Businesses are positive about the positive developments in the Indian economy and increasingly rely on the country.
(Photo: Bloomberg, Getty Images)
Bangkok Cologne-based plastics specialist Igus needed more space in India. As business is going well in the world’s fifth largest economy, greater production capacity is required. “We are currently investing in quadrupling our Bengaluru location,” says Artur Peplinski, who heads the midsize company’s international operations. The country has maintained double-digit growth rates for many years. “We also expect significant growth going forward,” Peplinski said.
The industrial supplier is not alone in his optimism: The vast majority of German companies with operations in India are optimistic about their business prospects in India and plan to expand investments, some on a large scale. That’s according to a survey of 120 companies by audit and consultancy firm KPMG and the German Chamber of Commerce in India, which will be released on Tuesday and provided to Handelsblatt in advance.
Accordingly, 83% of managers surveyed expect sales to grow in India by 2028. Seventy-three percent of respondents also expect the country’s profits to increase by then. 71% of respondents expect sales this year to be higher than the previous year. About one-half of companies expect profits to grow.
Foreign trade statistics also show 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. Exports to India reached a new record last year, amounting to around 15 billion euros.
The good developments have also put India in the spotlight for businesses with little exposure to the country so far. Stefan Halusa, president of the Indo-German Chamber of Commerce, reports that there is significantly greater interest in entering India. “Our team in Düsseldorf is receiving far more inquiries now than before the corona crisis,” he said.
Lufthansa plans to launch routes to India
Meanwhile, the downright cheerful tone can be heard among corporate executives. Speaking to reporters earlier this month, Lufthansa boss Carsten Spohr described India as the group’s “new favorite country”. In addition to this, Lufthansa is also benefiting from an increase in business travel to India and is expanding its services to the country’s business hubs.
Lufthansa wants to strengthen its commitment in India.
(Photo: dpa)
Like airline groups, most German companies with operations in India intend to increase their investments in the country: 53% of companies expect to expand their investments this year alone, according to KPMG. As a result, the willingness to invest has increased significantly. In the last edition of the German-India Business Outlook, published in 2021, only 36 percent of companies said they wanted to increase their investments in India.
Bets on continued prosperity in India, which is expected to grow faster than any other major economy this year, have been accompanied by growing skepticism about China. “These companies are not interested in leaving China,” said Andreas Glunz, head of international practice at KPMG in Germany. “But they are looking for alternatives for new investments, and India is the obvious choice.” According to companies surveyed in the study, the main reasons in favor of the location were political stability, availability of skilled workers and relative economics. Salary costs are low.
>> Read here: India drives growth
However, German investors can only partially realize Indian Prime Minister Narendra Modi’s desire to make India the world’s new workbench: they are mainly focusing on building new production facilities to serve the local Indian market.
According to Business Outlook, a third of companies surveyed are currently doing so. From 2028, more than half of Indian companies want to produce for India. However, according to the study, exports from Indian factories to the rest of the world will continue to play a secondary role – with only 29 percent expecting to supply other markets from India within five years. Currently, 24% do.
India benefits from trend of local production for local market
The chairman of the Chamber of Commerce, Harusa, believes that the positioning of German companies is part of a global trend, that is, local production in various countries, mainly for the local market. In his view, using India as an export hub is not easy, also because of the backlog in logistics infrastructure: the government has recognized the problem. However, exports from India are currently still expensive, he said. “The lack of a trade agreement with the EU also makes it difficult for Indian production bases to integrate into global value chains.”
The EU and India are currently negotiating a free trade agreement. A year ago, the two sides confirmed they hoped to reach a deal by the end of 2023. But that seems like a long way off. “I doubt that date will hold,” Harusa said.
more: Prohibition and smog: How foreigners live in India