UPSC Exam: RSTV – India’s World: India-Germany Bilateral Ties



Anchor : Neelu Vyas
Speakers : TCA Rangachari, Former Ambassador to Germany; AK Bhattacharya, Editorial Director, Business Standard; Professor Gulshan Suchdeva, School of International Studies, JNU

Importance of this Episode:

  • India and Germany have shared decades of healthy ties, but in the context of the on-going flux in global affairs because of the uncertainties surrounding US policies and some Chinese initiatives that look like a new Avatar of imperialism, Indo-German ties assume importance in the present day and age.
  • German President Frank-Walter Steinmeier was on a 5 day visit to India to strengthen the strategic and economic ties between the two countries. This episode aims to discuss the outcomes of his visit and where Indo-German ties can potentially move on from here.

Points of Convergence and Cooperation:

  • India really needs Germany at this point of time because, there are some geographical commonalities: such as the fact that Germany is the largest country in the European Continent, and India is the largest country in South Asia.
  • Moreover, the historical experience that Germany has had with India- the pain and suffering that Germany has undergone as we have undergone. Germany had to raise its economy up again after the war, and India had to raise its economy up again after colonialism. Above all, there is a great synergy in terms of value system as well.
  • The discovery of India as a great civilization (which Britain as a colonial power had tried to play down) was helped in a large extent by the contribution of German scholars. This is the 19th Century and the 20th Century had reawakened the confidence in India in their self-belief. This was one of the factors that propelled the national movement forward.
  • In today’s situation, both Germany and India have a role to play globally. Some of these challenges need to be addressed. The German President made an important statement that “Peace is ensured when we work together”.
  • If we look at the timing of the visit, the arrival of German President Frank-Walter Steinmeier comes after Chancellor Angela Merkel has been re-elected to office for her fourth term.

Analysis by the Experts:

  • First, lets’ briefly look at the Economic Context of India and Germany:
  • Germany is the 7th largest foreign direct investor in India. Cumulative German FDI in India from April 2000 to December 2017 is USD 10.71 billion or 2.91% of total FDI.
  • Germany has invested in National Mission for Clean Ganga.
  • Like most countries have a trade deficit with Germany, even India has a trade deficit with them. However, a key issue which would be on the minds of most people who are following this visit would be as to what extent the famed SME sector in Germany, also known as the “Mittelstand”, would be galvanised towards contributing towards India’s ‘Make in India’ programme.
  • Currently, around 76 Mittelstand companies are already tied into the “Make in India” scheme; 46 out of the 76 have begun operations here. These Mittelstand companies have the potential of creating jobs, they have the potential of bringing in new technologies, etc.
  • It is important to mention here that these “Mittelstand” companies are not SME companies by Indian standards, they are typically benchmarked at a valuation of 1000crores-2000crores. These companies have the wherewithal to transform Indian manufacturing if they are given the opportunity and the space to do so here in India.
  • The question mark that arises with the vision of these “Mittelstand” companies, is India’s stand on bilateral investment treaties. India has taken a stand on bilateral investment treaties wherein it is insisting that an investor has to first exhaust all domestic legal options before it can take a case towards international arbitration. Now this is a worrying point not just for German companies, but for a large number of companies around the world. Now, with Germany being a major player in India’s “Make in India” programme, India must do something by which these concerns are addressed. Also, we must remember that there are around 140 Indian companies that have opened shop in Germany. Thus, this makes it a two-way street to make economic relations thrive.
  • India stands to gain from Germany as Germany is an economic powerhouse just as Germany stands to gain from India because she is a promising market that is growing and developing. Thus, this makes it a win-win for both countries. But, coming in the way of this is the ‘Bilateral investment treaty’ which needs to be handled judiciously, maturely and without any adverse impact on this growing relationship.
  • Also, in so far as the current global situation is concerned, it is important that India and Germany speak up in terms of “Free-trade”. India and Germany need to speak up and indicate that they stand for Free and fair trade. The other area that India and Germany can do a lot together on is Unfortunately, the global environment is not in favour of free trade.
  • The world’s largest trading country, the USA, has abandoned the principle of ‘Most favoured nation’ (MFN). In fact, recently even India had imposed some duties which can be called, ‘protectionist’. Thus, globally, the breeze that is blowing is not very favourable to the idea of “Free trade”, and this is probably not a very good sign.
  • In this particular visit of German President Frank-Walter Steinmeier to India, not many official announcements were made. This has been a relatively low-key affair compared to the recent visit of President Macron of France. But, one must understand that this is a visit of the head of a state, and that if Chancellor Merkel was visiting, it would have been a different affair altogether.
  • But, Germany is an important trade and investment partner of India and India is looking essentially for investment, for technology, for Germany’s participation in her infrastructure projects, and in the area of renewable energy. When we put India-Germany relations in totality, they are more or less in autopilot anyway. There are very strong institutional mechanisms in place; both India and Germany have inter-governmental consultations, and have different visits happening at different intervals. Thus, the visit of the German President further strengthens ties which already exist. But, internal developments in Germany and in Europe as a whole have a bearing on this bilateral relationship.
  • Domestic politics today in Germany is much more complicated than what it was in the last 4 years. However, all projections in Germany indicate that even in the next two years, at least a 2% growth rate would continue in Germany. The refugee problem in Germany has been relatively calm in the last couple of months. But, as a result of the 2015 refugee crisis in Europe, the politics in Europe is very different. Now, Merkel who is in her 4th term is in a coalition which is different from that of her previous terms; the interior minister of Germany in particular is voicing different opinions especially around Muslims in Germany and in Europe. Meanwhile, Angela Merkel has maintained that the 4.5 million strong Muslims in Germany are very much a part of Germany.
  • It is also important that we look at the personality of the President of Germany, as he is a man who has grown in stature nationally; in fact, a few years ago, he was leading an opposition party against Angela Merkel, and particularly in the aftermath of the elections that were held last October (October 2017), his popularity rating was the highest among all the politicians. The German public today are thankful to him for having built this coalition between his own party, (the SPD) and the CDU, which is the ‘grand coalition’. Thus, his own personality and the fact that he has been in India earlier in his capacity as a foreign minister, all of this counts, since the weight that his voice carries in the councils of Germany are also a major factor.
  • Under the German constitution, it is imperative that one goes through the process of political formation; the German constitutional makers were of the opinion that there shouldn’t be any instability as it was instability that gave rise to the forces of destruction associated with the Second World War. Potentially, India can learn a lot from the way how coalition governments are setup in Germany as in Germany even if the political ideology of the parties are different, or at times even dramatically divergent from each other, they make the effort in the national interest to put their ideology and party interests lower than the national interest. This is also one lesson that we can learn from Germany.
  • Surrounding the issue of the permanent seat at the UN Security Council, both Germany and India are a part of the G-4, and both are vying for a permanent seat at the UNSC, how do Germany and India really move forward knowing that the present P5 members do have certain reservations about India and Germany’s entry into the permanent security council?
  • Both Germany and India are looking towards reforms of the UN system, but remain realistic as they are aware of the kind of difficulties that they are going to face and they have worked very closely in the past to further their demand of being included as a permanent member of the UNSC. They remain realistic that this may not be granted in the near future.
  • The larger issue that is on their mind is the India-EU FTA, and both Germany and India, have for quite some time now been very vocal about this.
  • Germany as a country is also looking for substance and for actual policy implementation. Thus, even when the India-EU summit took place and when there were positive statements across both the sides, the German ambassador to India in an interview had remarked that there was very little agreement as far as India-EU FTA is concerned.

Thus, to an extent, because of the global headwinds, we haven’t been able to access the actual economic potential between India and Germany.

  • In fact, Germany is becoming even more important for two reasons:
  1. Post Brexit, the role for Germany will become even more important

The kind of Europe that emerges post Brexit is critical for India. Thus, we need to have a very good economic relationship with Germany as well as France in the post Brexit era.

  1. The second point pertains to the negotiations around the FTA

The US is particularly looking at the negotiations between India and Germany on the FTA.  The American automobile giants and the Japanese automobile giants are actually keen to take advantage of the Indian-German FTA. Germany after all is the world’s fourth largest automotive market, therefore, it is a huge attractive market and therefore the FTA assumes a critical importance.

  • Also, the Indo-German Chamber of Commerce is the largest bilateral chamber of commerce that Germany has with any country. Further, there is a new market that has opened up and that is the Film Market. In fact, the Bollywood movie, “Kabhi Khushi, Kabhi Gham” was the first Hindi movie that aired on German TV, dubbed in German. Since then a number of films, have been shot in Germany, including the movie, “Don 2”. Thus, the scope of people-to-people exchange is huge.
  • Regarding the membership to the UNSC, it is important to note that both the nations, i.e. India and Germany are not in a hurry. Germany is also connected with India in the region of “Hi-Tech”. This is an area that is being developed.  

The Way Forward:

  • The post of the President in Germany is largely a ceremonial one, thus we should not judge the success of this visit by the number of agreements signed or any concrete or specific things that emerge out of it. More importantly, the President is a very important and respected figure in German politics. The visit of the President will be an opportunity where the German side and the Indian side will be able to exchange notes. The issue of the Bilateral Investment Treaty (BIT) hasn’t had a very tangible impact on the FDI inflows from Germany into India. They continue to be made, and the German companies are fully committed to India. But, it is important for the Indian side to try and address the concerns raised by Germany and bring a closure to the concerns raised by them.
  • India stands to gain from Germany as Germany is an economic powerhouse just as Germany stands to gain because she is a promising market that is growing and developing. Thus, this makes it a win-win for both the countries. But, coming in the way of this is the ‘Bilateral investment treaty’ which needs to be handled judiciously, maturely and without any adverse impact on this growing relationship.
  • Overall, economic issues and foreign economic issues are becoming more and more important in our foreign policy, thus Europe and within Europe, it is Germany that would be very important for India. The relationship already has a strong institutional basis and needs to move further now.


Further Reading:
UPSC aspirants are advised to read the press-release available on the MEA (Ministry of External Affairs) website regarding the visit of the German President to India. The link is as below:


Read more RSTV articles here.