The increasing importance of India: 59% of German companies plan new investments there this year

Positive business expectations: 78% of respondents expect rising sales and 55% expect increasing profits for the current financial year – in both cases an increase of 7% against the previous year

• India's importance as an investment location for German companies is growing sustainably: 78% of surveyed companies are planning new investments by 2029 (+19% points compared to 2024)
• The top three location factors that make India attractive: low labor costs (54%), political stability (53%) and qualified specialists (47%)
• 45% want to use India as a production location for both, the local and the Asian market by 2029 (+12% points compared to 2024)
• The greatest challenges remain bureaucratic hurdles (64%), corruption (39%) and the tax system (27%)
• Demands towards the newly elected Indian government: the improvement of the regulatory framework and increased legal certainty (67%), better infrastructure (55%) and greater trade facilitation (48%)

India is booming – and this is attracting more and more German companies to the subcontinent. Nearly six in ten German companies are planning to increase their investments in India during the current financial year.

In addition, 78% of companies expect rising sales, and 55% forecast higher profits.

Expectations for the next five years are even more positive: 82% expect an increase in turnover and 74% expect higher profits.

The companies assume that the growth rate will be very dynamic: By 2029, 37% of respondents expect sales growth of more than 20% and 25% of them anticipate profit growth of more than 20%.

These are the key findings of the "German Indian Business Outlook 2024" presented today. The survey conducted by KPMG in Germany and the Indo-German Chamber of Commerce (AHK India) took place between 9 April and 20 May 2024, and deals with the business expectations of German companies in India.

The relevance of the sub-continent is demonstrated by the current investment plans of companies. 59% of the companies surveyed are planning to expand their investments this year. That is 23%-points more than in 2021. This proves: India is and remains an important investment destination for German companies.

This is even more obvious with a five-year perspective: three quarters (78%) of companies want to increase their investments, a doubling compared to 2021 (36%).

Only 7% of respondents are considering reducing their investments in 2024.

When asked about the top 3 location factors in favor of India, 54% of German companies cite low wage costs first, followed by the country's political stability (53%). Then in third place, respondents state the availability of highly qualified specialists (47%). This represents an increase of 12%-points compared to the previous year.

However, companies expect wage costs to deteriorate over the next five years. In 2029, only 36% of companies still expect cost advantages in this respect.

In comparison with other Asian countries, 69% of German companies appreciate the steady growth of India’s economy as a particular advantage. The weakening economy in China compounds this view.

The world's most populated country offers German companies enormous potential. Currently, a third (33%) use India as a production location for the local market. By 2029, 45% of companies are intending to do so.

For more than one in four German companies (27%), India's impressive potential as a sales market - with over 1.44 billion consumers - is the second most important reason for doing business there. By 2029, 40% of companies are stating so.

The role of India as a global competence center or shared service center is becoming increasingly important for the respondents. Around one in five companies (21%) have set up such a center in India, and more than a third of companies (35%) intend so within the next five years.

"India continues to show enormous potential. And further to this, continues to gain in importance as a location for regional production and global development," emphasizes Stefan Halusa, Managing Director of AHK India.

The survey by KPMG and AHK was conducted shortly before the election results were announced. Nevertheless, it gives an indication of the demands of the German companies towards the new government.

Two thirds of respondents (67%) hope for simplified regulations, a fight against corruption and greater legal certainty in the country.

In second place comes the desire to expand and modernize the infrastructure. This is what 55% of companies want.

A liberalization of trade and a promotion of exports are hoped for by 48%.

"With Modi's re-election, German companies hope that many structural problems will be tackled. These include the infrastructure deficits in the areas of transportation, energy, information and communication, the complex tax system and the highly varying regional regulations. Only by solving those topics it will be possible that the growth expectations can be achieved in the medium term," explains Andreas Glunz (KPMG).

Despite the positive outlook, the German companies surveyed also see challenges in India. 64% of those surveyed consider the bureaucratic hurdles to be particularly burdensome. This corresponds to an increase of 11 percentage points compared to the previous year.

This is followed by corruption at 39%, although this is considered less relevant compared to the previous year (47%).

The third biggest challenge is the tax system. More than one in four German companies (27%) cite this as a problem.

"India offers a unique combination of market size, market potential and a talent pool for German companies. However, bureaucratic and regulatory hurdles are still the biggest problem. A more efficient administration, the continuous fight against corruption and a simplified tax system would further increase India’s attractiveness for German companies," explains Stefan Halusa (AHK).

Rising import duties are seen as a further risk by 52% and non-tariff trade barriers by 43%.

When asked about exogenous risks, 40% of German companies put possible cyber-attacks at the top. 37% perceive the high level of air pollution in India's major cities as a risk. Increasing protectionism and bloc formation are named by 36% as further significant risks.

For the "German Indian Business Outlook 2024", KPMG in Germany and the Indo-German Chamber of Commerce (AHK India) conducted a survey among the Indian subsidiaries of German corporations and companies with Indian activities in Germany. A total of 85 companies took part (99 companies in the previous year). The implementation period was between 9 April and 20 May 2024. The questions focused on the economic outlook of German companies in India as well as their challenges and business opportunities.

Katrin Häbel

Head Corporate Communications
KPMG AG Wirtschaftsprüfungsgesellschaft

T +49 69 9587 4228
khaebel@kpmg.com