Germany is courting India as ties with China sour: What to watch

By Arne Delfs and Sudhi Ranjan Sen

Germany is trying to cultivate India as a source of trade and geopolitical support as its deteriorating relations with China cast a pall over the country’s economic future.

Chancellor Olaf Scholz embarks on a three-day visit to India on Thursday accompanied by a large delegation of ministers and executives as he seeks to forge a strategic partnership with Prime Minister Narendra Modi. The two leaders will meet on Friday morning and chair a joint cabinet meeting.

The trip comes at a crucial time for Scholz who is struggling to revive the German economy which has been buffeted by the war in Ukraine and competition from China. Modi will have just returned from the BRICS summit in Russia where he embraced President Vladimir Putin. India also just signed a border deal with China to ease tensions with its neighbor after a four-year standoff.

Here are the main issues to watch:

Submarine Contract

India is planning to order six new submarines as part of its strategy to counter China’s expanding naval presence in the Indo-Pacific region and Germany’s Thyssenkrupp AG is bidding for the 400 billion rupee ($4.8 billion) order. German government spokeswoman Christiane Hoffmann declined to comment on whether there might be a decision during the visit.

Spanish Prime Minister Pedro Sanchez is due to visit India later this month to open an Airbus SE plant in Gujarat state and Spain’s Navantia is also competing for the contract.

India has been looking to diversify its supplies of military hardware since Russia, its biggest source of weapons, invaded Ukraine in 2022 and became entangled in a web of Western sanctions.

Russia and Ukraine

India has maintained its traditionally close ties with the Kremlin all the same and Scholz plans to discuss the war in Ukraine with Modi following his talks with Putin and Xi. There have been reports that India is supplying the Russian army with military equipment.

“The chancellor will be very curious about what the prime minister has to say after this meeting,” Germany’s ambassador to India, Philipp Ackermann, said. “India is in a very good position to basically listen to both sides and to have both sides in mind. And we have seen the prime minister going to Kyiv, and we have seen a renewed interest in the conflict.”

China and Trade

The German government has been trying to persuade companies to ease their reliance on trade with China and some people have suggested India, the world’s fifth-largest economy, as a potential alternative. But the country’s close relation with Russia and the fact that it just resolved a yearlong border dispute with Beijing suggests that India isn’t ready to go all in as a strategic partner for Germany.

Germany is already India’s largest trading partner in Europe and the seventh-largest worldwide. Bilateral trade was $22 billion in 2020-21, according to the Indian government.

Scholz is also likely to seek help in navigating the obsta

cles that small and medium-sized German firms face when doing business in India. More than 60 per cent of German businesses cited bureaucratic hurdles — such as protectionist measures and procurement rules — as the biggest drawback to operating in the country, according to a survey from the Indo-German Chamber of Commerce released in June.

On Saturday, Scholz will continue his trip to the port city of Vasco da Gama, where he’ll visit two German navy ships which recently passed the Strait of Taiwan for the first time in 22 years in defiance of Chinese warnings.

Help Wanted

Germany’s workforce is set to shrink by 7 million people over the next decade due to an aging population unless the government can attract an influx of skilled migrants. Labor shortages this year are already costing the economy almost €50 billion ($54 billion), according to the German Economic Institute. In an attempt to reverse this trend, Scholz’s government has eased immigration laws for skilled workers.

“Germany views India as an especially important partner when it comes to the issue of skilled labor migration,” said Labor Minister Hubertus Heil, who will be part of the delegation.

That’s a potential win-win for the two leaders, since Modi is under pressure to create more jobs for young people, who make up more than half of the country’s 1.4 billion population. His government has already negotiated several mobility agreements with other countries facing aging societies.

There are currently 137,000 Indians employed in Germany in total and the country needs about 400,000 migrant workers per year to keep its workforce stable, according to government calculations.