A first step in the right direction
The mood amongst German businessmen and women at Germany's showpiece trade fair in Hanover in April 2015 was sober. India and its drive to attract foreign investment under the slogan "Make in India" was in the spotlight. There were more questions than answers about Prime Minister Narendra Modi's call for a surge of German investment in India.
German business cited India's slow moving bureaucracy, high levels of corruption and taxation, poor protection of intellectual property and a low level of skills throughout the Indian workforce as serious impediments to growth. Moreover, the time required for their investments in India to bear fruit was simply too long for Germany's economic powerhouse, medium sized business. Medium-sized business forms the majority of the 1700 companies currently operating in India. If multinationals like Siemens, SAP or Daimler or Mercedes could wait ten years for returns on their investments, they could not, they said. There were also some ripples in political ties. Hindu nationalist Modi had just cancelled the teaching of the German language in some India schools in favor of Sanskrit. Merkel was miffed.
Against this background the Chancellor's visit to India was crucial. Germany as one of the world's top exporting nations wants to improve bilateral ties and trade with India. There is no doubt about that. But trade has been stagnating at around 16 billion euros since 2012. The problem is how to resolve the investment impediments German business is complaining about. India's Modi has embarked upon an ambitious course to modernize his country as he pledged to do at the May 2014 election. So far he has little to show for it in the face of bitter opposition to his modernization policies in parliament. But the pressure of a burgeoning population leaves him no choice. India's 1.3 billion citizens are mostly young, they want jobs and they want a secure future.
The signs are that Modi has been busy since his visit to Hanover earlier this year and has realized what German business needs. In Delhi, the two leaders signed a "fast track approval agreement" to pave the way for un-bureaucratic inward investment to India. The two sides finalized no fewer than 18 deals ranging from renewable energy, one of Germany's many strengths, to defense cooperation with German business keen to help in providing the technology for clean energy in India's vast rural areas. Germany will also help India improve training levels in its workforce by offering its expertise in the field of vocational training. And Modi agreed to reverse his previous decision and to restore German to the curriculum in selected Indian schools, a small but important gesture of goodwill. Significantly, the two sides also agreed to move forward on the long stalled India-EU Free Trade Agreement negotiations which began back in 2007.
But progress between the EU and India will depend on a resolution of other pressing copyright and intellectual property issues, a thorny question with much at stake for Indian business. Both European and German business will want further assurances that Modi can actually deliver the kind of modern Indian business environment that he is promising in the next few years. Progress will hinge on that, and so too will Modi's political survival. This was a first step in the right direction, no more, no less.