Why PM Modi’s visit to Germany could be a game-changer…

Prime Minister commenced his 4-nation tour with a visit to Germany. Based on initial reactions, at least, the visit appears to be a huge success. However, it is more important to understand the context of the visit and why the visit assumes special significance in the current circumstances.

Why Modi’s visit to Germany assumes significance…

There are 3 reasons that the visit to Germany becomes very critical for both the countries. India has been trying to do a balancing act with some of the key powers in the world. With Trump creating his own problems in the US and China having its own border problems with India, India was looking at an alternate global block to build close relations with. The EU under the leadership of Angel a Merkel of German offers the perfect foil for India. Secondly, BREXIT has suddenly changed the equations in Europe. With UK and the EU officially parting ways, the trade matrix in Europe is open for renegotiating. India will be keen to see how best it can leverage on the new order. Thirdly, the visit by Narendra Modi comes in the immediate aftermath of the G7 meeting in Sicily, where there were obvious frictions between Trump and Merkel. The US runs a large trade deficit with Germany and Trump has been calling upon Germany to contribute more towards NATO expenses. Clearly, Merkel has expressed her unhappiness and has even called for the EU to look beyond the US as its natural ally. This not only promises a new order where the US and the EU may be antithetical to each other but also opens new doors for India. It is for these 3 reasons that the visit of Narendra Modi becomes specifically significant.

Some key common areas for Germany and India…

There is obviously a lot of synergy between a technologically advanced Germany and India with its vast markets and promising demographics. Some of the key areas for cooperation would include…

  • The Indo-Germany Bilateral Treaty, which expired earlier this year, is likely to be renewed during Modi’s visit to Germany. In year 2016, total trade between Germany and India stood at around $19 billion. For a country of Germany’s size, its trade with India is just about as much as Indonesia does with India. In fact, China’s trade with India is nearly 4 times the size of Germany and US trade with India is almost 3.5 times the size of Germany. Obviously, there is scope for a major expansion. Germany’s annual trade (imports + exports) with the world is to the tune of $2.4 trillion. India’s share at less than 0.1% surely looks out of place.
  • It needs to be remembered that Modi’s visit to Germany coincides with the Chinese premier’s visit. It is indicative of the fact that Germany is trying to give more of an Asia twist to its global trade and investment policy. This is all the more significant because Merkel has made her dissatisfaction with the US and UK quite obvious. She obviously does not want the EU to overly depend on the US and UK and wants to open roads to Asia via India and China. That could be a big opportunity for India.
  • In fact, a report in a leading German newspaper has underlined that Germany may be looking to ally with India and China on the subject of free trade and environmental protection (Paris Accord). During Trump’s visit to the G7 Summit, he had refused to commit on his acceptance of the Paris Accord. This could put the EU in a piquant situation as it has invested billions of dollars in the shift. Trump’s “America First” policy may also mean that old trade groupings may come under question and restrictions to trade may increase. In fact, Germany will be looking to India and China for support on climate change and free trade, two areas where these three countries have broadly been in sync.
  • Even as India and Germany signed 8 major deals, India will be looking at German support on a number of areas. Germany has been heavily involved in infrastructure in many developing markets but not so much in India. Germany has been one of the pioneers in alternate energy technologies and that is the direction that Modi government has been moving. India will also be looking at more support from Germany for increasing its FDI (currently Germany ranks 6th in FDI flows into India) and also to participate in a bigger way in the “Make in India” program.
  • The biggest area of cooperation that India will be looking at from Germany will be the larger involvement of “Mittelsand” companies. In Germany, mid-cap companies with revenues of around $1-$2 billion are classified as Mittelsand companies. These are typically entrepreneurial and home grown businesses and form the backbone of the Germany economy. India has been looking at giving a big push to the Small and Medium Enterprises (SME) segment and this segment can imbibe a lot of best practices from Mittelsand companies. In fact, Mr. Modi has made a special pitch to get these Mittelsand companies to play a more active role in India in a variety of sectors.

The significance of Modi’s visit to Germany cannot be missed. He is covering Germany, France and Spain; which are 3 of the largest economies in the EU Zone. This will be followed by a visit to Russia. In fact, the PM has consciously avoided the visit to UK as he wants to make India’s preference for a united EU very clear. For Prime Minister Modi and Chancellor Merkel, the message could not have come at a more appropriate time.

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