India is Germany’s democratic partner for stability and security, according to the recently issued document “Focus on India.” The document was published by the German government prior to German Chancellor Olaf Scholz’s visit to India along with his cabinet ministers from October 24-26 to attend the 7th India-Germany Inter-Governmental Consultations (IGC).
This document shows Germany’s growing interest in India, one of the fastest growing economies and the most populous country in the world. Moreover, the timing is also significant as last year, Germany issued its first comprehensive strategy on China using the buzzword “de-risking” instead of “decoupling,” indicating that it did not want to sever ties between both economies but rather reduce its one-sided dependency on China. Germany’s “Strategy on China” document indicated its defensive posture as it emphasized that Beijing’s growing closeness with Russia had security implications for Germany and Europe as a whole.
Berlin’s focus on New Delhi is part of its pragmatic foreign policy. Germany wants to make the most of India’s economic, technological, and skilled labor potential to face its geoeconomic challenges. This document also indicates Germany’s willingness to bolster its ties with India in areas such as trade, climate change, security, and foreign policy.
Germany is faced with slow GDP growth partly owing to the Russian invasion of Ukraine in February 2022 and the ensuing EU and U.S. sanctions on Russia, followed by German firms’ disengagement from Russian trade and investment. Moreover, Germany’s sluggish economy is also linked to its aging population and labor shortages along with the stalled digitalization of its economy. In such a situation, Germany wants to take advantage of India’s strength in innovation and technology. That is why, during the German chancellor’s recent visit to India – his third since taking office – both countries reached 27 agreements focusing on defense, research, renewable energy, and migration of skilled workers.
In addition to this, in order to attract more workers from India, Scholz also pledged to increase the number of visas issued to skilled workers from India. Modi said that the German government has decided to increase the number of visas for skilled Indian citizens from 20,000 to 90,000, which he predicted would give new pace to Germany’s economic growth.
According to official German estimates, Germany will face a shortage of 7 million workers by the year 2035 due to its aging population. In order to fill this shortage, Germany needs more qualified workers who can help counterbalance of its aging population and the simultaneous declining birthrate. In this context, Germany’s Labor Minister Hubertus Heil said that Germany requires more qualified skilled workers along with more economic dynamism. He further said that the situation in India is opposite to that of Germany, as it adds approximately 1 million new workers to its labor force every month. Therefore, there is a policy shift to increase the flow of skilled workers from India to the German labor market.
As per the Federal Labor Ministry statistics, by February 2024, there were approximately 137,000 Indians employed in skilled worker positions in Germany, which is roughly 23,000 more than the previous year. Germany’s federal cabinet has revealed that it is taking measures to lure still more skilled workers from India to enter the German labor market. To attract more international workers, Germany has recently introduced the Chancenkarte (German for Opportunity Card). Furthermore, it has also changed its nationality laws allowing dual nationality and reducing the number of years required to become a German citizen. However, the latter has no effect on Indian citizens, as their government does not allow dual citizenship.
During his recent visit to India, Scholz also supported increased arms cooperation with New Delhi. The German chancellor and his counterpart, Indian Prime Minister Narendra Modi, agreed to back increased industry-level cooperation in the area of defense, with the main focus on co-development and co-production of defense equipment and platforms coupled with technological cooperation in the defense sector. During the first six months of 2024, India was the third-largest recipient of German arms. Germany approved armed licenses worth 153.75 million euros for India.
There is growing military cooperation between Germany and India owing to the Russian invasion of Ukraine, China’s rising demonstrations of its military might, and the tensions in the Indo-Pacific region, which have incentivized both countries to augment military cooperation. A true alliance in this regard is very unlikely due to India’s historic ties with Russia and Germany’s heightened security situation due to Russia’s invasion of Ukraine, but the chances of significant defense partnership in the near future cannot be ruled out.
Germany’s pivot to India is a result of the growing geopolitical as well as geoeconomic rivalry between Beijing and the West, mainly Washington. China is not only Germany’s largest import partner but also its fourth-largest export destination. However, due to post-COVID inflation, the goods trade balance between Germany and China has turned negative. Due to this trend, German businesses are shifting their focus to India to reduce their dependence on China. India is increasingly becoming significant for German firms.
This doesn’t mean that German businesses will take their businesses out of China in the short term. But it is probable that they will explore other markets, mainly that of India, in case of a widening fissure between China and the West along with the EU’s trade barriers with China.
According to the German-Indian Business Outlook Survey 2024, German firms want to relocate to India mainly due to the low labor costs, political stability, and qualified skilled workers. However, at the same, they cite bureaucratic hurdles, corruption, and a complicated tax system as the main challenges of relocating to India. Nevertheless, India presents a huge market to the German businesses, which might be a trade-off for their relocation.
Germany’s pivot toward India is mainly driven by trade, technology, and a need for skilled workers. India offers a vast labor market alongside a rapidly growing economy, particularly when Germany deals with demographic challenges and economic slowdown. As a result, India becomes not only a potential geoeconomic partner but also a significant geopolitical ally in the Asia-Pacific region for Germany.