German trade with India
Germany is India’s most important trading partner within the European Union. With India developing into a major emerging economy, trade between the two countries has increased dramatically in recent years.
Various legal and political initiatives have been created in order to boost relations between Germany and India.
A. Trade with India
In 2012, bilateral trade between Germany and Indian amounted to €17 billion. Exports made up €10 billion, with imports worth €7 billion. Germany has a trade surplus with India of around €3.5 billion, showing that there is strong demand for German goods and services in India.
India ranks in the top 30 amongst Germany’s bilateral trading partners. Germany is in the top ten of countries that export to and import from India.
The main areas of trade with India from a German perspective are machines, electronic goods, metal goods, chemical goods, automobiles and automobile parts. Indian exports to Germany comprise textiles, chemical products, electronic technologies, metal goods, leather goods and food products.
Trade between the European Union and India has also increased in recent times. Between 2003 and 2011, trade increased from almost €30 billion to €80 billion.
B. Direct investments
Germany is an important partner of India in terms of direct investments. Between 2012 and 2013 German direct investments in India amounted to over $800 million. The cumulative amount of direct German investment in India amounted to over $5 billion between 2000 and 2012.
German investments in India focus on services, chemicals, automobiles, electronic equipment and software. All of the major German car manufacturers have entered the Indian market. Other large German companies, such as Siemens, SAP and Metro also plan on investing in India.
Indian investment in Germany has also increased in recent years. Total Indian investment in Germany is estimated to be at over $4bn. The IT sector leads Indian investments in Germany, with many Indian firms acquiring German companies or establishing branch offices in Germany. Indian investments tend to be clustered in the federal states of North Rhine-Westphalia, Hessen, Bavaria and Baden-Württemberg.
C. Legal framework for investments and trade
A range of legal documents underpin the Indo-German relationship.
1. Double taxation
A double taxation agreement between Germany and India came into force on 19th December 1996. This agreement prevents income and capital being doubled-taxed.
This means, for example, that tax cannot be levied in Germany on income or capital, if it has already been taxed in India. However, the German authorities can take the foreign income or capital into consideration when setting the tax rate on income in Germany.
In the case of dividends, the exemption from double tax only applies if payments are made from companies in one country to companies in the other when the recipient company directly owns at least 10% of the capital in the company paying the dividend.
2. Investment protection
An agreement on the promotion and protection of investments came into effect in July 1998. The agreement aims to foster greater investment by German or Indian nationals and companies in the territory of the other country.
Under the agreement, both countries must permit investments in their territory in accordance with their own laws and policies. Both countries are required to guarantee investors fair and equitable treatment, full protection and security, and are not permitted to treat investors less favourably than their own investors or other third-party investors.
Neither party to the agreement is permitted to place constraints on the international movement of goods or persons directly connected with an investment.
The agreement applies to all investments made by investors of one country in another country, whether made before or after the agreement came into force.
Another far-reaching investment protection provision, is that the parties to the agreement must treat foreign investors who suffer loss as a result of war or armed conflict, or as a result of national emergency or civil disturbances, no less favourably than national investors as regards compensation, restitution, indemnification or other forms of settlement.
Each country must permit investors, in a non-discriminatory manner, to transfer capital (used to maintain and increase investments), loan repayments, royalties, service fees, proceeds from the sales of shares; and proceeds received by investors in the event of liquidation.
3. Trade agreement
A trade agreement between India and Germany came into force on 31st March 1955.
Negotiations on a Free Trade Agreement between India and the European Union were launched in 2007 and were intensified following an EU-India summit in 2012. The agreement will cover trade in goods and services. India benefits from the EU’s Generalised Scheme of Preferences. This agreement will replace the current free trade agreements India has with member states of the European Union.
4. Other agreements
In 2013, the two countries signed six agreements designed to promote cooperation in areas such as higher education, civil security research, agriculture, product safety and green energy. Further agreements on cooperation in scientific research and technological development also exist.
D. Cooperation with India
The strategic importance of fostering relations between India and Germany has been recognised at political level. A range of agreements and declarations exist, which state the common intention to develop the countries’ strategic cooperation.
The ‘Agenda for Indo-German Partnership in the 21st Century’ was published in the year 2000. This document was supplemented in 2006 by a Joint Declaration on the strategic partnership between the two countries. In 2007, a Joint Statement on the continued development of the strategic partnership was published.
Together, these documents set out the framework for increased cooperation in trade, energy, defence, science and technology and political cooperation.
1. Business cooperation
The core dimensions of strategic partnership are trade and investment with a particular focus on high technology and Indo-German business cooperation. The High Technology Partnership Group, comprised of government and business actors, was created to promote the achievement of these aims.
2. Science and technology
Cooperation in the areas of science and technology plays a large role in fostering relations between German and India. Areas of cooperation include space research, IT and biotechnology.
The German Academic Exchange Service, Max Planck Society, Alexander von Humboldt Foundation and the German Research Foundation (DFG) all play a role in supporting scientific exchange and research projects.
The importance of Indo-German relations in the area of science and research is demonstrated by the fact that the Indo-German Science and Technology Centre (IGSTC), which promotes bilateral application-oriented research projects, is Germany’s only bilateral research promotion centre worldwide. In addition, the German Science and Innovation House in New Delhi is one of only six such houses worldwide.
3. Military cooperation
In 2006, a cooperation agreement on increased military cooperation was signed by the two countries’ defence ministers. Once a year, the High Defence Committee, made up of Secretary of States, meets to discuss specific military issues. The cooperation also encompasses the armed forces and military equipment sectors.
4. Political cooperation
Political cooperation between the two countries intensified in 2011 and 2013 when Indo-German intergovernmental consultations took place. During these consultations, ministers signed declarations of intent in a number of areas.
Events have also been held to promote Indo-German relations. The so-called “Year of Germany” marking the 60th anniversary of the establishment of diplomatic relations between Germany and India was held in India between 2011 and 2013. The event showcased Germany as an innovative, creative and sustainable partner of India. Germany held a parallel event featuring activities in numerous German cities.
In the area of development, the focus is on assisting India in overcoming challenges associated with rash economic growth. This includes addressing the distribution of wealth, developing infrastructure, strengthening education and training, and improving the environment.
Germany’s development measures are implemented by the German Society for International Cooperation (Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH) and Germany’s development bank, the KfW. The GIZ is responsible for technical cooperation; while the KfW concentrates on financial cooperation and investment projects.
Environmental cooperation focuses on promoting long-term and sustainable protection of the ground, water and air.
In 2008 the first environmental forum was held at political level. Topics discussed at the event included water and waste water, waste management, energy efficiency, renewable energies and sustainable development.
In 2013, joint projects worth almost €900 million were approved. A large part of the funding will go towards environmental and renewable energy projects.
German trade with India
If your German business would like to trade with India, or if you have an Indian company seeking to enter the German and European market, call our specialist German lawyers on 0221 / 951 563 0 (Beratung bundesweit) or user our contact form.