By 2028, every fourth German company wants to use India for its own research and development
Massive recovery after pandemic: 71 % of German companies expect rising sales, 48 % rising profits for current business year
Massive recovery after pandemic: 71 % of German companies expect rising sales,
- Relevance of the sub-continent increases significantly for German companies
- Regionalisation in India on the rise: production in India for the local market increases by 20 percentage points to 53% and for export by 5 percentage points to 29% by 2028
- The three most positive location factors: political stability (62%), availability of skilled labour (56%) and low wage costs (45%)
- High import tariffs currently burden 57% of companies; 63% expect this in 2028
- Free trade and investment protection agreement between EU and India would be a game changer
Berlin/Mumbai, June 27th 2023
German companies in India are particularly optimistic - both for the current financial year 2023 and in the medium term. 71 % of them expect rising sales and 48 % rising profits on the sub-continent. For the five-year perspective, companies are even more positive. Here, 83 % expect an increase in turnover and 73 % in profits. This is accompanied by significantly more ambitious investment plans compared to the last survey in 2021. On the other hand, only just over one in ten companies (11%) expects a decline in turnover for 2023. For 2028, only 6% of the companies expect this to happen.
These are the key findings of the "German Indian Business Outlook 2023" presented today. The survey by KPMG AG Wirtschaftsprüfungsgesellschaft (KPMG) and the Indo-German Chamber of Commerce (AHK India) was conducted between 17 April and 29 May 2023. The focus was on the business expectations of German companies in India.
Increasing importance of India as an investment location
The three most important location factors of India for German companies are political stability (62 %), the availability of excellent skilled labour (56 %) and the relatively low labour costs (45 %). Germany is already the seventh largest foreign direct investor in India. 53 % of German companies plan to expand their investments here in the current year. Two years ago, only 36 % of the companies planned to do so. In the five-year horizon, almost three-quarters of the companies (73 %) want to invest in India. That is twice as many as in 2021.
The days of single sourcing from the world's cheapest supplier are over. German companies are increasingly diversifying and regionalising around the globe. India is becoming an important cornerstone of their de-risking strategy in purchasing, production and increasingly also in research and development.
Potential growth increases India's relevance
German companies expect a rapid increase in production for the local market in India. Already today, every third company (33 %) produces for the world's fifth-largest economy. By 2028, more than every second company (53 %) wants to do so. This is also due to the growing middle class in India with an estimated population of more than 430 million. India is currently used as an export hub by just under one in four companies (24 %). In 2028, 29 % of the companies want to do so.
A particularly strong push is emerging for research & development in India. For the current financial year 2023, only just under one in ten companies (9%) is using research and development in India. By 2028, every fourth company (25 %) plans to do so.
The results show that the India narrative is changing. Away from being a low-cost location to becoming an important location for R&D. Due to its economic potential and skilled labour, India is indispensable for the diversification of the German economy. Especially in the areas of environmental technology, renewable energies, digitalisation, Industry 4.0 and sustainable infrastructure, the country has significant potential growth
Bureaucracy, corruption and regulatory barriers are biggest challenges
Currently, more than one in two German companies (53 %) feel impaired by bureaucracy and administrative hurdles in India (59 % in the previous year's survey). 47 % rate corruption as one of the three biggest problems (38 % in the previous year's survey). 31 % cite the regulatory environment as a major challenge.
"It is unmistakable: Business sentiment towards India has improved significantly. Nevertheless, the operational challenges and risks of market entry should not be underestimated," says Andreas Glunz.
Looking ahead to 2028, German companies do not expect any significant improvements either. Their citations remain unchanged for bureaucracy and only drop by 2 percentage points each for corruption and the regulatory environment.
Import tariffs and non-tariff trade barriers continue to burden
High import duties burden 57 % and non-tariff trade barriers 35 % of German companies in India. Looking at the situation in five years, the mentions increase by another 6 % and 5 % points respectively.
"This is a clear indication of how important the successful conclusion of the negotiations of the Trade and Investment Protection Agreement is for German companies. Because especially with regard to import duties and non-tariff trade barriers, such an agreement would significantly improve the rules of the game," emphasises Stefan Halusa.
Exogenous risks for India's further development
42% of companies currently rate geopolitical tensions and 36% the possibility of a new pandemic as the biggest exogenous risks in India. However, they expect both stress factors to decrease within a five-year period. In 2028, 40 % of the companies each expect global warming and cyber-attacks to pose the greatest risks.
About the German Indian Business Outlook 2023
For the "German Indian Business Outlook 2023", KPMG AG Wirtschaftsprüfungsgesellschaft and the Indo-German Chamber of Commerce (AHK Indien) conducted a survey among the Indian subsidiaries of German corporations as well as among companies with activities in India in Germany. A total of 99 companies participated. The implementation period was between 17 April and 29 May 2023. The comparative study took place between 25 February and 19 April 2021. The questions focus on the economic outlook of German companies in India as well as their challenges and business opportunities.
Press contact
Head of Corporate Communications
KPMG AG Wirtschaftsprüfungsgesellschaft
T +49 69 9587 4228
khaebel@kpmg.com
Anne Krieckhaus
Excecutive
Indo-German Chamber of Commerce
+49 211 3605971
krieckhaus@indien.ahk.de