"We Greatly Value Our Relationship With Germany"

How was your meeting with the new German Chancellor Angela Merkel during the Hanover fair?

I've known Angela Merkel since the early 1990s. She became environment minister in 1993. I was India's environment minister at the time and we worked together in those days. So when I met her here in Hanover this time, we were reminiscing about those old days. Germany, like other European countries, is now looking more at India because India today symbolizes multiculturalism, religious diversity and democracy. More importantly, it's a country which has had growth with democracy. Chancellor Merkel did say that this was a very important thing in the world today and that India is a stabilizing force.

How important is Germany as a trade partner for India?

As one of our largest trading partners in Europe, we greatly value our relationship with Germany. Our bilateral trade has been growing at 20 percent on average over the last years. Big German companies already have a presence in India. What we need to do now is to have a greater engagement with small-scale and mid-sized companies, who sometimes are not very aware of the opportunities of the Indian market. The second thing we need is to extend our trade basket. The content of our bilateral trade basket must have more mass and more diversity in it.

In Germany, India is often perceived as taking away jobs from Germans. Should Germans be worried?

Europe has a technological edge over Asia. In the new economic architecture, Germany and other European countries need to restructure themselves to use their strengths in a more sustainable manner. Previously automobiles were made in Europe. Today they may still be produced in Europe, but they are also increasingly made in India. At the same time, our low labor costs have led to German companies making more profits. India and Germany need to work in a partnership together towards a new economic architecture so that Europe's innovation strengths are once again made profitable.

German companies have focused more on China than on India. Why do you think India still lags behind China?

India and China are two different models -- it's not India versus China, it's India and China. India's a free market economy, a democracy. Also, India embarked on its reform process in 1991, almost 15 years behind China. Today we're one of the fastest growing free-market democracies in the world, our inflation is in check. All the economic indices are working well. While China's growth is export-market driven, India's is fuelled by strong domestic demand.

For German and other foreign investors, poor infrastructure in India still remains a huge deterrent. When will that change?

It's true that infrastructure is a huge problem in India and we are looking at German investments there. India has largely focused on rural infrastructure in the past, but now urban infrastructure is our greatest priority and we have taken a number of steps to address the issue. We're working on the largest road project in the world linking up India's biggest cities, we've identified five ultra-mega power projects, we're tackling our airports and Frankfurt airport has already won the bid to modernize Delhi airport. Similarly, we need to double the capacity of our ports -- which we are in the process of doing -- in order to sustain the level of our trade.

Are you concerned by protectionist instincts in Europe as Indian companies increasingly flex their muscle and expand abroad?

The greatest champions of globalization now want to get protectionist because they're not globally competitive. Of course every country wants to protect its jobs. India too wants foreign direct investment only where it creates incremental economic activity. At the same time we have to realize that the new economic architecture is going to be driven by different ingredients than it was in the past. In today's world, cross-border mergers and takeovers are increasingly a business of shareholders and governments should keep out of the way.

India too has been accused by foreign investors of being protectionist, especially when it comes to retail trade.

German retail giant Metro was one of the first to enter wholesale trade in India. They've had a few problems, but Metro has done a good job. We have to change some of our laws. But we want foreign investment in retail to be incremental -- it should not replace jobs, it should add them. We want foreign retail companies to look at bigger stores so it doesn't displace the small neighborhood retailers.

Germany has said it's interested in selling military planes to India. Does it stand a chance against the Russians?

Everybody's given a fair chance in India. We have to see that our defense requirements are met in the best way in terms of technology and price. Russia has no special real edge. Defense equipment is a long, drawn-out process, German shipbuilders too have a chance in supplying the Indian navy -- they have been doing so in the past and will continue to do so.

India wants to boost its share of nuclear power to secure its growing energy needs and wants German help with nuclear technology. How has Germany reacted on the issue?

I think we got a good response from Chancellor Merkel who has pointed out that she isn't against supplying us with nuclear technology fundamentally. Germany knows that India will be a very big energy-guzzler and it will think twice about whether to let it go the hydro-carbon route or the nuclear route in the overall interest of the world. After all, it's all very well to say 'no nuclear,' but let's not forget that when India goes from 125,000 megawatts to 250,000 megawatts of electricity, we'll have to consider its impact on global climate change. Germany is well aware of that.

Sonia Phalnikar interviewed Kamal Nath in Delhi and in Hanover