Trends of German Investments in India

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Foreign investment plays a significant role in Indian economy. Nearly two decades of economic liberalisation, large consumer base, a growing middle class, a young population, and a high return on investments, all led to make India a credible investment destination in the world. According to the United Nations Conference for Trade and Development (UNCTAD)’s

World Investment Report 2017, India ranked 9th among the highest recipients of foreign direct investment (FDI) inflows globally in 2016, contributed 2.5 per cent in global FDI inflows.

Today, many developed and large economies including Germany are investing in India. Germany, a member country of European Union (EU-28), is one of the major foreign investor in India, since independence. In mid-1980s, Germany became the largest investor in India and was ranked among top three FDI sources. In the beginning of 1990s, due to reunification of eastern and western parts of Germany, German investments went down. However, in mid-1990s, Germany again started investing in India. In July 1995, in order to promote investments, Germany signed ‘Bilateral Investment Protection Agreement (BIT)’ with India. The main objective of the BIT is to promote and protect the interests of investors and create conditions favourable for fostering greater investment by investors of one country in the territory of the other country. As a result, German investments in India have increased manifolds.

According to statistics released by Department of Industrial Policy and Promotion (DIPP), German FDI inflows which was valued at $15 million in 1991, increased to $123 million in 2000. It further increased to a higher peak of $1484 in 2011. Due to global economic recession and euro crisis, German investments declined in 2012, however, from 2013 onwards, grown and reached $1103 million in 2016 (as shown in Table 1). Overall, total cumulative FDI inflows from Germany were valued at $9.7 billion between January 2000 and March 2017, accounted for 2.92 per cent of India’s total cumulative FDI inflows.

Table 1: Trends of FDI Inflows from Germany into India

Year Germany’s FDI Inflows in India

(in US$ Million)

India’s Total FDI Inflows

(in US$ Million)

Share of Germany in India’s total FDI inflows (%)
1991 18 155 11.6
2000 86 2428 3.56
2001 133 3571 3.73
2002 138 3361 4.11
2003 79 2079 3.79
2004 158 3213 4.92
2005 83 4355 1.91
2006 313 11119 2.81
2007 343 15921 2.16
2008 789 33029 2.39
2009 600 27044 2.22
2010 198 21007 0.94
2011 1484 34621 4.29
2012 729 22789 3.2
2013 1015 22038 4.61
2014 1152 28785 4
2015 1145 39328 2.91
2016 1103 46403 2.38
2017 (Jan to March) 162 7634 2.12
Cumulative

(Jan 2000 to March 2017)

9,709 3,32,658 2.92

Source: Compiled from Various Annual Issues of SIA Newsletter, DIPP, Ministry of Commerce and Industry, Govt. of India.

Among foreign investors in India, Germany is ranked 7th, since January 2000. Table 2 shows that among the EU-28 member countries, Germany is third largest foreign investor in India after United Kingdom and Netherlands.

Table 2: Top 15 Investing Countries in India (Cumulative FDI Inflows from January 2000 to March 2017)

Rank Country Cumulative FDI Inflows

(in US$ billion)

Share in India’s Total FDI Cumulative Inflows (%)
1 Mauritius 111.83 33.60
2 Singapore 54.59 16.40
3 Japan 25.76 7.74
4 United Kingdom 24.60 7.39
5 Netherlands 20.70 6.22
6 United States 20.46 6.15
7 Germany 9.71 2.92
8 Cyprus 9.16 2.75
9 France 5.73 1.72
10 United Arab Emirates 4.713 1.41
11 Switzerland 3.83 1.15
12 Spain 2.43 0.73
13 Italy 2.4 0.72
14 Korea 2.3 0.68
15 Luxembourg 2.2 0.67
India’s Total 332.70 90.26

Source: Extracted from Table No. 3: Statement on Country-wise/Year-Wise FDI Equity Inflows from January 2000 to March 2017, SIA Newsletter, Vol No. 23, April 2017, DIPP, Ministry of Commerce and Industry, Government of India.

Among the different sectors, German investments are mainly concentrated in automobiles, mechanical and engineering, services, chemicals and trading. During January 2000 and December 2015, these top five sector contributed about 62.3 per cent in India’s total cumulative FDI inflows as shown in Table 3.

Table 3: Top Sectors of German FDI Inflows into India (from January 2000 to December 2015)

Sector Amount of FDI inflow

(in $ million)

Share in India’s Cumulative FDI inflows (%)
Automobile 1,761.85 20.86
Mechanical and engineering 1,274.31 15.09
Services 1,018.20 12.06
Chemicals (other than fertilisers) 638.26 7.56
Trading 570.11 6.75
Total (Top 5) 5,262.73 62.32

Source: Extracted from Table No. 6.1.A (vii): FDI Synopsis on Country Germany, SIA Newsletter, Annual Issue 2015, DIPP, Government of India.

Note: Here, services sector includes financial, banking, insurance, non-financial services, outsourcing, research and development, courier and technical testing and analysis services.

Today, around 1700 German companies have presence in India. German automobile giants such as BMW and Volkswagen have their manufacturing facilities or assemble plants in India. List of some German companies across different sectors is given in Table 4. Besides, large companies, German small and medium enterprises (SMEs) are also showing greater interest in Indian market. A German Centre has been established in Gurgaon jointly by two of the Germany banks, viz. Bavarian Landesbank and Landesbank Baden Württemberg to facilitate the activities of German SMEs in India.

Table 4: List of Some German companies in India by Sectors

Company Sector
BMW, Daimler, Volkswagen Automobile
Deutsche Bank Banking
Oil tanking GMBH, Hypo Real Estate International AG Construction
Beko Technologies, Bayer GmbH, Siemens IT and IT related services (ITeS)
Enercon GmbH, Juwi International GmbH Energy Generation
BMW Holding AG, Volkswagen Financial Services AG Finance
DHL International GmbH Logistics
Allianz AG, Munich Re Insurance
Gerresheimer Regensburg GmbH, Nivea, OSRAM Licht AG Manufacturing
Metro Cash and Carry International Trading

Source: Compiled from different sources.

It can be conclude from the above discussion that German investments in India have remarkable increase since last two decades. Both countries have investment complementarities. While India is one of the fastest growing economies in the world, Germany is one of the large economies of the world. India is among the attractive destinations, whereas German companies are major investor around the world. India needs technology whereas German is a world leader in innovation and latest technologies.

Investments in India are key to the new government’s growth and developmental plans. Opening up of additional sectors, relaxation in FDI norms in many sectors (such as defense, public sector oil refineries, telecom, power exchanges), and major initiatives such as ‘Make in India’ and ‘Smart Cities’, opened up the opportunities for German investments in India’s sectors such as defence, railways, renewable energy, transport sector (ports, shipping and inland waterways), etc.

Earlier, German companies were required to form consortiums with European and non-European companies to undertake mega projects in India, especially their participation in smart cities which would require different disciplines, expertise and technologies. Now, Germany’s SMEs which are known for having good technologies, can take the lead in forming these consortiums. Joint ventures between German and Indian companies could also lead to building up consortiums for undertaking mega projects in the country.

Today, the ‘Make in India Mittelstand (MIIM)’, initiative is viewed as a step forward in implementing ‘Make In India initiative’. The MIIM initiative was launched in Berlin in September 2015 with an objective to facilitating German SME’s investments in India.

Overall, it can be said that all these measures taken by the Indian government not only help in increasing German investments but also in getting advanced technologies and generating more employment opportunities in the Indian economy.