Germany – India Relationship IAS Target

Germany - India Relationship

22 Jul 2020

Category : International Relations

Topic: Germany - India Relationship

India is one of the first countries to end the state of war with post-war Germany in 1951 and amongst the first countries to recognize the Federal Republic of Germany (FRG). India and Germany have a ‘strategic partnership’ since 2001, which has been further strengthened with two rounds of Intergovernmental Consultations (IGC). There have been regular interactions between Parliamentarians of the two countries. The Indo-German Parliamentary Group in the German Bundestag, established in 1971, has contributed to strengthening links between the two Parliaments. Bilateral relations between India and Germany are founded on common democratic principles and are marked by a high degree of trust and mutual respect. India was amongst the first countries to establish diplomatic ties with the Federal Republic of Germany after the Second World War.
The closeness in relation with Germany started in 2000 when special green cards were introduced for Indians to encourage Indian students to go to Germany and also encouraged business visas so that Indian business can go to Germany and there is better flow of trade between India and Germany. Bilateral relations between the Republic of India and Germany have been traditionally strong due to commercial, cultural and technological co-operation.

India-Germany relationship in the Past

During World War I, India was under British rule. Consequently, the British Indian Army was ordered to contribute soldiers to the Allied war effort, including on the Western Front. Over 9000 soldiers died in World War I. Pro-independence activists within the colonial armies sought German assistance for the cause of India's freedom resulting in the Hindu–German Conspiracy during World War I. During World War II, the Allied war effort mobilized 2.5 million volunteer troops from British India. Subhas Chandra Bose, a prominent freedom fighter for Indian independence, made a determined effort to obtain India's independence from Britain by seeking military assistance from the Axis powers.

India-Germany relationship after Independence

The newly formed Republic of India was one of the first nations to end the State of War with Germany after World War II and did not claim war reparations from Germany although 24,000 soldiers serving in the British Indian Army died in the campaign to fight Nazi Germany. India maintained diplomatic relations with both West Germany and East Germany and supported their reunification in 1990.

India-Germany relationship during cold war era

West Germany adopted democracy while East Germany follow socialistic principles. West Germany was in western block whose leader de-facto was USA. Germany condemned India for liberating Goa from Portuguese rule in 1961 and supported Portugal's dictatorial regime under Salazar against India. Germany was critical of India for intervening in the 1971 Bangladesh Liberation War. Germany rejected India's 1998 nuclear tests.
India-Germany relationship after dissolution of USSR and post cold-war relations grew significantly following the end of the Cold War and the reunification of Germany. There was high level political engagements b/w head of state and head of govt from both sides. German Chancellor Merkel visited India in 2007, 2011 and in 2015. German President Joachim Gauck paid a State visit to India in February 2014. Indian PM and President also reciprocated by visiting Germany on many occasions. Recently Indian PM visted Germany to participate G-20 meeting in Hamburg. In the last decade, both economic and political interaction between India and Germany has increased significantly. Today, Germany is amongst India's most important partners both bilaterally and in the global context.
India and Germany have a 'Strategic Partnership' since 2001, which has been further strengthened with the Intergovernmental Consultations (IGC) at the level of Head of Governments which allows for a comprehensive review of cooperation and identification of fresh areas of engagement. India is amongst a select group of countries with which Germany has such a dialogue mechanism.

Institutional Cooperation Arrangements b/w Germany and India

Several institutionalized arrangements exist between India and Germany to discuss bilateral and global issues of interest namely,
  • Foreign Office Consultations,
  • High Technology Partnership Group,
  • High Defence Committee,
  • Indo-German Energy Forum,
  • Indo-German Environment Forum and Joint Working Groups in various fields, including
    • Skills development,
    • Automotives
    • Agriculture
    • Coal,
    • Tourism,
    • Water and waste management.

India and Germany collaboration in multilateral forums

UNSC Reform Germany and India cooperate on the issue of UNSC expansion within the framework of G-4.
G-20 role on Global issues Both countries consult each other in G-20 on global issues such as climate change, sustainable development, etc.
Strategic issues There have been consultations between the two countries on regional and international issues such as UN issues, International Cyber Issues, Disarmament & Non-proliferation, Export Controls, East Asia, Eurasia, etc.

G-4 nations

The G4 nations comprising Brazil, Germany, India, and Japan are four countries which support each other’s bids for permanent seats on the United Nations Security Council. Unlike the G7, where the common denominator is the economy and long-term political motives, the G4's primary aim is the permanent member seats on the Security Council. Each of these four countries have figured among the elected non-permanent members of the council since the UN's establishment. Their economic and political influence has grown significantly in the last decades, reaching a scope comparable to the permanent members (P5). However, the G4's bids are often opposed by the Uniting for Consensus movement, and particularly their economic competitors or political rivals.

Parliamentary Exchanges

The Indo-German Parliamentary Friendship Group, which was established in German Bundestag in 1971, has contributed to strengthening links between the two Parliaments. Several Parliamentarians from both sides have exchanged visits in recent times.

Defence Cooperation b/w India and Germany

India-Germany Defence Cooperation Agreement (2006) provides a framework for bilateral defence cooperation. The defence dialogue mechanisms include High Defence Committee meetings at the level of Defence Secretaries.

India and Germany stand on Terrorism

India and Germany have established a joint working group on counter terrorism which has led to critical sharing of intelligence. On the perception of need to fight international terrorism, Germany is supportive of India’s position, including in the UN that India has a threat from neighbourhood which threatens the unity of India. Now that terror has started emanating from Europe’s soil. Recent terrorists attack in Paris, London, Berlin and other Euopean cities also strengthen European countries resolve to fight Terrorism and they supported Indian view to crush terrorism without differentiating b/w Good and Bad terrorism.

Sister City Arrangements

Karnataka and Bavaria (Germany) have Sister States arrangement since 2007
Mumbai and Stuttgart (Germany) are sister cities since 1968. In January 2015
Maharashtra and Baden-Wurttemberg (Germany) signed an MoU to establish a Sister State relationship.

Economic & Commercial Relations

  • Germany is India's largest trading partner in Europe.
  • India was ranked 24th in Germany's global trade during 2016.
  • Bilateral trade in 2016 was valued at €17.42 billion. Apart from traditional sectors, knowledge-driven sectors hold good potential for collaboration.

Indo-German Bilateral Trade (in Euro Billion)

Year 2014 2015 2016 2017 (Jan – Sep)
Trade 15.96 17.33 17.42 14.31
Indian Exports 7.03 7.56 7.62 6.48
Indian Imports 8.92 9.77 9.80 7.83
Balance of trade -1.89 -2.21 -2.18 -1.35

Major Indian Exports to Germany Textiles, Metal & Metal Products, Electro Technology, Leather & Leather Goods, Food & Beverages, Machinery, Pharmaceuticals, Auto Components, Chemicals, Gems & Jewellery and Rubber Products
Major Indian Imports from Germany Machinery, Electro Technology, Metal & Metal Products, Chemicals, Auto Components, Measurement & Control Equipment, Plastics, Medical Technology, Pharmaceuticals, Paper & Printing Materials

Germany is the 7th largest foreign direct investor in India since January 2000. Germany's total FDI in India from April 2000 until September 2017 amounted to US$ 10.63 billion. A Fast-Track System for German companies has been set up in DIPP, as agreed between the two sides at the 3rd IGC. The Make in India Mittelstand (MIIM) Programme was launched by the Embassy of India, Berlin in September 2015. It aims at facilitating the entry of German Mittelstand (MSMEs) into India.
Indian investments in Germany have also shown a remarkable increase in the last few years. Indian corporate entities have invested over US$ 7 billion in Germany. There are more than 200 Indian companies operating in Germany. Sectors such as IT, automotive, pharma and biotech have received a chunk of Indian Investments. The penetration of Indian software companies in German market is growing and major Indian software providers like Infosys, WIPRO and TCS have operations in Germany. Companies like Bharat Forge Limited, Ranbaxy, Piramal, Samtel, Hexaware Technologies, NIIT, Graphite India Limited, Hinduja Group, Dr. Reddy's Laboratories, Biocon, Hindustan National Glass, Mahindra and others have either acquired German companies or started their own subsidiaries.

Science & Technology Cooperation

  • Indo-German Science & Technology cooperation started with the signing of the Intergovernmental S&T Cooperation Agreement in 1971 and 1974.
  • Today, Germany is one of the most important global partners for S&T cooperation.
  • The jointly funded Indo-German Science & Technology Centre was set up in 2008 in Gurgaon with an annual contribution of 1 million from each side. The mandate of the Centre has been extended till 2022 with a contribution of 4 million per year by each side.
  • India has invested in major science projects in Germany such as the Facility for Anti-Proton and Ion Research (FAIR) for experiments in advanced materials and particle physics.
  • Indian Space Research Organization (ISRO) has launched 10 German satellites since 1999, most recently in June 2016.

Development cooperation b/w India and Germany

Germany has been an important development cooperation partner for several decades:
  • Energy, sustainable economic development and environment & management of natural resources are priority areas under development cooperation.
  • Financial assistance from Germany has been provided mainly as soft loan, composite loans as well as grants routed through KfW, German Government's Development Bank.
  • Technical assistance is provided through GIZthe development agency of German Government.
  • An MoU on Development Cooperation regarding the Indo-German Solar Energy Partnership was signed at the 3rd IGC in 2015 under which German Government is to provide concessional loan of Euro 1 billion over the next 5 years.

Cultural relations b/w India and Germany

India and Germany have a long tradition of academic and cultural exchange.
  • Max Mueller was the first scholar of Indo-European languages who translated and published Upanishads and Rigveda.
  • There has been growing interest in Germany in Indian dance, music and literature as well as motion picture and TV industry, in particular Bollywood. Indian films and artists regularly feature at the Berlin International Film Festival and at other festivals all over Germany.
  • Indian cuisine is very popular in Germany. The Indo-German Society is engaged in promoting inter-cultural understanding by bringing together people of both countries and conveying information about modern India to the German public. Chancellor Merkel handed over the stolen Statue of Durga Mahisha-surmardini to PM Modi at the 3rd IGC as a goodwill gesture.
  • German interest in the Indian philosophy and languages resulted in the first Chair of Indology at the University of Bonn in 1818.

People to People ties

  • Indian students are pursuing various courses in Germany. German students also studying or doing internships in India.
  • Indo-German Partnership in Higher Education was signed between DAAD and UGC at the 3rd IGC.
  • The GIAN Initiative has been well-received in Germany and German academicians have been selected for teaching in higher educational institutes of India.
  • Central Council for Research in Ayurveda and Siddha is supporting research in Ayurveda at Charite Medical University, Berlin on Osteoarthritis of the knee, which is the first systematic clinical trial for use of Ayurveda in Europe.

Indian Diaspora

  • The Indian diaspora mainly comprises of professionals, technocrats, businessmen/traders and nurses.
  • There has been an increase in the last few years in the number of qualified Indian professionals in the fields of IT, banking, finance, etc.
  • There are a number of Indian organizations and associations active on the business/cultural front, cementing ties between India and Germany at the people-to-people level.

Possibile area for cooperation b/w India and Germany

  • Cyber Security, data localization and cyber politics
  • Sustainable urban development, Smart city initiatives where Germany commited for the sister city collaborations
  • Continued development of cluster managers, vocational training and skill development,
  • Cooperation in the field of digitalisation, e-commerce and cyber terrorism as terrorist attacks in Germany and France city by terrorists
  • Cooperation in the field of railway security.
  • Continued cooperation on an Indo-German centre for sustainability, climate change even though Trump's administration denial of any climate change threat

India and Germany join hands on skill agenda

  • India and Germany are deepening their collaboration in the area of skill development.
  • In this regard, an implementation agreement has been signed between the Ministry of Skill Development and Entrepreneurship (MSDE) and (German International Cooperation (GIZ), to initiate a new project focused on adapting elements of the German dual system in select industrial clusters in India.
  • The project will be implemented in three selected clusters, which include the Automobile cluster in Maharashtra and Electronics cluster in Bangalore.
  • German technical assistance will be used to enhance industry institute partnerships between Indian and German organizations, build capacity of local training institutions and foster
  • Industry linkages which will help adapt elements of the German dual system, into the Indian context.

Social Security Agreement (SSA)

India and Germany have ratified the Social Security Agreement (SSA), to help promote more investment flows between the two countries. Bilateral social security agreements protect the interests of Indian professionals, skilled workers working abroad.

The following benefits from SSA:

Avoiding making double social security contributions SSA exempts the Indian worker (working on short term contracts abroad) from making a social security contribution in that foreign country. This exemption is provided only if the Indian worker is covered under the social security system of India and continues to pay his/her contribution during the period of overseas contract.
Easy remittance of benefits (Exportability) An SSA between India and a foreign country enables the Indian worker/professional to remit his/her accumulated social security contribution made in a foreign country, in case of relocation to India/third country.
Aggregating the contribution periods (in two countries) to prevent loss of benefits (Totalization) An SSA allows aggregating residency periods of social security contribution made by the Indian worker / professional in India and the foreign country to qualify for retirement benefits. Till date, India has signed and operationalised similar agreements with 18 countries, including Australia, Belgium, Canada, France, South Korea, Germany and Japan.

India-EU FTA

The India–EU FTA has been on the anvil for a long time, with no major breakthroughs in sight. India has a lot to gain from an FTA with the EU, particularly in regard to preferential and duty-free access to the European market. During the FTA negotiations, both sides have committed themselves to an ambitious agreement, with tariff elimination on more than 90 per cent of goods traded and a strong GATS (General Agreement on Trade and Services) - plus agreement in services. Most of agriculture will be exempted by mutual agreement.

India-EU FTA development

The EU-India FTA negotiations were launched in June 2007, and so far there have been 11 full rounds the negotiations b/w EU and India.

The Contentious issue which hinder FTA:

  • India has a negative trade balance with the EU and there is a fear among industry and non-governmental organizations (NGOs) in India that this may further worsen after the tariff reductions.

  • The issues related to:
    • labour standards,
    • intellectual property rights,
    • sanitary and phytosanitary standards,
    • access to agricultural goods and animal origin,
    • technical barriers, use of anti-dumping/anti-subsidy measures against Indian products,
    • the complex system of quotas/tariffs,
    • a single visa for Indian professionals on short-term contractual visits,
    • data secure status and environmental issues were found to be key hurdles in expanding trade with the EU.

  • Even the EU had been inclined towards more protectionist measures in its trade policy. India’s high tariff rates and non-tariff trade barriers have been of great concern for foreign companies.

  • India is unwilling to liberalize trade in services and on procurement there will be no deal at the state level EU was seeking higher FDI limits in retail and insurance.

  • Concerns have been voiced by some NGOs that the planned reduction of tariffs in the dairy sector (tariffs of up to 60 percent) and poultry industry could have a serious impact on the cooperative, smallholder-dominated Indian dairy industry, mainly on employment.

  • The EU sought liberalization of the Indian banking and financial sector. It wanted various regulations pertaining to bank branches, numerical quotas, foreign ownership, equity ceilings, voting rights, and investments by state-owned companies in foreign banks in India removed, among other changes.

  • High customs duties on European products such as automobiles and alcohol were key issues. The Indian automobile industry is apprehensive about its level of competitiveness due to high costs of inputs caused by inflation, the rupee’s depreciation and the cascading effects of various taxes, apart from the economies of scale the EU auto industry enjoys.

  • The IPR provisions in India-EU draft FTA also raised concerns as they will limit the capacities of both India and the EU to use the public health safeguards and flexibilities allowed in the WTO’s TRIPS Agreement.
    It is pointed out that the provisions on IPR are problematic on various levels, particularly in the areas of
    • expansion of copyright,
    • inclusion of TRIPS plus provisions,
    • cross border measures,
    • liability of service providers and
    • enforcement mechanisms.

  • Mode 4 liberalization
    This will enable the free movementof individual professionals and will entail measures such as relaxation of immigration norms. The EU, however, has been unable to take a unified position on the matter, being subject to the individual immigration policies of member states. Thus, regardless of the election results in the European Parliament, it is highly unlikely this issue will be resolved soon unless both sides can reach an amicable compromise.

  • Negotiations are also struck on the issue of Indian policy on government procurement. India is unwilling to make changes as it considers government procurement a sensitive issue from the development perspective.

  • The contentious issues seem to be the preferential agreements for the European automobile and auto-component sectors, and the heavy tariffs on wine and spirits. Under the Bilateral Trade and Investment Agreement (BTIA), key challenges are the exclusion of agriculture products from the negotiations. The reason is the huge subsidy agricultural products of the EU get, and the relatively less competitive Indian agriculture products. These cast doubts on the India-EU FTA being finalized.

  • Major challenges are non-tariff barriers such as the non-harmonized EU market, work permit and visa related barriers, the definition of who is a ‘professional’, the limited bilateral social security agreement, the limited access of FDI from the EU in the Indian service sector, in retail, insurance and banking, prohibition of FDI in atomic energy, railway transport, etc.

  • A host of contentious issues are yet to be resolved. India wants the EU to give it greater market access in the services and pharmaceuticals sectors, provide data secure nation status (beneficial to India’s IT sector), and liberalize visa norms for Indian professionals.

Some progress has been made in the FTA negotiations.

  • These include suspending the implementation of some aspects of the preferential procurement policies for domestically manufactured electronic goods and telecom products. Regarding mandatory compliance of steel products, the date the mandatory certification requirements for certain steel products come into force has been delayed. India has also formally extended the grace period for the compulsory registration of 15 categories of IT and consumer electronics goods. India has also introduced some changes in investment rules and opened up higher investment possibilities in the telecom sector, defence manufacturing, insurance, and single and multi-brand retailing.

  • Germany view about China's OBOR
    The Germany-China economic relationship is pretty deep, though both sides have been in long negotiations on an investment and trade pact, like India. Germany was much more China-positive, but this tide appears to have turned in recent years as it has expressed reservations about China’s predatory trading practices. Although Germany sent an official-level delegation to the OBOR summit, it has asked for the OBOR process to be made more transparent, in accordance with WTO. It is not about free trade but driving the world towards sino-centric trade. Also, Germany wondered how could OBOR succeed without India on board as far as trade and connectivity is concerned. According to it, this initiative could be a debt trap for the countries who are joining OBOR.

  • Climate change
    Europe appreciates India’s position to move to non-conventional sources of energy. India and Germany’s collaboration in areas like renewable energy is gaining momentum. Although US is out of Paris accord, India is expected to keep its momentum to tackle climate change challenges. Although USA is reluctant to talk on Climate Change issue after Trump administration joining office. But EU concern for Climate change and want to adhere Paris agreement on letter and spirit. But still western bloc makes accuse like IPR issue on technology transfer for clean energy, slowdown issue on funding for developing countries and states that India and China no more developing and they actively contribute instead of gaining fund to fight climate change. But overall EU led by Germany positive on India's step for clean energy to fight climate change.