India’s burgeoning economy is attracting significant attention from German companies, with many planning to ramp up their investments in the subcontinent. According to the “German Indian Business Outlook 2024” survey by KPMG in Germany and the Indo-German Chamber of Commerce (AHK India), conducted between April 9 and May 20, 2024, nearly 59percent of German companies plan to make new investments in India this year.
Positive Business Expectations
The survey reveals an optimistic outlook among German firms operating in India. About 78percent of the respondents anticipate rising sales, and 55percent expect increased profits for the current financial year, marking a 7percent increase from the previous year. The positive sentiment extends further, with 82percent predicting higher turnover and 74percent forecasting increased profits over the next five years. By 2029, 37percent of the companies expect their sales to grow by more than 20percent, and 25percent foresee profit growth exceeding 20percent.
India’s Growing Appeal
India’s significance as an investment destination for German companies is growing sustainably. The survey indicates that 78percent of the companies plan new investments by 2029, a 19percent-point increase compared to 2024. This trend underscores India’s importance, with 45percent of the firms planning to use India as a production hub for both local and Asian markets by 2029, a 12percent-point rise from 2024.
Key Factors Driving Investment
Several factors contribute to India’s attractiveness as an investment location. Low labour costs (54percent), political stability (53percent), and the availability of qualified specialists (47percent) are the top three reasons cited by German companies. These factors make India a competitive choice compared to other Asian countries. Despite concerns about rising wage costs, the steady economic growth in India, coupled with a weakening Chinese economy, further enhances its appeal.
Challenges and Government Expectations
Despite the positive outlook, German companies face several challenges in India. Bureaucratic hurdles (64percent), corruption (39percent), and the tax system (27percent) are the primary obstacles. The survey also highlights the demands of German firms from the newly elected Indian government. About 67percent of the respondents call for an improved regulatory framework and increased legal certainty. Additionally, 55percent seek better infrastructure, and 48percent desire greater trade facilitation.
India’s Production Potential
India’s potential as a production location is a significant draw for German companies. Currently, 33percent of the firms use India for local market production, and by 2029, this number is expected to rise to 45percent. The country’s vast consumer base of over 1.44 billion people presents enormous sales market potential. By 2029, 40percent of German companies aim to capitalize on this opportunity.
Moreover, India’s role as a global competence center or shared service center is growing in importance. About 21percent of the companies have established such centers in India, and more than a third (35percent) plan to do so within the next five years. This shift underscores India’s increasing relevance in regional production and global development.
High Hopes from the New Government
The survey, conducted shortly before India’s election results, reflects the high expectations of German companies from the new government. Two-thirds of the respondents hope for simplified regulations, a reduction in corruption, and greater legal certainty. Additionally, 55percent call for infrastructure expansion and modernization, while 48percent seek liberalization of trade and export promotion.
Bureaucracy and Corruption: Persistent Issues
Despite the optimistic outlook, German companies continue to grapple with significant challenges in India. Bureaucratic hurdles are particularly burdensome, with 64percent of the respondents citing them as a major issue, up 11 percentage points from the previous year. Corruption, although considered less relevant than the previous year, remains a concern for 39percent of the companies. The tax system is also problematic, with over a quarter (27percent) highlighting it as a challenge.
Risks to Future Development
German companies also identify several risks to their future operations in India. Rising import duties (52percent) and non-tariff trade barriers (43percent) are notable concerns. Additionally, 40percent of the respondents view potential cyber-attacks as a significant threat, while 37percent are worried about the high levels of air pollution in major Indian cities. Increasing protectionism and bloc formation are also seen as significant risks by 36percent of the companies.