Germany is India’s gateway to tighter European integration

Olaf Scholz’s visit is expected to bolster economic collaboration, particularly in emerging sectors such as electric mobility. (File photo)

By Vanshika Saraf

German Chancellor Olaf Scholz is in India for the 7th India-Germany Inter-Governmental Consultations (IGC), held every two years since 2011. Also on the schedule is the Asia Pacific Conference, where he will deliver the keynote address along with Prime Minister Modi.

With the German government recently releasing a white paper titled ‘Focus on India,’ this visit marks a continuation of deepening ties between the two nations in business, defence, and energy. India’s relationship with Germany has grown steadily over the years, and this is an opportune moment for India to strengthen its role as a critical partner for Germany.

For India, Germany offers a gateway to deeper European integration, particularly as India still seeks to establish a comprehensive free trade agreement with the EU. For Germany, India provides an opportunity to diversify its international partnerships, especially as it actively seeks to reduce its economic dependence on China. The solid foundation of existing cooperation across various sectors provides a strong springboard for elevating bilateral ties to new heights. Let’s unpack the most important ones.

Economic and Business Relations

Germany is India’s largest trading partner in Europe, with bilateral trade crossing $26 billion in 2023. German companies have long been invested in India's industrial growth, with major players like Siemens, Volkswagen, and Bosch contributing to sectors such as automotive manufacturing, infrastructure, and automation.

The German business industry has a positive outlook for India, with almost 60 percent of companies planning new investments this year. Further, governmental impetus through the German Embassy’s Make in India Mittelstand (MIIM) program supports high-potential German manufacturing entities by facilitating their market entry into India.

Scholz’s visit is expected to further bolster this collaboration, particularly in emerging sectors such as electric mobility, where both countries share a vision for a greener future. The partnership in electric vehicles (EVs) has already taken shape, with German companies investing in India’s EV ecosystem and India looking to adopt German expertise in battery technology and charging infrastructure.

During the 6th IGC in Berlin in 2022, a Joint Declaration of Intent (JDI) on the ‘Indo-German Green Hydrogen Task Force’ was signed between Germany’s Ministry for Economic Affairs and Climate Action (BMWK) and India’s Ministry of New and Renewable Energy (MNRE) to enhance cooperation in green hydrogen production, utilisation, storage, and distribution representing their efforts towards decarbonisation.

Defence collaboration is gaining momentum

Defence cooperation between India and Germany has gained momentum in recent years. One highlight is the potential submarine deal under Project 75I, a military acquisition program for the Indian Navy. Germany’s ThyssenKrupp Marine Systems (TKMS) is a leading contender to partner with India in building advanced diesel-electric submarines, which aims to modernise India’s naval fleet. The deal, if finalised, would include significant technology transfer, aligning with India’s push for self-reliance in defence manufacturing.

Further, India conducted its debut multilateral air exercises this year, called Tarang Shakti, which saw the participation of 11 countries, including Germany, represented by Eurofighter Typhoons. In August 2024, INS Tabar conducted a Maritime Partnership Exercise (MPX) with the German Navy after visiting the port of Hamburg in July. These activities reflect the increasing focus on maritime security cooperation and enhance interoperability between the two navies, as Germany recognises shared security challenges in the Indo-Pacific.

Easing labour mobility will help both countries

Angela Merkel’s steady leadership saw Germany becoming one of India’s most reliable European partners. She consistently advocated for closer economic and strategic collaborations with India while supporting India’s bid for a permanent seat at the United Nations Security Council (UNSC). In September 2024, Indian External Affairs Minister S. Jaishankar visited Germany, where he met Foreign Minister Annalena Baerbock, signalling the continued strengthening of ties in the post-Merkel era.

One key area of collaboration gaining traction is labour mobility. Germany is an ageing society which faces a skilled labour shortage. On the other hand, India's labour market simply cannot keep pace with the sheer number of potential workers. In this context, easing visa restrictions for Indian workers, especially in high-demand sectors like IT, healthcare, and engineering, is a win-win proposition. Last week, the German Cabinet passed more than 30 measures to foster immigration from India to further the Comprehensive Migration and Mobility Partnership
objectives signed in 2022.

India also receives significant development aid from Germany. Through its development bank, KfW, and the German Agency for International Cooperation (GIZ), more than 7,000 kilometres of modern transmission lines have been built, with metros in Mumbai, Surat, and Ahmedabad being constructed with German co-financing.

In the technology domain, Germany’s leadership in 5G and the future development of 6G technologies offer tremendous opportunities for India. With its burgeoning digital economy, India benefits from collaboration in these advanced technologies, which are critical for enhancing connectivity, boosting industries, and driving economic growth.

Amidst global economic uncertainties and the increasing strain on Germany’s trade relations with China, the need for diversification is evident. As a result, Germany has turned its attention to India, which offers both a growing market and a stable partner in the Indo-Pacific, betting on India to reduce its reliance on China.

Areas of friction

However, a few nodes of friction remain. The first is the EU-India Bilateral Trade and Investment Agreement (BITA), which has not materialised despite numerous rounds of talks that started in 2007. Negotiations have been stalled due to differences over tariffs, intellectual property rights, and labour standards.

A second complication is the Carbon Border Adjustment Mechanism (CBAM), introduced by the EU which imposes a carbon price on imports of high-emission goods from countries with less stringent climate regulations. This directly affects India’s export-oriented industries, in sectors like steel, cement, aluminium, and fertilisers.

If these challenges are addressed, then the road to a stronger and more resilient partnership will become smoother. Germany's technological expertise and industrial might, combined with India's market potential and skilled labour pool, create concrete opportunities for economic cooperation. By building on existing collaborations and exploring new frontiers in areas like green technology, digital transformation, and advanced manufacturing, the Indo-German relationship stands poised to enter its most promising chapter yet.

(Vanshika Saraf is Research Analyst, Indo-Pacific Studies Programme, The Takshashila Institution.)

Views are personal, and do not represent the stance of this publication.