New Delhi: With the United Kingdom’s decision to exit the European Union (EU) expected to make it a less attractive location for Indian investors, Germany is eyeing to fill the void as its gateway to EU.

Prime Minister Narendra Modi, who is on a four-nation tour, is scheduled to hold a summit meeting with German Chancellor Angela Merkel later on Tuesday. In their informal discussions on Monday, both leaders discussed the consequences of Brexit and how it would affect India and Germany, India’s Ambassador to Germany Mukta Dutta Tomar told reporters.

On 23 June 2016, the citizens of the UK made a historic decision by voting 51.9% to 48.1% for their country to leave the European Union. The UK government invoked Article 50 of the Lisbon Treaty on 29 March 2017, triggering negotiations on the terms of departure with the remaining 27 EU member countries.

UK so far has remained the most important investment destination in Europe for Indian investors due to shared history and use of English language. On a country level, the UK was able to attract by far the highest number of FDI projects between 2010 and the first quarter of 2016, with a total of 265 projects. This encompasses around 45.5% of all Indian projects in Europe. While it trails considerably, Germany is the second-most-attractive European country for Indian investors, with around 96 projects or a share of about 16.5% of the whole.

Together, the UK and Germany account for almost two-thirds of all Indian FDI undertakings in Europe, highlighting the attractiveness and importance of these countries as destinations for investments.

“The implementation of Brexit will be a complex process, and its modalities remain hard to predict. Current developments indicate the likelihood of a so-called hard Brexit, which means the United Kingdom would cut off most preferential ties with the European Union, which would include the loss of preferred access to the European single market," a study named “Indian Investments in Germany: Prospects for Shared prosperity" by Bertelsmann Stiftung, a Germany based non-profit foundation said.

The report said the impact of Brexit on investment mobility and location decisions are crucial factors for companies and governments alike. “For this reason, no matter how Brexit is ultimately implemented, investors are already experiencing uncertainty regarding their future business decisions, and are already developing alternatives aimed at mitigating possible harms," it added.

As a high-tech industrial leader, Germany today numbers among India’s 10 top trading partners, with accumulated FDI by Indian companies in Germany exceeding €6 billion. Germany specifically is India’s most important EU trade partner, ranking sixth among the country’s global trade partners as a provider of goods and services.

In turn, India is Germany’s 25th most important trade partner, ranking 28th in the area of imports and 27th for exports. The total bilateral volume of trade in merchandise and services amounted to €22.1 billion in 2015, slightly down from €22.3 billion in 2011. Almost half of all Indian-led FDI projects in Germany took place in the software, machinery and equipment, or information technology services.

The study said the key drivers for Indian investment in Germany include the desires to develop new markets, improve company reputation, gain access to technology, establish proximity to customers, gain new impetus for innovation, and use Germany as a gateway to Europe.

“Perceived challenges in Germany include the high competition intensity, difficulties in the search for business partners, the high cost of international activities, the need to adapt products and product quality, and exchange-rate risks," it said.

An analysis by the study of around 80 leading subsidiaries of Indian companies operating in Germany indicates that four sectors account for 97% of India-related revenues within Germany. At 40% of the total, the metals and metal-processing industry is the strongest such sector, followed by the automotive industry (29%), the chemical and pharmaceutical industry (19%), and the professional, scientific and technical services sector (9%).

“A total of 83% of German Mittelstand (small and medium-sized) companies do not have a succession plan in place. As of 2015, more than 40% of company owners in this economic strata were 55 or older. A total of 9% of companies envisioned succession taking place within the controlling family, but 8% or around 290,000 owners expected external succession by 2018. This represents a huge potential for Indian investors," the study said.

Subscribe to Mint Newsletters * Enter a valid email * Thank you for subscribing to our newsletter.

Share Via