The first European head of state to visit India since its surprise change of government, Chancellor Schröder is expected to focus on boosting sluggish German investment during talks with Indian Premier Singh Wednesday.
Highly-qualified Indians are sought after by German firms
Almost two years after German Chancellor Gerhard Schröder's last visit to India, traditionally good relations between Delhi and Berlin continue to thrive.
Germany remains India's fifth most important economic partner. Cultural ties are thriving and exchange, particularly in scientific and technological fields, has seen a robust increase.
Indian Prime Minister Manmohan Singh, left, talks to German Foreign Minister Joschka Fischer at the start of their official talks in New Delhi, India, Wednesday, July 14, 2004.
The two countries have also cooperated closely in past months in pushing for United Nations reform and supporting each other's claims to permanent seats in an expanded Security Council. German Foreign Minister Joschka Fischer visited Delhi in July this year.
Fear of the communists
But, a shock change in India's political leadership in May this year -- when the Congress party ended the six-year rule of the Hindu nationalist Bharatiya Janata Party (BJP) to take power -- prompted worries in Germany about Delhi's future economic course.
Indian stockbrokers trade in Bombay. A jittery Indian stock market recorded its biggest fall in four years Tuesday, amid fears that a hung Parliament predicted by pollsters could slow or even halt economic liberalization.
The Congress-led coalition headed by Prime Minister Manmohan Singh is dependent on the "outside support" of a "Left Front" dominated by the Communist Party of India (Marxist), causing foreign investors to fear that the new government could be hostile to business and reluctant to continue or accelerate the economic liberalization process begun in the early 1990s.
"Of course, we were jittery initially when the Congress came to power," Eckart von Unger, India expert for the Federation of German Industries (FDI) told DW-WORLD. "The German economy is reliant on exports and thus India's liberalization process is of crucial importance to us."
But those fears have since been largely assuaged.
"The new government will largely continue with the economic policies of the former one, so there will be no significant shift in the investment climate," Anuradha Chenoy, expert on international relations at Delhi's Jawaharlal Nehru University, told DW-WORLD. "The Communists realize the need for foreign investment, especially in infrastructure. They've indicated that they're only concerned about how far key sectors like oil and telecom can be opened up. It's just a matter of numbers."
Manmohan Singh, left, speaks about Sonia Gandhi, right, as they announce that he has been named prime minister of India after meeting with the country's president in New Delhi Wednesday May 19, 2004.
Von Unger said that Manmohan Singh, considered the architect of the reform program as finance minister of the then Congress government in 1991, had created unexpected further opportunities for Germany.
"We're optimistic that the Singh government's focus, especially on expanding infrastructure in rural India, offers huge chances for German firms," he said.
"Lots of room for more"
The time may indeed be ripe now, but there's no denying that German companies haven't exactly seized the chance in recent years to cash in on India's growing status as a "booming economy."
Mumbai's most famous landmark, the Gateway of India
Set against the figures associated with being the world's second-most populous country and one of the fastest-growing markets -- growth rates of 6 to 8 percent a year, a burgeoning 300-million-strong middle class and an estimated 40 million potential consumers for high-quality goods -- bilateral trade at around €5 billion ($6.14 billion) last year seems a mere trickle.
The statistics are just as lean when it comes to German direct investments in India. Investments have been continually falling since 1997, and reached a record low last year at €37 million, down from €51.7 million in 2002.
Bernhard Steinrücke, executive director of the Indo-German Chamber of Commerce in Mumbai, the largest bilateral trade promotion organization in India and the largest German foreign Chamber abroad, however pointed out that well-established companies like Siemens, Krupp and Bayer had been in India since the 19th century.
"There are also some success stories of medium-sized German companies in India, who have reinvested in the country," Steinrücke told DW-WORLD. "But, there's no denying that there's still lots of room for more." Steinrücke added that Schröder's visit was more than just symbolic. "He's the first European head of state to visit the country. It underlines the importance that Germany attaches to India."
"Bad infrastructure and bureaucracy"
A Wipro employee works on specialized softwares to provide services to overseas clients at the company in Bangalore, India.
Experts say that apart from India's growing reputation as an "outsourcing Mecca" and its enviable skills in the IT services sector, which haven't escaped the notice of German companies like Siemens, SAP and Bertelsmann, the country still suffers from huge problems which deter investors.
"The infrastructure is appalling and bureaucracy a major hurdle," von Unger said. "The awarding of licenses takes so long that many smaller businesses simply can't afford the complicated legal process. You need a lot of patience."
Other trade barriers include corruption, insufficient protection of intellectual property, stiflingly high state influence in industrial sectors and high import levies.
Others draw obvious parallels to the massive success story next door in China, where German firms exported goods worth a whopping €18 billion last year.
"India's reform process began some 13 years after China," Christian Wagner of the German Institute for International and Security Affairs in Berlin told DW-WORLD. "China simply has a better image. India is often considered chaotic and unruly. And, ironically, because it's a democracy and has a free press, it all gets reported about in the media."
Made in Germany still works
However, despite sluggish German investments and trade volume, there seems to be agreement on both sides that something needs to give. On the upside, experts point that India has a wealth on offer: low labor costs, highly-qualified personnel and the widespread use of English.
German Chancellor Gerhard Schröder in India during a visit in Oct. 2001
Chancellor Schröder, who last year admitted that "economic ties with India leave much to be desired," will be accompanied by a 22-member strong economic delegation on Wednesday with representatives from Lufthansa, Allianz, MAN and Fraport. According to government sources, signings of major contracts are not on the agenda: The visit will be rather aimed at getting to know the new government.
A high-ranking science delegation led by German Minister for Education and Research, Edelgard Buhlman, will also be present.
For his part, the enigmatic Manmohan Singh told news magazine Spiegel this week that he was interested in deepening trade ties with Germany.
"I grew up in a small village in India where top quality was exclusively associated with Germany," he said, giving an indication of the importance he attaches to India's second largest trading partner within the EU.