Survey by KPMG AG Wirtschaftsprüfungsgesellschaft and the Indo-German Chamber of Commerce
Massive post-pandemic recovery: 71% of German companies expect their revenues to increase, and 48% expect their profits to increase in the current financial year.
- The subcontinent significantly gains in importance for German companies
- Increasing regionalisation of operations in India: Production in India for the local market
- will increase by 20%-points to 53% by 2028 and for exports by 5%-points to 29%
- The three most highly-rated location factors are India's political stability (62%), availability
- of skilled labour (56%) and low labour costs (45%)
- High import duties currently burden 57% of companies; 63% expect to be impacted by 2028
- A free trade and investment protection agreement between the EU and India would be a
- game changer
Berlin/Mumbai, 27 June 2023 – German companies in India are very optimistic – both for the current 2023 financial year as well as for the medium term. 71% expect an increase in revenues generated on the subcontinent, and 48% expect an increase in profits. The five-year outlook is even more positive. 83% expect to see revenues increase, and 73% expect profits to increase. This goes hand in hand with very ambitious plans for investment compared to the 2021 survey. By contrast, only over one in ten companies (11%) expect to see a decline in revenues for 2023. For 2028, only 6% expect this to be the case.
These are the key takeaways from the "German-Indian Business Outlook 2023" presented today. The survey by KPMG AG Wirtschaftsprüfungsgesellschaft (KPMG) and the Indo-German Chamber of Commerce (AHK India) was conducted between 17 April and 29 May 2023. The questions focussed on the economic outlook for German companies in India.
India's growing importance as an investment location
The three most important location factors cited by German companies are political stability (62%), the availability of highly qualified employees (56%) and the relatively low labour costs (45%). Germany is already the 7th-largest foreign direct investor in India. 53% of the German companies surveyed intend to expand their investments there in the current year. Two years ago, it was a mere 36%. Over the next five years, nearly three quarters (73%) of the companies are planning to invest in India – double the number as in 2021.
"The days of single sourcing from the world's cheapest supplier are over. German companies are more and more diversifying and regionalising their operations throughout the world. India is becoming an important cornerstone of their global de-risking strategies in respect to purchasing, production and increasingly also in respect to R&D," said Andreas Glunz, Managing Partner International Business at KPMG.
Potential growth raises India's importance
German companies expect India's importance as a production location for the local market to increase rapidly. Even today, 33% of the German companies are producing for the world's 5th largest economy.
By 2028, that number is expected to increase to 53%. This is also due to the growing middle class in India making up an estimated 430 million people. Currently, 24% of the companies are using India as a hub for exports; 29% plan to do so by 2028.
A particularly strong shift towards R&D in India is evident. In the current 2023 financial year, only 9% of the companies use India as an R&D location, while 25% plan to do so by 2028.
"The results show that the India narrative is changing and moving away from being a low-cost location to an important location for R&D. Its economic potential and qualified specialists make India vital for the diversification of Germany's economy. The country has considerable growth potential particularly in the areas of environmental technology, renewable energies, digitalisation, industry 4.0 and sustainable infrastructure," said Stefan Halusa, Director General, AHK India.
Bureaucracy, corruption and regulatory barriers are major challenges
Currently, 53% of German companies feel impaired by bureaucracy and administrative hurdles in India as compared to 59% in the previous year's survey. 47% rated corruption as one of the three biggest problems as compared to 38% in the previous year's survey. 31% cited the regulatory environment as a key challenge.
"It is evident: Business sentiment towards India has improved significantly. Nevertheless, the operational challenges and risks involved in entering the market should not be underestimated," said Andreas Glunz.
Looking ahead to 2028, German companies do not expect any significant improvements. Their responses remain unchanged with respect to bureaucracy, and the figures decline only 2%-points with respect to corruption and the regulatory environment.
Import duties and non-tariff trade barriers continue to be a burden
High import duties burden 57% and non-tariff trade barriers 35% of German companies in India. Looking ahead to the situation in five years' time, the responses increase by a further 6 %-points and 5 %-points respectively.
"This is a clear indication of how important it is for German companies to have negotiations on the trade and investment protection agreement brought to a conclusion. Particularly with regard to import duties and non-tariff trade barriers, such an agreement would significantly improve the rules of the game," stressed Stefan Halusa.
Exogenous risks to India's further development
42% of the companies currently rate geopolitical tensions and 36% the possibility of a new pandemic as the greatest exogenous risks in India. However, these stress factors are expected to diminish over the next five years. 40% of the companies expect global warming and cyber-attacks to pose the greatest risks in 2028.
The "German-Indian Business Outlook 2023"
KPMG AG Wirtschaftsprüfungsgesellschaft (KPMG) and the Indo-German Chamber of Commerce (AHK India) conducted a survey for the "German-Indian Business Outlook 2023" among the Indian subsidiaries of German corporate groups and companies in Germany with operations in India. A total of 99 companies participated in the survey, which was conducted between 17 April and 29 May 2023. The comparative figures stem from the previous survey conducted between 25 February and 19 April 2021. The questions focussed on the economic outlook for German companies in India and the challenges and opportunities for their businesses.
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Press contacts
KPMG AG Wirtschaftsprüfungsgesellschaft
Katrin Häbel, Head of Corporate Communications
+49 69 9587 4228
khaebel@kpmg.com | www.kpmg.com/de
Indo-German Chamber of Commerce
Anne Krieckhaus
+49 211 3605971
krieckhaus@indien.ahk.de
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