Since 1895 India-Germany Economic Cooperation

India-GermanyEconomic Cooperation

Setting a New Trajectory

Since 1895

Supported by

India-GermanyEconomic Cooperation

Setting a New Trajectory

The Mantosh Sondhi Centre

23, Institutional Area, Lodi Road, New Delhi – 110 003 (India)

Tel: 91 11 24629994-7 • Fax: 91 11 24626149

email: [email protected] • Website: www.cii.in

Since 1895

September 2010

India-Germany Economic Cooperation

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INTRODUCTION With a population of 82 million, Germany is the largest and most populous economy in Europe. Thus, it plays a key role in Europe’s economic, political and defence issues. Germany is the fourth richest country in nominal GDP terms and second largest exporter in the world with exports contributing close to half of its GDP. Major industries include automobiles, mechanical engineering, chemicals, aviation, IT, steel, ship building, food industry, textile and clothing, mining, etc. India and Germany share warm relations of mutual respect and regard based on historical interest in each other’s literature and culture. The two countries enjoy a strategic partnership, translating into cooperation across many dimensions. The two countries must leverage their excellent relations to forge a new paradigm of economic partnership that would greatly elevate trade and investment. ECONOMY The German economy is the fifth largest economy in the world after US, China, Japan and India, as well as the largest in Europe in terms of purchasing power parity. The GDP of 2009 in terms of purchasing power parity was US$2.8 trillion, while nominal GDP stood at $3.5 trillion. Due to its high outward orientation, Germany suffered from the global economic crisis. GDP growth remained negative for four successive quarters beginning Q1 2008, leading to 0.7% growth in 2008 and a decline of -5% in 2009, the most drastic fall since the Federal Republic came into being. However, from the second quarter of 2009, growth returned to positive territory although at less than 1% expansion rate. In Q2 of 2010, Germany rebounded convincingly, attaining a growth rate of 2.2%, the highest in reunified Germany. This is attributable to strong demand for German goods in large emerging economies of Asia. With fall in employment restrained due to ‘short-hour’ policies, domestic demand also helped bolster GDP. For 2010, the German Bundesbank expects GDP to clock 3% expansion. The German government pledged nearly EUR 81 billion to help the country weather the financial and economic crisis while preparing it for a better future. The priorities include tax relief, and structural reforms in education, skill development and new technologies. The Government has also committed to fiscal consolidation beginning 2011.


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Germany’s main economic indicators:

Parameter 2008

Population (m) 82.7

GDP (US$ bn; market exchange rate) 3,352.7 GDP per capita $ purchasing power parity 34,212

GDP growth rate %: 2007 2008 2009

2.5 0.7

-5.0 Sectoral composition of GDP %: Agriculture Industry Services

0.9

26.8 72.3

Investment % of GDP Gross national savings % of GDP

17 22

Source: IMF, Deutsche Bundesbank, CIA World Factbook INTERNATIONAL TRADE RELATIONS Closely interlinked with the global economy, Germany strongly supports free world trade and open markets. Germany uses bilateral and multilateral negotiations to work towards a framework through which competition and trade can develop as freely as possible. In 2009, Germany’s exports dropped 18% and its imports came down by 17%. European Union comprises of 63% of Germany’s exports, followed by Asia (14%) and America (10%). The top three destinations for German exports were France (10%), US (6.7%) and Netherlands (6.7%) in 2009. The majority of German imports also came from Europe (71%), followed by Asia (18%) and America. Netherlands was the top import source in 2009 (8.6% of total German imports) followed by China and France. [see Annex 1] Apart from China which has moved up to second rank in Germany’s import profile, it may be noted that no Asian country figures in the top ten of Germany’s trading partners. Germany External Trade USD Billions

2004 2005 2006 2007 2008 2009

Exports 911.8 977.1 1122 1328.8 1466.1 1127.5

Imports 718.2 779.8 922.2 1059.3 1204.2 938.0

Source: OECD The lion’s share of exports in 2008 (17.9%) was made up by boilers, machinery and parts, in which Germany had over 13% market share of world exports. This was followed by vehicles and parts (15.8 %) and electronic and electrical equipment (9.8 %). Germany is also a major global exporter of pharma products, aircraft and parts, tanning and dyeing material, soaps and lubricants, etc.


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Top German imports in 2008 were mineral fuels and oils (13.6 %) followed by boilers and machinery (12 %) and electrical and electronic equipment (9.9%) as well as motor vehicles and components thereof (9.0 %). Germany also imports pharma products and iron and steel products. FDI AND INVESTMENT CLIMATE Investments by foreign companies play an important role in Germany. It enjoys an excellent reputation with foreign investors. Germany also ranks among the top global investors. Germany’s FDI stocks are concentrated in Europe and North America. However, in recent years, countries in Asia have also become preferred locations of investment. German FDI is tilted towards the service sector, mainly the financial intermediation sector. Trade and transportation and communication also play a key role. The German government and industry actively encourage foreign investment in Germany, providing infrastructure which is second to none within EU; expertise based on years of experience; simple, clearly defined tax and levy regulations and bureaucracy-free approval procedures; and numerous incentive programs for investors and national treatment to foreign investors under German law. Both inward and outward FDI fell drastically under the influence of the global financial crisis. Outward FDI was $100 billion lower in 2009 than the peak in 2007, while inward FDI halved to 2007 levels.

1995-2005 Annual average

2006 2007 2008 2009

Inward FDI 41.8 55.6 76.5 24.4 35.6 Outward FDI 50.0 118.7 162.5 134.6 62.7

Source: UNCTAD WIR 2010 INDIA GERMANY BILATERAL RELATIONS India and Germany are important partners on the international stage. They both share a broad range of common values as well as common views on international issues. As more and more Indian companies are reaching overseas destinations to tap new markets and to acquire new technologies, Germany is one of the most preferred investment destinations for Indian companies and is India’s fifth largest trading partner. India is one of Germany’s most important partners in development co-operation which focuses on sustainable development, environment and energy. In recent years, political bilateral relations have intensified. The year 2006 was virtually the “Year of India” in Germany where India was a partner country Hanover Messe 2006, and the focus country in Bonn Biennale Festival as well as the Guest of Honour country at the Frankfurt Book Fair. In 2007 India was the partner country for the International Tourism Bourse in Berlin and again in 2008, the partner country of the Berlin Air Show ILA 2008. The two countries have also agreed on holding an annual Heads of Government summit. India and Germany have formed a Joint Commission on Industrial and Economic Cooperation that meets once every two years at the level of Finance Ministers. Working groups on agriculture, automobiles, vocational education, coal and infrastructure have also been created.


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The main Indo-German economic agreements include: • Trade agreement of 31 March 1955 . • Agreements on cooperation in scientific research and technological development of 1971 and

1974. • Double taxation agreement, which came into force on 19 December 1996 . • Agreement on the promotion and protection of investments, which came into force in July 1998. TRADE WITH INDIA Germany remains at fifth position in India’s overall trade profile, primarily because of strong demand from India for German goods. In 2008-09, bilateral trade grew by 22% to reach a total of USD 18.4 billion. The target set earlier in 2005 by the two heads of Governments to double trade by 2010 was therefore achieved three years ahead of schedule. However, the impact of the global financial crisis was felt on total trade as it declined by 14% in 2009-10. The share of Germany in India’s total trade has also drifted downwards and stands at 3.4% in 2009-10. The trade balance in favour of Germany has been growing. India must examine the products it can export to Germany in order to enlarge overall trade. The trade basket between India and Germany is fairly diversified. Exports to Germany

• India’s exports to Germany almost doubled from 2005-06 to 2008-09. • Germany ranks fifth as an export market for India. In Germany’s import ranking, India comes

in at 26th as a source of goods. • Germany’s importance as an export destination for Indian goods has marginally declined. • Some of the major exports of India to Germany consist of textile and leather, machinery,

electro technical products, pharmaceuticals, electronic goods, readymade garments, transport equipment etc.

• While apparel remains dominant, other categories such as electronic and electrical equipment, boilers and machinery, and organic chemicals are also ranked high, attesting to quality of Indian goods.

• It is interesting to note that India’s top two exports of mineral fuels and gems and jewelry rank low in exports to Germany.

Imports from Germany

• India’s imports from Germany expanded at an average of 24% from 2005-06 to 2008-09 before slipping in the wake of the financial crisis.

• Imports crossed $12 billion in 2008-09 from $6 billion in 2005-06. • India ranks 19th in Germany’s export profile. For India, Germany is the 8th largest source of

goods from overseas. Germany’s importance as a source of goods has come down as its share has declined over the years.

• The major imports from Germany include machinery, electro technology, metal products, iron and steel, automobile products, organic chemicals, machine tools and pharmaceuticals.

• India’s demand for high-quality machinery and equipment for its manufacturing and infrastructure industries is reflected in the import profile from Germany.

• Boilers and machinery and electrical and electronic equipment form the bulk of India’s imports from Germany. Other high value items include optical and medical equipment and project goods.


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India’s trade with Germany: USD Billions

\Year 2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

EXPORT 3,586.12 3,984.81 5,121.53 6,388.54 5,412.86 %Growth 11.12 28.53 24.74 -15.27 %Share 3.48 3.15 3.14 3.45 3.03 IMPORT 6,023.63 7,552.64 9,884.83 12,006.02 10,318.85 %Growth 25.38 30.88 21.46 -14.05 %Share 4.04 4.07 3.93 3.95 3.58 TOTAL TRADE 9,609.75 11,537.45 15,006.36 18,394.56 15,731.71 %Growth 20.06 30.07 22.58 -14.48 %Share 3.81 3.70 3.62 3.76 3.37

Source: www.commerce.nic.in

0.002,000.004,000.006,000.008,000.00

10,000.00

12,000.0014,000.0016,000.0018,000.0020,000.00

2005‐2006 2006‐2007 2007‐2008 2008‐2009 2009‐2010

$ million

Exports Imports Total Trade

India’s Exports to Germany Top 15 (US$ million)

HSCode Commodity 2008-2009 2009-2010 Total 6,388.54 5,412.86

61 Articles of apparel and clothing accessories, knitted or crocheted.

688.88 584

62 Articles of apparel and clothing accessories, not knitted or crocheted.

429.3 473.63

85 Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and parts.

575.92 439.09

29 Organic chemicals 465.8 398.61

84 Nuclear reactors, boilers, machinery and mechanical appliances; parts thereof.

467.66 350.5

87 Vehicles other than railway or tramway rolling stock, and parts and accessories thereof.

409.63 334.72


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42 Articles of leather, saddlery and harness; travel goods, handbags and similar cont.articles of animal gut (othr thn silk-wrm) gut.

260.82 255.65

64 Footwear, gaiters and the like; parts of such articles. 232.42 224.72 73 Articles of iron or steel 257.64 201.62

63 Other made up textile articles; sets; worn clothing and worn textile articles; rags 207.38 177.86

57 Carpets and other textile floor coverings. 144.48 161.72 88 Aircraft, spacecraft, and parts thereof. 250.3 152.72

71 Natural or cultured pearls,precious or semiprecious stones,pre.metals,clad with pre.metal and artcls thereof; imit.jewlry; coin.

326.49 150.69

30 Pharmaceutical products 95.37 116.87

32 Tanning or dyeing extracts; tannins and their deri. dyes, pigments and other colouring matter; paints and ver; putty and other mastics; inks.

134.65 106.45

Source: EIDB

HSCode Commodity 2008-2009 2009-2010 Total 12,006.02 10,318.85

84 Nuclear reactors, boilers, machinery and mechanical appliances; parts thereof. 4,013.61 3,160.20

85 Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and parts.

1,550.81 1,357.69

90 Optical, photographic cinematographic measuring, checking precision, medical or surgical inst. and apparatus parts and accessories thereof;

772.15 716.7

98 Project goods; some special uses. 489.77 712.83 72 Iron and steel 571.7 506.52 29 Organic chemicals 431.65 484.91 88 Aircraft, spacecraft, and parts thereof. 1,255.83 444.32 39 Plastic and articles thereof. 339.84 395.55

87 Vehicles other than railway or tramway rolling stock, and parts and accessories thereof. 380.28 350.89

73 Articles of iron or steel 247.35 220 38 Miscellaneous chemical products. 163.64 186.84

86 Railway or tramway locomotives, rolling-stock and parts thereof; railway or tramway track fixtures and fittings and parts thereof; mechanical

27.54 148.85

28 Inorganic chemicals; organic or inorganic compounds of precious metals, of rare-earth metals, or radi. elem. or of isotopes.

134.75 108.76

74 Copper and articles thereof. 123.95 108.12

48 Paper and paperboard; articles of paper pulp, of paper or of paperboard.

137.17 107.84


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India’s demand for machinery and electrical equipment from Germany comprises about $4.5 billion of the total of $10 billion imports. This attests to India’s aspiration for quality products, and also to India’s capability to pay for these high quality products. Overall, the trade trend reveals India’s quest for high technology. BILATERAL INVESTMENTS Germany has always been interested in the Indian economy. Beginning with its high profile partnership in India’s Rourkela steel plant, it has forged a strong brand image among Indian consumers for its consumer durables and machinery and equipment. Top German companies have long participated in India’s manufacturing and services sectors. German investments in India USD Millions

Rank Country 2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

Cumulative inflows

(2002-2009)

Percentage of total

inflows

8 Germany 303 120 514 629 626 2,799 3%

Source: Department of Industrial Policy and Promotion, India Germany also ranks second on foreign technology transfer approvals with 1,110 technical collaboration approvals which are about 13.33% of the country’s total technology approvals. Nearly 600 Indo-German joint ventures are presently in operation. The sectors of interest to Germany are machinery and parts followed by heavy vehicles, chemicals, technical consultancy services, computers, electrical appliances etc. The major sectors attracting German investment into India are electrical equipment and metallurgical industry. The top sectors attracting technology transfer are industrial machinery and electrical equipment. Pune is a major hub of Indo-German joint ventures in the manufacturing and service sector with more than 250 joint ventures already operational in the city. Indian subsidiaries of German enterprises are continuously performing better than their parent companies in terms of total growth in profit and sales. This has helped to boost the flow of FDI from Germany to India. Industries attracting FDI from Germany to India are: • Auto components • Electrical and electronic engineering • Chemical • Mechanical engineering • Information Technology • Glass and ceramics • Textiles • Paper • Metallurgical industries Major German investors in India are: • Robert Bosch • Daimler Chrysler • Bayer • Siemens • Allianz • BASF • SAP • ThyssenKrupp Large German companies are further increasing their investments, while new companies are entering Indian markets and several German companies are also reinvesting their profits made in India. India and Germany have agreed to increase their engagement in a number of key areas, including climate change initiatives and cooperation in the fields of posts, intellectual property rights and social security.


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However, given Germany’s outward FDI of the level of $134 billion in 2008, its presence in India at less than $3 billion stock is marginal. Possibly a significant share of investments is indirectly routed. There is also a growing trend of Indian investments in Germany, due to its market size. According to the Indo-German Chamber of Commerce, there are more than 240 Indian owned companies in Germany currently. While two thirds belong to the IT sector, the rest mainly belong to the textile industry, engineering industry, pharmaceuticals and automotive components. A focus of engagements in Germany lies in the start-up of subsidiaries as well as in Mergers & Acquisitions. A study conducted by the Institute of Technology and Innovation Management (TIM) at Hamburg University of Technology (TUHH) revealed that most Indian firms were doing well in Germany and had been able to grow both in terms of turn-over and headcount in recent years. Indian companies like Ranbaxy, Bharat Forge Limited (BFL), Samtel, NIIT, Wockhardt, Hexaware Technologies, Graphite India Limited and others have either acquired German companies or started their own subsidiaries in Germany.

• Mahindra and Mahindra acquired 67.9% stake in a German forgings firm Jeco Holding AG (Aalen) while also acquiring another German forging company- Schoeneweiss & Co. (Hagen).

• Bharat Forge, the second largest forgings manufacturer in the world, has three factories in Germany through its acquisitions

• Dr. Reddy's Laboratories, India's second largest pharmaceuticals company, recently acquired Betapharm GmbH, Augsburg, Bavaria, one of Germany's top five generic pharmaceuticals companies.

• Bharat Fritz Werner Ltd (BFW), a Machine tools manufacturer, is also planning to open a facility near Munich with an investment of Euro 2.5 million.

• Tata Auto Component Systems has acquired the Bavarian based automotive component supplier Wuendsch Weidinger.

• The Indian IT firm- Megasoft has an office in Munich and is acquiring a majority stake in Baden Wurttemberg based firm Beam AG.

POTENTIAL AREAS OF COOPERATION India and Germany are strategic partners whose relationship goes further than the strong economic ties. With India’s rapid economic growth, Germany views India as a country of high opportunity and invites cooperation in many areas. The two countries also recognise the urgent need to find effective and practical solutions to address concerns regarding climate change and its implications for humankind. Chancellor Angela Merkel’s visit to India in 2007 stressed infrastructure in India as well as other projects related to science and technology, energy, R&D and IT. Special focus was on trade and investment. Germany made its stance clear about sincerely welcoming Indian investors while requesting India to ease trade barriers. However, Germany’s trade with Asia as a whole is a small proportion of its aggregate as may be seen in the following table. Comparatively, Germany’s trade with India has been growing at an accelerated pace in 2003-2008, albeit from a much lower base. China dominates non-OECD trade with Germany, enjoying significant presence in industries such as machines and electrical equipment.


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Trade with Asia $ billion

Country Exports Imports 2003 2008 2003 2008 Total to world 748.5 1466.1 601.8 1204.2 Non-OECD Asia 47.4 102.8 60.6 146.5 China 20.4 48.9 28.2 86.4 ASEAN 12.8 22.1 16.7 28.0 India 2.7 11.6 2.9 7.7

Source:OECD India and Germany: SME Sector Cooperation

The German economic model relies on the small scale sector with more than 3 million SMEs which employ 70% of the wage-earners. In case of India, SMEs are an important segment of the economy, with 13 million units contributing about 40-45% of the value added in manufacturing. This is about 7% of the Indian GDP. The sector provides employment to about 42 million people. In the IT sector, German SMEs face a shortage of man-power for developing new innovations which fit into the global market space and are able to scale across borders. Indian SMEs on the other hand face an acute deficit of knowledge of the German market and working conditions. German IT SMEs could be more aggressive in seeking global opportunities - both for sourcing as well as marketing. Indian IT SMEs, owing to their global exposure, are in a strong position to cooperate with their German counterparts in shaping a future of global competitiveness and innovation. They need to spend significant resources in knowing the German IT market better and invest into win-win partnerships with their counterparts here. To serve these goals, industry networks in both India and Germany should put in cooperative efforts to identify areas to complement strengths and facilitate an environment which enables individual companies to achieve win-win scenarios. SMEs of India and Germany need to see a higher level of cooperation in auto components, biotechnology, machine, toys, pharmaceuticals, etc. to give a big push to trade. A large number of German manufacturing companies already have a presence in India and many more have plans. This is a good augury for expanded cooperation between the two sides in future and closer ties between the small and medium enterprises can be a key strategy for the future. A NEW TRAJECTORY OF COOPERATION India and Germany should be able to develop a much closer economic engagement, given the synergies in domestic economic strengths. While India needs to link in with Germany’s robust external supply chain, Germany needs to leverage India’s rapid economic growth and invest more strongly in the India growth story. Both countries must proactively accelerate trade and investment relations in mission mode. Trade in goods – There is need to identify sectors of high potential in trade between India and Germany. India has not explored the German market sufficiently, and Germany must look beyond EU neighbours as a destination and source for goods. For example, the export of automotives by India to Germany is very low, given India’s rapidly expanding auto component sector and Germany’s vehicle industry. Similarly, the top traded items of Germany need to be explored and synergised with manufacturing strengths of India.


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The trade balance is heavily in favour of Germany, and India would need to expand its export basket. Some possible sectors are given below. At the same time, India has proved to be a resilient trade partner for German goods and will continue to have high demand from the world’s largest exporter for meeting its technological aspirations.

• An India-Germany Business Leaders’ forum could help identify the most profitable sectors of cooperation. It could also regularly examine the roadblocks to trade and help resolve them.

• India and Germany also need to collaborate to identify sectors that would best match the prospective India-EU Free Trade Agreement which is currently under consideration.

• A target of doubling trade to $30 billion can be envisaged by 2014. Trade in services – While there are restrictions on both sides in services trade due to incomplete opening of sectors in India and movement of personnel in Germany, there are many areas where trade can be boosted. Tourism can benefit from mutual understanding and cultural interest. New areas such as medical tourism, adventure tourism, rural tourism, wildlife tourism etc can be explored. Germany should also make its presence felt more strongly in the area of German-language education, cultural events, business consultancy, professional services and other services. It should be able to lend its managerial expertise to Indian companies seeking to do business in the EU. An area of cooperation could be German intervention in helping Indian companies meet the quality standards of German/EU companies and markets. Germany could assist in building an infrastructure of labs and institutions to enable Indian companies to access required certification. Business Process Outsourcing should be a robust area of engagement. India can also serve as a location for German companies wishing to leverage its high knowledge skills at competitive costs in R&D, design, engineering, animation, etc. Investment – In the past, Germany has been collaborating on high-profile initiatives in India such as establishment of the prestigious IITs and steel plant in Rourkela. However, in recent times since liberalisation in India, Germany has not adequately explored the returns to investment in the Indian markets, although it is a top ten investor in India. India is keen to attract investments in manufacturing and infrastructure in which German companies have excellent strengths.

• A Bilateral Investment Summit at regular intervals should be initiated to help identify sectors of potential. Such a forum should have participation from both central and state governments as well as businesses for more focused interaction. Road shows and regional investment events should also be considered.

• Germany can set up its own manufacturing hubs in India under the Indian Special Economic Zone policy. These offer good incentives to exporters as well as for the domestic markets.

• German companies can use India as a stepping stone for their trade with other Asian countries. India is a stable and remunerative investment destination, offering low-cost manpower, high knowledge skills, and a vast domestic market.

• There is need to sell the India investment potential to German mid-sized companies. Dissemination of information and assistance in facilitating investments through a dedicated platform would boost investments.

• At the same time, Indian companies will continue to look at German companies in their quest for markets and technology. Germany provides an excellent and proximate ground for addressing the entire EU market, with which it enjoys close trade relations. Indian companies need to expand vastly in EU and particularly in member countries which have recently joined the grouping.


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Technology – Technology, R&D, innovation and design should be key sectors for bilateral cooperation. Germany has been a close partner in technology transfer and the interest of Indian companies in acquiring companies in Germany stems from a desire to access better and more advanced technology. At the same time, German companies such as Daimler are investing in developing India as their R&D hub. Such success stories should be highlighted between the two countries. The India-Germany Strategic Partners for Innovation agreement between the two governments envisages collaboration between scientists and institutions across a broad range of areas such as environmental science, energy, biotechnology, health, etc. Academic cooperation for joint product and process development can also be initiated. Germany can help India in its quest for technology by partnering with progressive organisations such as CII in the manner that Japanese experts and Quality institutions have earlier collaborated. Building a new institutional framework for cooperation – India and Germany have not institutionalised economic cooperation through regular interaction and dialogue platforms on a range of issues. Lack of knowledge about doing business becomes a negative factor. To overcome language and information barriers, an institutional architecture for dedicated and committed promotion of economic relations is an imperative. A business leaders’ forum, a platform for government and business interaction, close collaboration between industry associations, and greater participation in trade fairs are some of the possible strategies. The new German Trade and Invest (GTAI) has the mandate to help German companies in overseas markets as well as to facilitate investments in Germany. Indian industry associations should partner with GTAI to develop joint programs in each country. The Indo-German Chamber of Commerce is the largest bilateral German chamber overseas and offers services to members for increasing cooperation. It has about 7000 members and offices in several large Indian cities. The IGCC is part of the network of German chambers of commerce all over the world. CII can partner with these organisations and set up a dedicated Task force to expand relations with Germany. Further, CII can leverage its large membership base of SMEs to establish a separate platform for bilateral SME cooperation, building on the hugely successful SME delegation to Germany in 2008. It may also consider closer collaboration for innovation and technology with German academia and institutions. POSSIBLE SECTORS OF COOPERATION Automotive- There is much scope for cooperation in various fields of automobile sector to jointly overcome short term and long term challenges. German auto industry, the largest in Europe with several top global brands at 3.1 million vehicles in 2007, was hit hard by global economic downturn, despite its high reputation for technology and quality. Addressing the vibrant German OEM market and after market will require benchmarking against top global standards of quality. That Indian companies are capable of meeting these high standards is demonstrated by Bharat Forge, an Indian company with three plants in Germany, and by Daimler’s 700 million EUR proposed investment in truck manufacturing in India. India is in a unique position of having twin advantages of possessing one of the largest pools of talented scientists, engineers and technicians in the world, available at the extremely competitive costs. Given the strength of Germany in R&D, both countries can gain from vast synergies through R&D and technology co-operation.


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Chemicals and pharmaceuticals- The German chemical industry is the third largest in the world, producing 12% of global output. It has a range of products in plastics, lacquer and synthetic fibers for the production of industrial products and pharmaceuticals, detergents and cosmetics for the end consumer. Availability of bulk drug of high quality at attractive prices is one of the reasons German companies are eyeing India. Also, the large pool of scientists and liberal government allowing the industry free movement to grow and charter its own path makes India an attractive destination for cooperation. India’s has plans to set up huge chemical parks across the country, and German companies can avail of the incentives offered under the PCPIR scheme. Textiles- Germany is among the world’s largest traders in textiles and is second largest importer of textile products. Its own textile industry, comprising of clothing, home textiles and technical textiles is one of its most significant industries. India has strengths in home textiles and clothing and has end-to-end capacities in a range of cotton and polyester yarn. It has potential to leverage its strengths in terms of creative inputs and lower costs. German textile industry and research bodies have a cache of R&D which can be extended to India. Germany would get a readymade market for its new and latest technology. German companies like Hugo Boss and Thies are interested in entering into a joint venture with Indian companies. German companies should also explore India’s vast range of handlooms and help in design, upgradation and modernisation of the sector to access global markets. Tourism- Tourism is one area that can benefit from mutual understanding and cultural interest. New areas such as medical tourism, adventure tourism, rural tourism, wildlife tourism etc can be explored. Germany ranks seventh (2007) among the source countries of foreign tourists for India with 184,000 tourists visiting from Germany in 2007. German companies can also help build tourist infrastructure at key spots of their interest in India, similar to the way in which Japanese companies are investing in tourist infrastructure at Buddhist sites. ICT- The German ICT industry of IT, telecommunications and new media is among its top industry sectors. It is expected to continue growing during global economic turmoil due to addition of broadband capacities, web convergence, digital entertainment delivery and e-business. However, according to a recent Government report, German SMEs need to elevate their IT usage, and the industry is also suffering from constraints in skilled human resources. There is thus great scope for Indian and German companies to come together for fruitful partnerships, especially in the area of technology upgradation and IT usage in SMEs of both sides. The Indian software technology industry is world-renowned and software and IT enabled service exports will cross $50 billion in 2010, making it the world’s largest exporter of such services.


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INDIA GERMANY BUSINESS RELATIONS- ISSUES Many of the issues arising in India-Germany trade originate from EU norms and are faced by Indian exporters in most EU member countries. A general listing of trade issues is given in Annex. Some of the problems faced by Indian industry in doing business with Germany are: Visas

• Some Indian companies based in Germany find it difficult to send their senior and middle level officials from India to work in Germany as the visa application process is lengthy and visas are given for a limited period of time. There have been instances of cancellation of multi-entry business visas for work permits.

• Lead time for immigration process has increased since Green Card scheme was discontinued from 3 weeks to 8-12 weeks. This also depends on section of social security under which work permit applications are filed.

INDIA-EU Free Trade Agreement

India and EU have commenced deliberations on an India EU FTA since June 2007 with nine rounds so far being held. The FTA discussion is on the fast-track and is expected to be concluded in 2010. The areas of discussion include trade in goods, trade in services, investments, trade facilitation, public procurement, technical and sanitary and phyto-sanitary barriers to trade, intellectual property and geographical indications, competition policy, dispute settlement and others.

A PricewaterhouseCoopers analysis estimates that exports of goods from India to EU would increase by 18.7% of which textiles would be the major beneficiary at 46%. Exports from EU to India would go up by 56.8%. In services, the outcome would depend on sectors and market access. Investments from EU to India could go up by 27%.

A CII study of May 2006* identifies several trade and non-trade barriers in agriculture, industry and services that would have to be resolved. Some are mentioned below:

• Manufacturing – cost of compliance, lack of availability of certification agencies especially in electronic sector

• Food processing and agricultural goods – harmonisation of laws, improved market access information, linkages for transfer of technology

• Biotechnology and pharmaceuticals – standardised regulatory guidelines and system of proprietary research needed

• Textiles and clothing – labour regulations, ISO 9001 certification, welfare and HR, high cost of compliance

• Services – harmonisation in Mode 3 services, mutual recognition of professional qualifications needed

*Dr Jayanta Roy, Principal Adviser, CII ‘Economic Engagement Between India and the EU: Analysis of Critical Issues’ May 2006


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• Proof of contribution to social security for extension of visa or work permit poses another problem.

• There is a difference in eligibility of exemption from social security contribution based on section (Section 27, 28 and 36) under which the work permit is issued. Also, there are different views from the immigration and social security authorities on work permit applications and the subsequent social security contributions for the same employees.

• A 2-year visa renewal requires hotel reservation and return ticket, which is not possible. • Another related issue is the lack of uniformity in the documentation required for the

application of visas. • For the IT industry, travel visas of five days are insufficient. Visa issue only for exact number

of days poses a problem for flexibility. • Spouses are not allowed to work. • Pre-approved companies should be allowed fast-track visa and work permits.

Information and Communication Technologies

• An issue related to the Information and Communication Technologies (ICT) is the question of Data Security. Also, in the case of BPO’s, the European Union does not allow bringing data to India.

Pharmaceuticals

• In case of pharmaceuticals there are issues regarding labelling. Another related issue is with regard to the shelf life of the pharmaceutical products. By the time consignment reaches India, these products are left with only about 60% of the shelf life.

Non Trade Barriers (NTB’s) and Tariff

• Despite trade liberalisation and unilateral reduction of tariffs by India, Indian exports have repeatedly got rejected in the European Union on account of Non Trade Barriers (NTB’S). The standards applied to Indian food export are often WTO plus. In addition to the official standards imposed on the export of food items, there are complaints of private standards applied to Indian exports in EU.

• Campaign against leather products made from skin of dead animals carried out by PETA is hurting Indian leather industry.

• German rules require having only German and English language on packaging, which requires separate packaging for other EU markets.

• Indian companies have raised complaints that EU regulations unfairly benefit European countries. The compliance costs may be nominal by EU standards but are very high by Indian standards, which act against India's interest.

• Medicinal herbs are not allowed in Germany even if registered in other EU states. Registration costs are too high for Indian companies.

• Dual recognition of NABL accredited lab results by EU would help in spices trade. • REACH regulations imposed by the EU related to companies dealing with chemicals have

resulted in additional costs for exports to EU countries. • Certifications such as ADW2000 certification and OECD certification are required. There are

insufficient certification institutes in India, causing delays and extra costs.

Services Trade

• Non-recognition of Indian educational and professional degrees in accounting, legal services, medical and other areas prohibit Indian professionals from working in Germany.


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• Monopolies in member states have the effect of preventing the establishment of service providers from other countries.

• Quantitative restrictions on access to service activities places established national operators at an advantage over new entrants.

• Territorial restrictions may require authorisation to engage in service activities to a specific region or locality.

• Residence requirements, particularly those relating to managers of service enterprises, may give rise to problems. Immigration processes and work permits are not easy to obtain under EU guidelines.

• Regulations governing professional qualifications differ. • More favourable tax treatment for services by local providers is a major hindrance to the

provision of services. • Prohibition on free movement of legal service providers, complex regulatory environment,

restrictions on the area in which services can be provided, qualifying examinations, restrictions on appearance in courts, etc. hamper services trade in business and professional categories.

R & D Services

• EU mandate deems this sector as mandatory for job creation; as a result EU is hesitant in allowing free interdisciplinary trade. Only 34% of researchers are non-EU.

• Indian researchers in EU face problems due to highly opaque and bureaucratic regulations for getting permissions and clearances and also for getting finance and grant related to paper work. There are also administrative limitations in mobility programmes.

• German government requires End User Certificate from Ministry of Defense, India, for technical collaborations, even for bilateral production and supply related issues. Accepting EUC from private sector would considerably lower transaction difficulties.

• Both Germany and India face a common problem of shortage of technical man power, especially with Small and Medium Scale Enterprises (SMEs).

Taxation

• Germany imposes a withholding tax on dividend payments of 10%, reducing dividends received in India where Dividend Distribution Tax is levied. Hence, there is double taxation which may be avoided under DTAA.

CONCLUSION Both India and Germany are leading economies in their regions and Germany is a top global exporter. Both countries have high mutual respect based upon historical cultural understanding and shared interests. Germany has been a supporter of India’s development process and has assisted India’s growth across a range of sectors. There is need to rejuvenate the bilateral economic relationship and elevate it to a new trajectory. India offers not only a huge and growing domestic market, but also geographical proximity to countries in central, south east and west Asia. Under current circumstances of global economic downturn, forging closer relationships between regions such as EU and Asia is a focus area, and India and Germany can take the lead in this.


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CII ACTIVITIES WITH GERMANY CII has had active participation from German companies in its headline trade fairs such as IETF and Auto Expo. 2007

• Business-Luncheon Meeting for German delegation of Committee on Economics and Technology in April.

• The 16th session of the Indo – German Joint Commission on Industrial and Economic co-operation was held in Berlin in September. Mr. P. Chidambaram, Minister of Finance, travelled to Berlin with a high-powered business delegation.

• Business Dinner in honour of Prof. (Dr.) Jochem Heizmann, Member of the Board of Management of Volkswagen AG in September.

• Indo-German Interactive Business session and Business Luncheon Meeting with the Chancellor of Germany, Ms. Angela Merkel, in October.

2008

• Interactive session with the German Federal Minister of Foreign Affairs, Dr. Frank Walter Steinmeier in February.

• SME delegation to Germany from 8 – 12 September. Almost 100 enterprises took part. • Luncheon Meeting with Mr. Christian Wulff, Minister President of Lower Saxony in October. • Visit of Mr. Fritz Schramma, Mayor of City of Cologne, Germany in November.

2009

• Luncheon Meeting with Mr. Wolfgang Tiefensee, the Federal Minister of Transport, Building and Urban Affairs, in February.

• Seminar on Europe via Munich Market & Business Opportunities for Indian Companies in Bavaria, Germany – June 2009 in Pune

• Session on “India-Germany: New Business as Economy Rebounds” with Mr Guenther H Oettinger, Minister-president of the German Federal State of Baden-Wuerttemberg with 100 plus delegates from SMEs in November 2009 in Delhi.

• Session with German Scholars in December 2009 in Delhi. 2010

• Germany participated in a big way in Auto Expo 2010 by putting up a Country Pavilion, January 2010, New Delhi.

• Business session organised with H.E Mr Horst Kohler, President of Germany in February 2010 in Delhi.

• Meeting with Dr. Eberhard Sandschneider, Director, Research Institute of the German Council on Foreign Relations in September in Delhi.

• Visit of Mr Rainer Bruderle, Minister of Economy from Germany to Delhi & Bombay for the 17th Session of the Indo-German Joint Commission on Industrial and Economic Co-operation. Opening Ceremony of Joint Commission Meeting with Shri Pranab Mukherjee, Minister of Finance, India and Mr Rainer Bruderle, Minister of Economics and Technology, followed by Sectoral sessions and joint working groups in September 2010 in Delhi.

• Germany is participating as Focus Country in International Mining & Machinery Exhibition (IMME) 2010, November 2010, Kolkata


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LIST OF CII’s MOU PARTNERS IN GERMANY • Baden-Württemberg International

• Bremen Business International GmbH (BBI)

• Bundesverband Mittelstandische Wirtschaft (BVMW) – The German Association for Small and Medium-sized Businesses

• Federation of German Industries (BDI)

• Fraunhofer Gesellschaft

• InWEnt gGmbh – Capacity Building International

• Messe Frankfurt GmbH

• RWTH Aachen University

• Senior Experten Service

• Steinbeis Foundation for Economic Promotion (StW).


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Appendix 1 Germany’s Top 5 Trade artners (2009):

Rank Export Euro (Billion) Rank Import Euro (Billion)

1 France 81.9 1 Netherlands 58.0

2 Netherlands 54.1 2 China 55.4

3 United States 53.8 3 France 54.6

4 United Kingdom 53.2 4 United States 39.9

5 Italy 51.1 5 Italy 39.7

… … … … … …

19 India 8.0 26 India 5.1

Source: Statistisches Bundesamt

Germany’s top export and import items (2008): USD Billions

Rank Export items Value Import items Value 1 Boilers, machinery, nuclear

reactors, etc. 261.7 Mineral fuels, oils, distillation

products, etc. 163.7

2 Vehicles other than railway, tramway

232.4 Boilers, machinery, nuclear reactors, etc.

143.1

3 Electrical, electronic equipment

142.9 Electrical, electronic equipment

118.8

4 Plastics and articles thereof 64.0 Vehicles other than railway, tramway

92.3

5 Pharmaceutical products 62.5 Pharmaceutical products 44.1

6 Optical, photo, technical, etc apparatus

55.4 Iron and steel 40.6

7 Iron and steel 39.3 Plastics and articles thereof 36.0 8 Mineral fuels, oils, distillation

products, etc. 37.5 Organic chemicals 32.0

9 Organic chemicals 35.8 Optical photo, technical medical etc. apparatus

29.6

10 Articles of iron or steel 35.6 Aircraft, spacecraft and parts thereof

23.6

Source: www.intracen.org


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Appendix 2

Annex Complexities Facing Indian Companies Doing Business in EU

Certifications

Despite trade liberalisation and unilateral reduction of tariffs by India, Indian exports have repeatedly got rejected in the European Union on account of Non Trade Barriers (NTB’S). The standards applied to Indian food export are often WTO plus. In addition to the official standards imposed on the export of food items, there are complaints of private standards applied to Indian exports in EU.

• Also, campaign against leather products made from skin of dead animals carried out by

PETA is hurting Indian leather industry. India has export interest in goods like Textiles, Leather products and other labour intensive goods which have to face high tariffs in EU.

• Indian companies have raised complaints that EU regulations unfairly benefit European countries. The compliance costs may be nominal by EU standards but are very high by Indian standards, which act against India's interest.

• Certifications such as ADW2000 certification and OECD certification are required. There are

insufficient certification institutes in India, causing delays and extra costs.

• OECD certification- OECD Seed Schemes provides an international framework for the certification of agricultural seed moving in international trade. 57 countries from Europe, North and South America, Africa, Middle East, Asia and Oceania currently participate in the OECD Seed Scheme. India being only a provisional member of OECD, requires the OECD certificate for its agricultural seed exports which is a lengthy process and costly.

• CE markings- The CE Mark, which is affixed to a product or its packaging, is considered proof that a product has met the requirements of the harmonized European standard, or directive; refers to Communauté Européen. Indian exporters, especially small and medium sized enterprises, avoid applying for it because of insufficient knowledge about its technical requirements.

• REACH legislation- REACH is the Regulation on Registration, Evaluation, Authorization and

Restriction of Chemicals. The main aims of REACH are to improve the protection of human health and the environment from the risks that can be posed by chemicals, the promotion of alternative test methods, the free circulation of substances on the internal market and enhancing competitiveness and innovation. REACH makes industry responsible for assessing and managing the risks posed by chemicals and providing appropriate safety information to their users. In parallel, the European Union can take additional measures on highly dangerous substances, where there is a need for complementing action at EU level. It is not yet clear how Indian companies will establish, and maintain, relationships with only representatives. Under REACH, an only representative should have sufficient background in the handling of substances as well as an awareness of the safety data required. Therefore, it appears that such a representative would probably need to be a chemical professional based in the EU. Indian exporters face problems while dealing with specialty chemicals since REACH certification is required before each export supply which becomes time consuming and leads to much delays.


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• Fumigation certification- Fumigation certificate is required as proof that the packing materials e.g. wooden crates, wood, wool etc), have been fumigated or sterilized. Certificates contain details such as purpose of treatment, articles concerned, temperature range used, chemicals and concentration used etc.

• GSP certification- Under GSP (Generalized System of Preferences) program or the preferential trade treatment, a free or reduced duty is granted by developed countries to certain manufactured goods from the least developed countries in order to bolster their exports and economic growth. Indian exporters however complain that the process of getting the certificate is a long one and hence time consuming.

• ADW certification- This is faced by some steel exporters.

• Marriage and Birth certificates- Countries like Germany, Netherlands and Italy require

birth certificates and marriage certificates which have to be legalised by various offices.

• Approval of laboratories- There is need for more laboratories to be approved by the EU in India in industries like wine making, etc. Having few approved laboratories has lead to increased costs, delay, etc.

Visas and work permits

• Some Indian companies find it difficult to send their senior and middle level officials from India to work in EU as the visa application process is lengthy and visas are given for a limited period of time.

• There have been instances of cancellation of multi-entry business visas for work permits.

• Proof of contribution to social security for extension of visa or work permit poses another problem.

• Another related issue is the lack of uniformity in the documentation required for the application of visas.

• The lead time for work permit could take anywhere between 2 - 9 months. In Italy it would be taking 10 weeks while in Spain it could take anything between 3-9 months.

• Companies face difficulties in placing Customer Relations Managers in EU Anti – dumping on polyester

• The European Commission set provisional anti-dumping duties of up to 36.5% on imports of polyester staple fibre imports from India. This has adversely affected exports to Netherlands, Germany, Turkey and Spain.

Restrictions and regulations pertaining to legal sector

• Complex regulatory environment- Indian legal service providers find themselves at a disadvantage to practice in the EU because of the complex regulatory environment that EU offers.

• Restrictions on free movement of services- EU countries impose restrictions on free

movement of services through legislations which act as an obstacle for the Indian legal service providers trying to practice in EU.


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• Prohibition or restriction on commercial presence- This type of restriction is reported in countries like UK, France and Germany wherein Indian legal firms are prohibited from setting up their commercial presence.

Maximum residue limit- The maximum residue limit, or MRL, is the maximum concentration of residue accepted by the European Union (EU) in a food product obtained from an animal that has received a veterinary medicine. The EU requires by law that foodstuffs (such as meat, milk or eggs) obtained from animals treated with veterinary medicines must not contain any residue that might represent a hazard to the health of the consumer. Pesticide residues on crops are monitored with reference to Maximum Residue Limits (MRL) and are based on analysis of quantity of a given AI remaining on food product samples. The MRL is usually determined by measurement, following a number (in the order of 10) of field trials, where the crop has been treated according to good agricultural practice (GAP) and an appropriate pre harvest interval (see section C5) has elapsed.

****


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For over six decades, Forbes Marshall has been building steam engineering and control instrumentation solutions that work for process industry. Today we have evolved into a leader in process efficiency and energy conservation through technology tie-ups and focused investments in manufacturing and research. Our joint ventures with the world’s leading names enable us to deliver quality solutions in 14 countries. Forbes Marshall is unique in having extensive expertise in both steam and control instrumentation. The dual expertise has allowed us to engineer industry specific systems that focus on energy efficiency and utilities management for sectors as diverse as textiles, food processing, paper, power and chemicals. Our teams are peopled by some of the finest engineers in the land. These highly trained professionals have developed innovative solutions and saved millions of rupees in process costs for our clients. Our business practices and processes have combined into a singular philosophy of being trusted partners who provide innovative solutions. It’s a philosophy we are proud to live up to. Forbes Marshall began more than sixty years ago as a company offering steam generation solutions in association with Spirax Sarco of the UK. For decades, we have been designing, manufacturing and supplying steam engineering products and solutions to customers worldwide. Our experience in this area is the benchmark against which all others are compared. While our oldest joint venture is with Spirax Sacro, the world leader in steam engineering, our newest joint venture is with Vynke Energietechniek, the world leaders in converting biomass into energy. We have long standing partnerships with some of the best names in the control instrumentation industry such as Arca, Codel, Krohne and Shinkawa, to develop, design and supply innovative solutions for measurement and monitoring of process parameters. With a combination of specialist knowledge and the latest technology, we provide products and solutions to achieve optimum efficiency. Our products are a unique combination of hardware and software that make them reliable and accurate. We are concerned with the community beyond our factory's gate. Since the inception of the company, sustainable social initiatives have been the key drivers of our philosophy to contribute and give back to the community in which we operate. Our diverse and sustained programs support health, education and life skills development in communities. We also help the community, particularly the women, to engage in entrepreneurial ventures to support their families and thereby gain the skills and confidence in dealing with issues that impact their lives. From our unique basket of products and services and commitment to quality, to our extensive community and social service programs, there's a lot that makes us stand out from the crowd. Visit us at: www.forbesmarshall.com

The Confederation of Indian Industry (CII) works to create and sustain an environment conducive to the

growth of industry in India, partnering industry and government alike through advisory and consultative

processes.

CII is a non-government, not-for-profit, industry led and industry managed organisation, playing a

proactive role in India's development process. Founded over 115 years ago, it is India's premier

business association, with a direct membership of over 8100 organisations from the private as well as

public sectors, including SMEs and MNCs, and an indirect membership of over 90,000 companies

from around 400 national and regional sectoral associations.

CII catalyses change by working closely with government on policy issues, enhancing efficiency,

competitiveness and expanding business opportunities for industry through a range of specialised

services and global linkages. It also provides a platform for sectoral consensus building and

networking. Major emphasis is laid on projecting a positive image of business, assisting industry to

identify and execute corporate citizenship programmes. Partnerships with over 120 NGOs across the

country carry forward our initiatives in integrated and inclusive development, which include health,

education, livelihood, diversity management, skill development and water, to name a few.

CII has taken up the agenda of “Business for Livelihood” for the year 2010-11. Businesses are part of

civil society and creating livelihoods is the best act of corporate social responsibility. Looking ahead, the

focus for 2010-11 would be on the four key Enablers for Sustainable Enterprises: Education,

Employability, Innovation and Entrepreneurship. While Education and Employability help create a

qualified and skilled workforce, Innovation and Entrepreneurship would drive growth and employment

generation.

With 65 offices in India including 7 Centres of Excellence, 9 overseas in Australia, Austria, China,

France, Germany, Japan, Singapore, UK, and USA, and institutional partnerships with 223 counterpart

organisations in 90 countries, CII serves as a reference point for Indian industry and the international

business community.

Confederation of Indian Industry

The Mantosh Sondhi Centre

23, Institutional Area, Lodi Road, New Delhi – 110 003 (India)

Tel: 91 11 24629994-7 • Fax: 91 11 24626149

email: [email protected] • Website: www.cii.in

Reach us via our Membership Helpline: 00-91-11-435 46244 / 00-91-99104 46244

CII Helpline Toll free No: 1800-103-1244

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