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Need to Build an Effective Indo-German Partnership

Nachiket Khadkiwala is Research Assistant at the Institute for Defence Studies and Analyses, New Delhi. Click here for detailed profile
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  • November 09, 2015

    Chancellor Angela Merkel visited India for the Third Inter-Governmental Consultations (IGC) from October 04-06, 2015. Apart from building on Prime Minister Narendra Modi’s visit to Germany in April 2015, Merkel’s October visit was significant in terms of its timing and the larger strategic context. Germany under Merkel has successfully handled the Greek debt crisis through a mix of negotiation, cooperation and coercion, thereby allaying fears of ‘Greexit’ from Eurozone.

    Germany’s role in averting the Greek crisis highlighted the value it attaches to the survival of the European Union (EU). The leadership Chancellor Merkel showed in dealing with the recent migrant crisis, convincing the reluctant member states like France and Spain to accept the idea of mandatory asylum quotas, showcased the influence Germany exerted within the EU. The visit also came at a time when a new climate change regime is expected to be formulated at the upcoming United Nations Framework Convention on Climate Change (UNFCC) conference in Paris in December.

    Growing Engagement

    During his visit to Germany in April 2015, Prime Minister Modi together with Chancellor Merkel inaugurated the Hannover Messe 2015. India was the Partner Country for this year’s Hannover Messe, which is regarded as the world’s largest trade fair. Every year a leading industrialised country is selected as the official co-partner for the event. During his visit, Prime Minister Modi also got a reality check about the problems faced by German entrepreneurs and investors in India. Meanwhile, Germany expressed its support for the Indian Government’s ‘Make in India’, ‘Clean India’ and ‘Digital India’ initiatives. The two countries also agreed to further expand their dialogue on foreign policy and security issues.

    In this backdrop, the October visit of Chancellor Merkel was supposed to be a stock taking exercise for the Indo-German relations. The visit resulted in the signing of 18 Memorandums of Understanding (MoU) and Statement/Letter of Intent between the two countries. The controversy over the discontinuation of the German language courses in Kendriya Vidyalayas or Indian Central Schools was resolved through a Joint Declaration of Intent on promoting the learning of German language in India and modern Indian languages in Germany. Issues pertaining to climate change and sustainable development were specifically dealt with keeping in view the upcoming Paris Climate Change Conference. Separate joint statements were issued on both the issues. Germany promised an additional Euro 400 million to develop the Green Energy Corridor and agreed to contribute Euro 1 billion to the Indo-German Solar Energy Partnership over the period of two years. Germany has also offered its support for India’s ‘Make in India’ initiative by providing its expertise in vocational skill training and in the establishment of a National Institute for Skill Development for Higher Learning.

    The fulcrum of Indo-German relations is clearly trade. Germany is India’s top trading partner in the EU. Overall, Germany ranks eleventh among India’s trading partners. India is the fifth important trading partner of Germany and ranks 28th among all its trading partners. However, trade between the two countries has declined in the last few years. It went down by 4.2 per cent in 2012 compared to 2011. A decline of 7.5 per cent was witnessed in 2013 though there was a marginal decline of 0.7 per cent in 2014. However, in the first half of 2015 (January to June 2015), trade increased by 13.05 per cent compared to the same period last year.

    Indo-German Trade (DM/Euro million)






    Indian Exports






    Indian Imports






    Trade Volume






    Source: Indo-German Chamber of Commerce

    During Chancellor Merkel’s October visit, Prime Minister Modi had described India and Germany as “natural partners” and “made for each other”. This leads to the question as to what makes the Indo-German relations significant. At a time when India is putting development at the centre of its domestic and foreign policy, there is common understanding that India’s national security objectives and its regional and global aspirations can only be fulfilled through sustained economic growth and socio-economic wellbeing of its huge population. Realising this vision would require India to adopt a more calibrated approach towards its international engagement. India will have to partner with countries that can offer to bridge its technology gap and capital deficit, while optimally utilising its excess human capital. Germany’s emergence as a geopolitical power and its emphasis on geo-economics makes it a reliable development partner. Hence, Germany is seen as a ‘natural ally’ by India.


    India and Germany have complementarities that can make them effective partners. Germany has an ageing population and a stagnating domestic demand. As an export-oriented economy, it is always looking for newer markets. More importantly, German industry is facing growing challenge from the lack of IT skills.1 While German expertise lies in engineering state-of-the-art products, the futuristic technologies require IT innovations as products are becoming increasingly integrated with internet. In such a scenario, Germany will need greater IT expertise and training in the coming years and this is exactly where India’s strength lies.

    Converting these complementarities into possibilities will depend more on creating conducive environment for greater foreign investment by simplifying taxation laws, reducing infrastructural bottlenecks and overcoming bureaucratic hurdles. The true potential of the Indo-German relations lie in attracting the Small and Medium Enterprises (SMEs) that form much of the German industrial sector. Like large companies, the SMEs cannot afford long gestation periods for their investments to materialise. The decision to set up a Fast Track System for German companies in the Department of Industrial Policy and Promotion (DIPP), which will be fully implemented by March 2016, is a positive step towards promoting the Indo-German economic relations.

    The shaping of future global order through its contribution to sustainable development is an important element of the German foreign policy.2 The phasing out of German nuclear reactors after the Fukushima disaster and replacing them with renewable energy, highlights the importance Germany attaches to sustainable development.3 Interestingly, Chancellor Merkel was on her visit to India when the latter submitted its Intended Nationally Determined Contribution (INDC) with the UNFCC for the upcoming Paris Climate Change Conference. There are two major aspects to the Indo-German collaboration on the issue of climate change.

    First is fostering partnership on climate change negotiations within the multilateral forum. The fact that Germany is a developed country, it can play an important role in ensuring a more balanced agreement on climate change, taking into account both climate adaptation and mitigation as well as finance and technology transfer. Second is bilateral cooperation on energy issue. India plans to meet 40 per cent of its energy requirement by renewables by 2030. This will be contingent upon the financial support and technology transfer that it gets from the developed world. India will need investments worth $2.5 trillion to achieve it by 2030. Germany’s financial support and technological cooperation will be valuable in this regard. India has shown interest in German-led initiatives like the International Renewable Energy Agency.

    In 2012, German Government came out with a strategy paper titled, “Shaping Globalisation-Expanding Partnerships-Sharing Responsibility”. The paper described a new vision for the German foreign policy, highlighting the need for cooperation with “new players” like India due to their growing economic weight, regional influence and importance within multilateral forums.4 Germany acknowledges the role of emerging countries in shaping a globalised and multipolar world order. According to a Mckinsey Global Institute report, “the United States is no longer the world's most connected economy--those laurels go to Germany. Germany ranks first and the United States third with two smaller economies--Hong Kong and Singapore--coming in second and fourth”.5

    The anti-globalisation forces that disrupt interconnectedness could have detrimental consequences for the German economy. Germany will also try to counter protectionist policies that curb free trade. Germany is a trading power and the third largest trading nation in the world. Its economic might is because of the export-oriented economic model that it practices. For Germany, trade matters and it forms the central pivot of its foreign policy. Germany’s response to the migrant crisis and its push for reforms in the United Nations Security Council are initiatives to manage globalisation more efficiently.

    Revisionist movements like the Islamic State (IS) which create exclusivist identities are often products of fragile states that have high degree of economic inequality and little hope of material progress for its populations.6 The repercussions of these movements spread across borders as the number of Europeans joining the IS illustrates.

    Such movements are also antithetical to the philosophy of globalisation and hence Germany will seek to resist them. The MoU on security cooperation that Germany signed with India during Merkel’s October visit, very much reflects Germany’s growing concerns over the rising level of security threat posed by the war waging capability and the radical agenda of the various international terrorist groups.

    Both India and Germany have already agreed to steer their Strategic Partnership into “a new phase by building on their growing convergence on foreign and security issues and on the complementarities between the two economies.” However, to take a long-term view of its relations with Germany, India would have to factor in the characteristics of the international system that Germany holds important and the role it plays in shaping it.

    Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India