Sahajveer Baweja is a Legal Content Writer at A.K. Mylsamy & Associates. He is also pursuing a Law Degree at Rajiv Gandhi National University of Law, Patiala. His research interests evolve around Human Rights, Criminal Law, and International Trade Law. As an active member of his college Legal Aid cell, he is trying to build a safer place for every human being.
India | July 17, 2020 | Opinion Article
As the economic world is going through a phase of extreme turbulence due to Coronavirus, global investors are concerned about the severe disruptions that have affected the supply chain of manufactured goods. As soon as the outbreak of the virus was discovered in China, measures came into force that included the halting of production and the closing of factories and industries as they were inexorable. The gravity of the supply shock was severe because of the global investors’ over-dependence on China with regards to production supply chains. The ripple effect of such supply shocks can be witnessed everywhere: from copper mines in Peru to the industrial heartland of Germany.
However, China, which is currently known as the ‘World Factory’ due its large scale production, is experiencing an unprecedented downward investor movement as investors are diversifying their substantial proportion of supply chains from China to the next best alternative country. This way, they are hoping to mitigate the probability of such supply shocks in future. Likewise, Western investors are considering the idea of restructuring their supply chains in other Asian countries. In fact, some of the industries have already begun moving operations out of China.
Presently, the German shoe company ‘Von Wellx’, owned by the Casa Everz Gmbh, has set a precedent for other industries by shifting its entire shoe production business from China to India with an initial investment of Rs. 110 crores. A new manufacturing unit with a similar capacity of producing over three million pairs of shoes annually will be set up in India as part of the collaboration between ‘Von Wellx’ and ‘Latric Industries Pvt Ltd’. This partnership has said to create more than 10,000 direct and indirect jobs in India, helping to mitigate its unemployment crisis.
Germany’s and India’s Economic Relations
Undoubtedly, the history of the relationship between India and Germany goes back to the post-WWII period, during which India was one of the first countries to establish diplomatic relations with Germany. Even though times have changed, the bond between the two countries remains intact. India is of economic importance to Germany as India is the 28th most important supplier and the 24th most important import/export destination of Germany. On the other hand, Germany is India’s most important trading partner within the European Union and is home to more than 213 Indian subsidiaries generating revenue of more than 11 Billion Euros.
India’s and Germany’s bilateral relations have always benefited both countries. Chancellor Angela Merkel stated back in 2019 that India has great potential and has impressive developmental dynamics, rapidly working on not only urban areas, but rural areas as well. Even the German investors regard India as a country with enormous scope to develop as India offers its investors with more than they expect.
Presently, while German investors are considering the idea of branching out their investments and are planning to restructure their supply chains in China, India can be a promising alternative to become the hub of German investment, ensuring mutual growth for both countries.
India, with its aim to increase its GDP percentage of the manufacturing sector by 25% by 2022, has a lot to offer its economic partners including Germany. With India being the second largest populated country, it has a higher rate of domestic consumption absorbing a large part of the output. The big Indian market is an added advantage for the producers because such markets provide them with economic security. Moreover, the cost of production in India is comparatively low due to the availability of skilled labour at low wages.
Certainly, India is continuously working on introducing a commendable policy framework in order to attract more foreign investors. It has relaxed some of the FDI rules and is continuously trying to ease more of them in different sectors. India has also reduced its corporate taxes and is also providing training to its workers for preparing them to work in the industrial sector. Moreover, the nation has approved financial assistance to the modified Electronics Manufacturing Clusters Scheme for the development of world-class infrastructure. Except for these policy measures, there is always room for bilateral discussions as India has always been taking into account potential concerns of its foreign investors. German industries that already share a good bond with the Indian government can negotiate with its counterpart to provide them with customized rules and guidelines that can benefit the economic growth of both nations and promote an active bilateral partnership.
Future Partnerships
The Indo-German Intergovernmental consultations are already a step towards mutual economic development. Both countries should and by now are trying to achieve optimum utilization of their potential resources. With India being capable of providing skilled labour, and Germany able to provide its research expertise and technology, both countries can work together on projects such as Artificial intelligence, digitalization, rural development, and renewable energy. That way, these countries become less dependent on other countries for the supply of such goods and services. Together India and Germany can face the challenges that are negatively affecting their economies and rebuilt their economic confidence that has been shaken due to the Corona-crisis.
The trade partnership can work best when one country shows confidence in the other and becomes an all-weather friend.
Germany can show its confidence in India by moving a number of its industries from China to India whereas India can support Germany with its economic policies by reacting to all the concerns that have been raised by the German industries in the past.
India has to improve its foreign policy framework that shall ensure the ease of doing business so that it does not remain a lightweight partner of Germany when compared with a country like China. The Corona-crisis has already deepened the scars that were making the economy bleed, so the nations have to ensure that only those strategic steps shall be taken that are less risky and more profitable. Certainly, the step of German industries moving its manufacturing base to India can be a cost-effective idea for Germany and a lucrative deal for India.
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