India and Germany: A promising partnership?

India and Germany have had a strategic partnership for more than ten years. On the one hand, Germany is an important partner for India, especially for its ambitious economic reform agenda and the expansion of the Indian industry.  On the other hand, German representatives from politics and business regard India as a highly dynamic and growing future market with a population of 1.2 billion people. However, despite regularly held government consultations and efforts to foster economic cooperation, the partnership between India and Germany is still far below its potential.


Foto Murali Nair
Murali Nair
Senior Project Manager
Foto Peter Walkenhorst
Dr. Peter Walkenhorst
Senior Project Manager

At the conference "India and Germany: A promising partnership?" on May 4, 2016, high-ranking representatives from business, politics and academia discussed the potential and challenges of German-Indian cooperation in three main fields: Innovation, Skill development and Investment. Special guests included Bernhard Steinrücke, Director General of the Indo-German  Chamber of Commerce, Ralph Brinkhaus,  Member of the German Parliament and Head of the Indo-German Parliamentary Group, and Clas Neumann, spokesperson for India of the Asia Pacific Committee. Aart de Geus, Chairman of the Bertelsmann Foundation und Stephan Vopel, Director of the program "Germany and Asia", moderated the discussion, based on the Bertelsmann Stiftung's current studies on "India Innovation Study" and "Integration of skilled workers from India in German companies". 

PANEL 1: How can India and Germany cooperate on Innovation?

India has emerged as the fastest growing large economy in the world and has one of the youngest populations. The combination of resource scarcity, a large youth population and high poverty forces India to innovate in terms of products, business models and processes. Though India spends much lower on R&D as a percentage of GDP compared to other emerging economies, it has an active innovation base consisting of multinational companies, large Indian companies as well as startups. Innovation in India is primarily aimed at opening up new market segments and improving topline growth. Multinationals, which started their operations in India to take advantage of the labor arbitrage are now integrating India firmly into their global R&D chains with lead roles in global product development.

In terms of new products and services coming out in India, there are imitations of ideas which originated in the west. This is a phase which countries like Japan and Korea that are regarded as highly innovative now started off with. Some Indian companies are going beyond just imitation by focusing on frugal innovation and exploiting their international experience in both developed and developing markets. There are challenges to doing innovation in India like a rigid bureaucracy, poor infrastructure and rampant corruption among others. India ranks 130 in the ease of doing business ranking by the World Bank in 2015, improvement of 4 places from 2014. Poor industry-academia collaboration is also stated as one of the challenges in finding employees with the right skills. Several initiatives have been kick started by the government to address the short and long term problems that need to be tackled. Germany is taking advantage of the human capital which India has to offer and can build up a cooperation base which can be mutually beneficial to both countries. 

PANEL 2: How can Germany attract the highly skilled workforce from India?

In the past few years the German government has passed several legislations that aimed at improving access for highly skilled workers from abroad. Among them were the “GreenCard” (2004-2011), the new foreigner law and the implementation of paragraph 18 of the Residence Act (2005), the law on the regulation of labour migration (2008), the “BlueCard” (2012), and the law on the assessment of qualifications (2012). Almost 70% of all Indian immigrants migrated between 2000 and 2011 to Germany. In Europe, Germany is among the most important countries for Indian migrants. About 95% came for the purpose of work in the highly-skilled segment of the labour market. However, there is also a high number of outmigration of Indians from Germany.

The research literature on the migration experiences of Indians employed in Germany is scarce. There is also a lack in analysing the experience of German companies that have employed Indian professionals. In the current study of the Bertelsmann Stiftung, we are looking at the motivations of Indians that come to Germany and the reasons why they leave the country. Further, we look at the chances and obstacles for companies in Germany which employ Indians. Among the motivations are the high reputation of the German education system, low tuition fees for students, technology advantages in certain sectors, freedom of movement within the EU, and the high quality of life. Obstacles for long-term stays are less satisfaction with their private life, language barriers, arbitrary German bureaucracy, a lack of informal recognition of skills by companies and colleagues, and social responsibilities in India. 

PANEL 3: How can India and Germany boost foreign direct investments?

German Foreign Direct Investments (FDI) are still heavily focused on the EU, the US and China. Its share in total investment flows to India has always hovered around 3 percent in the last decade. Major sectors attracting German investments in India are: financial services, auto-components, electrical equipment, and machinery. Bilateral trade between Germany and India is punching below its weight and is characterized by high volatility of German exports to India. Companies have difficulties with necessary qualifications of the Indian labour force, bureaucratic regulations, lack of local knowledge, infrastructure, and corporate tax, among others. Intermediaries are often necessary to solve bureaucratic problems. Many German companies in India have found ways to tackle these challenges. The problem of strict labour laws can be circumvented by engaging employees on contract instead of fixed workers, electricity outages can be avoided by installing generators, and tax issues can be solved by under-/over invoicing of inputs/financial products. Thus for all the problems one faces in India, there is always a way around.