Indo-German-Economic-Ties-IASToppers
Video Summary

[RSTV The Big Picture] Indo-German Economic Ties

With a trade history of over 500 years, India and Germany are linked by a common past of economic cooperation. However, in recent times, US-China trade war, Brexit situation, Crisis at WTO and non-agreement over India-EU FTA has major impacts on Indo-German relations.
By IT's Video Summary Team
November 20, 2019

Contents

  • Introduction
  • Importance of Germany
  • How India and Germany can collaborate?
  • Concerns of Germany
  • Areas of concern in India-Germany collaboration
  • IT’s Input
  • Suggestions
  • Conclusion

[RSTV The Big Picture] Indo-German Economic Ties

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Introduction

Recently, India and Germany signed multiple pacts and joint declarations of intent and exchanged agreements after bilateral talks between Prime Minister of India and German Chancellor. The agreements were inked for cooperation in fields such as space, civil aviation, maritime technology, artificial intelligence, digital technology, medicine, defense, cyber security and education. Germany is India’s largest trading partner in Europe and more than 1,700 German companies operate in the country.

Importance of Germany

  • Germany is one of the major exporter country in the world after China and the United States.
  • In Asia, the expertise of economic power houses like Germany could help to build a better India.
  • Germany is largest trading partner in Europe for India and second largest research partner in the world after US.
  • Germany is the second largest foreign aid donor to India after Japan.
  • Germany issued highest blue card of European Union. Among blue card issued by Germany, 20% were issued to Indian IT industry (the blue card is a card for citizens from non-EU-states for the purpose of working).

How India and Germany can collaborate?)

  • India can collaborate with Germany in areas such as e- mobility, fuel cell technology, bio chemicals in which Germany is at forefront.
  • While Germany has lack of many skilled IT engineers, India can provide skilled manpower to fill the gap. Moreover, there is skill shortage in Germany. This shortage can be fulfilled by 20,000 Indian students studying in Germany.
  • Despite the slowdown, the unemployment rate in Germany (3%) is one of the lowest in Europe. In coming years, Germany is looking to create medium to high skilled sector jobs, for which the skilled manpower can be delivered by India.
  • Germany has zero military presence in Indian ocean but an agreement in maritime security cooperation can benefit India in Indian ocean.
  • Lot of the focus of Germany is on Climate Change where they think that India can be indispensable partner with Germany in countering climate change.
  • Sensing that EU-India FTA might not be signed in near future, the Germany is collaborating with India in other sectors such as renewable energy, sustainable development, Green technology, addressing pollution etc.
  • Compared to RCEP and ASEAN countries where India has more than $100 billion trade deficit, it is much easier for India and Europe (Germany) to collaborate where the trade has been reasonably balanced.
  • India and Germany may take advantage of opportunities in defense production in dedicated corridors in Uttar Pradesh and Tamil Nadu. Germany had already a technological partnership with IIT Chennai.

Concerns of Germany

  • Before ‘Brexit’ situation, Britain was the gate way for India to invest in Europe. However, after Brexit, India needs to find a strong political and trade partner in EU. For that, France and Germany are ideal candidates.
  • Moreover, with the Brexit happening, the political power in European union is moving from Germany towards France.
  • Germany is also concerned about the decline of United States and rise of China in Maritime security sector, particularly in Indian ocean.
  • Germany is one of the major exporter of world. However, given the issues like US- china trade war and Dispute Settlement Crisis in the World Trade Organization, they are worried about their export business.
  • Germany is also suffering from Debt crisis and refugee issues.

Areas of concern in India-Germany collaboration

  • Due to their difficult past in world wars, Germany always operates in partnership with other countries.
  • Since last decade, Germany even consider BRICS countries more seriously than India do. However, among BRICS countries, due to unease with the China’s BRI projects in Europe and Ukrainian crisis of Russia, Germany sees India as a major trading partner.

However, the India-Germany collaboration faces many challenges. For instance,

  1. Both economies are slowing down.
  2. The European Union and India have been negotiating a free trade agreement (FTA) since 2007. In last five years, Germany was hoping that India would sign India-EU FTA. But India did not sign it because of differences in some important areas.
  3. Given the anti-immigrant sentiment in Europe, it is unlikely that Germany will allow services in EU FTA (a major demand from India is that service should be included in EU FTA).
  4. India’s IT sector founded very difficult to penetrate in German market because Germany is protectionist in service sector.

IT’s Input

India-EU FTA

  • The European Union (EU) is India’s largest trading partner, accounting for nearly 13% of total Indian trade in 2018 ahead of China (10.9%) and the USA (10.1%). On the other hand, India is the EU’s 9th largest trading partner.
  • However, expectations of EU and India diverges on issues such as tariffs on cars, wines, and dairy products.
  • There have been talks concerning the Bilateral Trade Investment Agreement (BTIA) between India and the European Union since 2007, but a deadlock has been in place since 2013.
  • When FTA negotiations began with EU, India had high tariffs in areas of interest to the EU and restrictions on foreign direct investment (FDI) in several sectors, including insurance and trade.
  • Rules on FDI in insurance and wholesale trade and on single-brand retail have since been changed, but tariffs on goods such as wines and cars remain at between 60 and 100 percent.
  • The EU wants India to reduce taxes on liquor and automobiles. Overall, the EU wants more market access with less duty interference.
  • In 2013, India offered the EU lowered duties on imports of European cars, but imposed a quota restriction-which was rejected by the EU-demanding a zero duty access to the Indian auto market.
  • In 2016, India implemented the Bilateral Investment Treaty (BITs) in place of BTIA. Under the BITs, there is a provision of Investor-State Dispute Settlement (ISDS) which seek a foreign company to go through the domestic jurisdiction process for at least five years before going to international arbitration in case of any dispute. However, the EU is against this provision.
  • The EU’s insistent of including BIT in BTIA, with removal of ISDS, made the matter more complicated. The EU is of the opinion that there are too many provisions in India’s model BIT which protect the government and go against the interest of the investor.
  • The EU also expressed discomfort with India’s reluctance to open up to imports and its strong reliance on exports and inward investment.

Suggestions

  • India and Germany has to focus on not only technical aspect but also in policy making aspect.
  • The migration policy has to be implement effectively between India and Germany.
  • India has to ‘relook’ trade policy with EU and the with the other members of European Union.
  • Political will between both countries can give major push to certain policies.

Conclusion

It is important for India to give more impetus to the economic and technological cooperation to Indo-German partnership. India need to work with Germany to see what both can do to meet global challenges together. They can shape some kind of middle power consciences to solve their problems. Both the nations need to understand the way world economy matters, where the competency are, how things function and promise only those things which they can deliver.

 

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