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This is why India's relevance for German companies has increased significantly

What are the business expectations of German companies in India? We have now investigated this together with the Indo-German Chamber of Commerce (AHK India). The key finding of the German Indian Business Outlook 2023: The view of India has changed. This is also due to the derisking and decoupling strategies of German multinationals.

A total of 99 companies participated in the survey between 17 April and 29 May 2023. They are very optimistic about their business in India. This is true for 2023 and even more so with a view to the next five years. 71 percent expect increasing sales on the subcontinent in the current year, 48 percent expect increasing profits. The five-year forecast is even better: 83 percent expect sales to grow and 73 percent expect profits to increase. Investment plans are also much more ambitious than in the last survey in 2021.

Increasing importance as an investment location

The three most important location factors according to the companies: political stability (62 percent), availability of excellent skilled workers (56 percent) and relatively low labour costs (45 percent). Currently, Germany is already the seventh largest foreign direct investor in India. More than half of the study participants (53 percent) plan to expand their investments in India in the current year. Two years ago, only 36 percent were planning to do so. In five years, almost three quarters (73 per cent) want to invest in India - twice as many as in 2021.

From low-cost location to location for research and development

German companies expect a rapid increase in production in India for the local market. Currently, every third company (33 per cent) produces in the world's fifth-largest economy. More than one in two (53 per cent) are planning to do so in 2028. One reason for this is that the middle class, which already numbers 430 million people, is expected to continue growing strongly. A special push is on the horizon for the research and development sector. In 2023, only nine percent are engaged in R&D in India - by 2028, this figure is expected to rise to 25 percent. 

The results show that the India narrative is fundamentally changing: The low-cost location is transforming into a relevant location for research & development. Due to its economic potential and qualified skilled labour, India is considered indispensable for the diversification of the German economy. Special focus is being placed on environmental technology, renewable energies, digitalisation, Industry 4.0 and sustainable infrastructure.

India's strengths in regional comparison

As an up-and-coming business location, India has several advantages in a regional comparison. For example, more than every second company (53 percent) appreciates the English-speaking skilled workers who can be deployed internationally in times of virtual working environments. Likewise, 53 percent of the companies praise the continuously high economic growth. In recent years - with the exception of the Corona slump - it has averaged around seven percent. In April 2023, India officially replaced China as the most populous country in the world. This is another reason why almost half of the respondents named India's growing population as a locational advantage. Young workers and consumers are growth drivers.

Bureaucracy, corruption and regulatory hurdles as biggest challenges

However, India also faces major challenges: Geopolitical tensions (42 per cent) are considered the biggest exogenous risk, followed by the possibility of a new pandemic in India (36 per cent). However, both risks are expected to decrease within a five-year period. According to the respondents, global warming and cyber attacks will be much more relevant in five years than they are now, at 40 per cent each.

Currently, 53 percent of the German companies surveyed feel hampered by bureaucracy and administrative hurdles. Corruption (47 per cent) and the regulatory environment (31 per cent) are the next most frequently cited local challenges - and the respondents do not expect any significant progress by 2028. This makes it all the more important to successfully conclude negotiations on a trade and investment protection agreement between the EU and India, emphasises Stefan Halusa, CEO of the AHK: "That would significantly improve the rules of the game." Andreas Glunz sums up: "Operational challenges should not be underestimated when entering the market. However, there is no mistaking it: The mood towards India has improved significantly."