NEW DELHI

German Chancellor Olaf Scholz is heading to New Delhi this week with a high-powered delegation, marking a strategic pivot towards India as Germany seeks to diversify its economic partnerships beyond China. The visit underscores Berlin's growing recognition of India's potential as a key partner in its economic de-risking strategy.

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The timing of this diplomatic mission is particularly crucial as Germany's export-driven economy faces its second consecutive year of contraction and mounting concerns over potential trade disputes between the European Union and China. This economic context, coupled with lessons learned from Germany's previous overdependence on Russian energy before the Ukraine conflict, has accelerated efforts to reduce exposure to Beijing.

Economy Minister Robert Habeck emphasised this strategic shift, starting on Wednesday, "India, the most populous country in the world, is a key partner of the German economy in the Indo-Pacific and plays a key role in the diversification of the German economy." He stressed the importance of reducing critical dependencies and strengthening supply chain resilience in Asian markets.

However, the numbers reveal the significant gap that still exists between German investments in China and India. As of 2022, German direct investments in India stood at approximately EUR 25 billion (USD 27 billion), representing just one-fifth of German investments in China. Volker Treier, head of foreign trade at the German Chamber of Commerce DIHK, projects this proportion could rise to 40% by 2030, indicating substantial growth potential.

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German businesses are showing increased optimism about India's prospects, with 82% expecting revenue growth over the next five years, according to a joint study by KPMG and the German Chambers of Commerce Abroad (AHK). Investment intentions have also strengthened significantly, with 59% of companies planning to expand their Indian investments, up from 36% in 2021.

Several major German corporations are already making substantial moves in the Indian market. DHL, the logistics giant, has announced plans to invest half a billion euros by 2026, capitalising on India's growing e-commerce sector. Volkswagen, facing challenges in China and high domestic production costs, is exploring new partnerships in India, building on its existing presence of two factories and a recent supply agreement with Mahindra.

The manufacturing sector is also seeing increased activity, with Cologne-based Deutz forming a partnership with India's TAFE for the licensed production of 30,000 engines. Jonathan Brown, a managing director at BCG, advocates for a "China + 1" strategy, citing India's political stability and competitive labour costs as key advantages.

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Despite the optimistic outlook, challenges remain. German companies cite bureaucratic hurdles, corruption, and India's complex tax system as significant investment barriers. Additionally, negotiations for an EU-India free trade agreement continue without a clear conclusion in sight.

The visit, which includes most of Scholz's cabinet members including foreign and defence ministers, will culminate in a meeting with Indian Prime Minister Narendra Modi on Friday, followed by the seventh round of Indian-German government consultations. Habeck will arrive earlier to inaugurate the biennial Asia-Pacific Conference of German Business.