Within the EU, Germany is India's main trading partner and its sixth most important trading partner worldwide. Conversely, India was in 23rd place for Germany last year. While the extent of the second wave of Covid-19 in April/May 2021 and the associated human suffering shook us, the international aid measures and the increasing number of vaccinations in India will hopefully lead to an improvement in the situation for the local population in the near future.
In spite of the pandemic, India is increasingly becoming an another relevant market for German companies, the potential of which has barely been tapped: The volume of trade between Germany and India is currently equivalent to less than 10% of the trade volume between Germany and China.
Rising revenue even in the year of the pandemic
According to the survey of German companies in India performed jointly by KPMG Germany and the Indo-German Chamber of Commerce (AHK India) between February and April 2021, a profitable year in 2021 is expected despite current economic uncertainties. Two thirds of companies surveyed (66%) anticipate rising revenues, with one in six expecting growth of more than 20%. At the same time, around half (49%) of the companies surveyed also expect higher profits compared with the prior year.
The medium-term perspective is even more optimistic: 89% of those surveyed forecast higher revenues for the next five years, with 71% forecasting rising profits.
The surveyed companies were more restrained with regard to investments and the expansion of staff. Well over half of the companies expect unchanged or even declining figures in this regard for the current year. By contrast, 36% of companies intend to invest more and 37% aim to hire more staff in 2021.
Managing Partner International Business
KPMG AG Wirtschaftsprüfungsgesellschaft
What is your expectation for your business in India for 2021?
Growing domestic consumption is considered the most significant business opportunity
Despite all challenges, India will have the world's largest middle-class population in terms of numbers by 2025, offering numerous opportunities for German companies. The majority of respondents value growing domestic consumption (84%) and high revenue potential (81%) due to demographic change and rising incomes. Two-thirds of respondents (65%) cite the availability of a well-educated workforce, due in part to the large number of university graduates, as advantage.
Low production costs due to the low wage level and government incentives for foreign direct investment are rated as opportunities by more than half of the respondents (54% and 52%, respectively).
Please rate the following opportunities for your company’s India business.
Infrastructure development and further progress of selected location-specific factors in India
81% of respondents see a positive trend in the further development of infrastructure in India, one of India's most important areas of development. The need for action is underscored by the fact that only 2% of respondents consider that a sufficiently developed infrastructure has already been achieved.
Three quarters of respondents (74%) also expect major positive effects from the continued digitalisation of industry. "Digitalisation has been boosted massively by the coronavirus pandemic in India and Germany. We receive inquiries almost daily from German companies in the IT sector that intend to establish a branch in India or are looking for collaboration partners." summarises Stefan Halusa, Managing Director of AHK India. "German SMEs in particular should open up to the Indian market even more actively in the future."
Those surveyed by KPMG and AHK India described the reliability of their business partners as the most significant advance: three out of four companies see advances here - in some cases major advances. 67% of companies consider the further development of Indian democracy and the political environment in India to be positive. Only one in ten companies reported setbacks in this regard.
Operational challenges faced by German companies in India
German companies face a number of serious operational challenges in India. 59% of respondents see Indian bureaucracy and its various administrative hurdles as a major obstacle. Despite significant improvement in recent years, these issues still persist, especially outside of the main business hubs/centres. 43% of respondents named foreign currency risks as a key challenge. Almost as many rate corruption as one of the three biggest problems for their company (38%).
The complexity of the Indian tax system, legal uncertainties and unclear regulatory frameworks, often in connection with a lack of or lengthy legal enforcement, are perceived as major operational difficulties by more than a third of German companies (36% and 34%, respectively).
"Despite the unmistakable improvements in the business environment for German investors in India in recent years, there is a lot to be done in terms of governance, the legal framework and a reduction in bureaucracy before India approaches the attractiveness of China," says Andreas Glunz (KPMG).
Please state the three biggest operational challenges for your company’s India business.
All results of the German Indian Business Outlook you can download here.