Germany looking for FTA. India wants gateway to Europe

German Chancellor Olaf Scholz has arrived in New Delhi for the 7th intergovernmental consultation and the 18th Asia-Pacific Conference of German Business. Accompanied by an important delegation, Scholz’s visit highlights the growing significance of Germany-India relations. Vice-Chancellor Robert Habeck’s arrival preceded Scholz’s, focusing on preparations for consultations and promoting a re-imagined and simpler Free Trade Agreement between India and the European Union. Considering India rarely captures such attention from Germany, it reflects a broader consensus among Europe’s major powers about managing diverse global issues, such as differing views on Russia’s invasion of Ukraine.

While the West doesn’t see eye to eye with India on Ukraine, there is growing acceptance of its stance. New Delhi, too, has worked diligently on the international stage, balancing its active neutrality and mediation efforts while positioning itself as a crucial player in the eventual reconstruction of Ukraine.

This ability to bridge political differences while building on common ground demonstrates the West’s long-term strategy in the region. For India, this moment signifies shedding legacy issues, asserting strategic clarity, and capitalising on its growing global influence.

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India in focus

A major development preceding Scholz’s visit is the release of the ‘Focus on India’ document, a 32-page roadmap for enhancing bilateral relations between Berlin and New Delhi. This document outlines priorities in foreign, security, and trade relations. Notably, this is not the first country-specific strategy from Germany; in July 2023, Germany released a China Strategy, which aimed to reduce Berlin’s economic dependence on Beijing. In contrast, the India document emphasises increasing multi-dimensional engagement, illustrating Germany’s evolving approach to its key partners.

Four years after Germany’s Indo-Pacific Strategy, which sought to increase the former’s presence in the Indo-Pacific region, the ‘Focus on India’ document underscores a renewed prioritisation of India.

Germany is already India’s largest trading partner in Europe and has been pushing to overcome hurdles in the ongoing negotiations for an EU-India FTA. The talks revolve around three verticals: trade and services, a bilateral investment treaty, and a geographical indicators agreement. However, challenges persist, particularly around the EU’s Carbon Border Adjustment Mechanism and sensitive issues in agriculture.

Germany’s approach has been to focus more on industry than agriculture, aiming for practical solutions to move the FTA forward. But there’s limited appetite within the EU for a piecemeal FTA, with Brussels pushing for a comprehensive deal. This regulatory rigour often acts as a tariff barrier for Indian industries. Germany’s advocacy for the FTA aligns with broader European efforts, but tangible progress has been slow.

The potential for an EU-India summit in early 2025, alongside a possible India-centric re-orientation of the European Commission under president Ursula von der Leyen, may create a more favourable environment for negotiations. However, structural issues in Brussels may continue to impede swift progress.

Also read: Is Five Eyes destabilising India’s rise as non-white power? Idea is as old as Cold War era

Investment flows

Germany could also consider redirecting more of its own investments into India. While there is consistent rhetoric about diversifying away from China, in practice, German firms such as Mercedes, Volkswagen, and BASF continue to invest heavily in China. Despite this, many small and medium-sized enterprises (SMEs) in the country have gradually reduced their investments in China, signalling a nuanced picture of economic ties.

India has struggled to fully capitalise on diversification away from China, with much of the diverted investment flowing to Singapore and Vietnam instead. Factors such as complex regulations and a challenging investment ecosystem have hampered India’s ability to attract these investments. The upcoming intergovernmental consultations provide an opportunity to address these challenges.

India’s strategic gateways into Europe

Germany must also push India’s role in optimising port and infrastructure development in Europe, creating strategic gateways for India into Europe. Investment is not one-way traffic. Indian businesses are increasingly investing abroad, and as China’s influence in Central and Eastern European countries (CEEC) wanes, it has a chance to fill the gap. By investing in key European ports like Thessaloniki in Greece and Trieste in Italy, India could establish strategic gateways into Europe, enhancing trade and investment links with multi-modal connectivity projects such as the Three-Seas Initiative that connects 14 CEECs.

India’s growing strategic partnerships with countries like Greece and Poland can help facilitate these efforts. Building resilient port infrastructure in regions where China has limited dominance could unlock significant trade potential. Indian exports to Europe currently pass through congested ports like Hamburg and Rotterdam; diversifying entry points would benefit both India and Europe.

However, India must engage this region in consultation with Brussels and ideally, supported by the big economies of the West.

Also read: China-Pakistan SCO presence threatens India. Strategic engagement helps in other ways

Defence cooperation

In defence, India and Germany have made significant strides. Unlike France, which has a strong military presence in the Indo-Pacific, Germany has historically been seen as a reluctant defence partner for India. However, the dynamics have shifted since Russia’s invasion of Ukraine, with Germany now more focused on the Indo-Pacific.

Germany’s Defence Minister Boris Pistorius visited India in 2023 to discuss reducing New Delhi’s reliance on Russian arms, signalling a shift in Berlin’s defence posture. ThyssenKrupp, a German defence firm, is now a key contender for a major submarine project in India, partnering with Mazagaon Dock Shipbuilders in a significant strategic partnership. Several other projects seem promising. The two sides must develop government-to-government mechanisms and minimise the role of governmental regulation and oversight, which has often been a problem in the past.

However, the Federal Office for Economic Affairs and Export Control (BAFA) as a central licensing authority is responsible for the administrative implementation of the German federal government’s export control policy. The stifling role of BAFA as a complex export control system needs to be made more flexible and resilient if the G-to-G communications are meant to fly. In this regard, the India-Germany equation lags behind the equation set in India-France ties or India-US ties.

Also read: Sweden’s Indo-Pacific strategy has an India-sized gap. Piggybacking US allies won’t work

The sick man of Europe

Despite the good talk, Germany faces significant economic challenges. Often referred to as the “sick man of Europe,” the nation is grappling with the consequences of under-investment in its economy during prosperous times. The country has lagged behind in areas such as digitalisation, infrastructure, and innovation. Germany also made a bad decision by phasing out nuclear energy without a solid alternative plan, leaving the country vulnerable during its push for a green transition.

Supporting Ukraine and diversifying energy sources amid the ubiquitous uncertainty in Europe could have been managed better through timely investments in infrastructure and innovation.

Germany’s economic struggles were highlighted by a second consecutive year of recession, with a 0.2 per cent contraction expected in 2024. The country has lost much of its international competitiveness, and private consumption remains stagnant. The country’s investment ratio has been the lowest in Europe in terms of digitalisation, infrastructure and innovation.

Germany’s economic decline is particularly evident when compared to other major economies like the US, China, Japan, and India, which have all shown positive growth. In contrast, Germany has seen a structural decline in its economic model. As per the IMD World Competitiveness Ranking, Germany moved from 6th place in 2014 to 22nd in 2023.

The European nation’s challenges are rooted in its reluctance to embrace change and its risk-averse mindset. While other countries have adapted to shifting global trends, Germany’s slow response has cost it its competitive edge.

One potential solution to its economic woes is increasing government debt by loosening the debt brake limits and investing in areas such as infrastructure and innovation. However, this remains a contentious legal issue within Germany. However, recent schemes from the German government, including the Indo-Pacific strategy, National Security Strategy, and the renewed ‘Focus on India’, indicate that it is beginning to rethink its approach to global challenges.

These strategies represent Germany’s response to a rapidly changing world, particularly a fast-evolving Europe. Implementing these plans effectively and promptly will be critical for Germany to regain its competitiveness and strengthen its ties with key partners like India.

For New Delhi, closer cooperation with Berlin—especially in defence, trade, and infrastructure—offers an opportunity to further establish itself as a global player. By leveraging strategic investments in Europe and capitalising on the current geopolitical moment, India can enhance its standing on the world stage and build a more resilient and multi-dimensional partnership with Germany and larger Europe.

The writer is a geopolitics analyst and author. She tweets @swasrao. Views are personal.

(Edited by Zoya Bhatti)

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