites into global value chains.”
The EU and India are currently negotiating a free trade agreement. A year ago, both sides confirmed that they wanted to reach an agreement by the end of 2023. But that still seems a long way off. “I’m skeptical that this date can be kept,” says Halusa.
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