German Investment in India Report

GERMANY
INVESTMENTS AND OPPORTUNITIES
QUAD BUSINESS SOLUTIONS | GURGAON, INDIA | +91 124 4930776
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CONTENT
LAYOUT
INDIAN ECONOMY
GERMANY AND INDIA
ROAD AHEAD
BUSINESS CENTRE
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INDIAN ECONOMY
SINCE 1991
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INDIA’S GROWTH STORY
The Indian
Economy has
shown accelerated
growth since the
economic reforms
of 1991.
Presence of public
sector in many
industries was
reduced to pave
way for FDI.
In 2008, India
grew at 6.7%. This
growth
accelerated to
9.3% in 2010-11.
The contribution
of total trade in
goods and services
to the GDP rose
from 16% in
1990–91 to 47%
in 2008–10.
India's major
trading partners
are the European
Union, China, the
United States of
America and
the United
European Union.
Since January
2003, India has
received over US $
5 billion of FII
investment.
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GDP GROWTH RATES OF INDIA POST RECESSION
6.7
8.5
9.3
6.2
5.4 5.3
6.8
8
8.5
7.6
6.5 6.4
0
1
2
3
4
5
6
7
8
9
10
2008 2009 2010 2011 2012 Q1 2013
Actual Forcasted
source-www.rbi.org.in
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CURRENT SCENARIO
The Indian Rupee has reached an all time low of Rs58.15*. IT and Pharmaceutical companies will
benefit. Auto-makers and Petro-Chemical based products like textiles and tyres are majorly impacted.
Foreign institutional investors brought around $15 billion into Indian equities (Jan-May ’13). June has
seen capital outflows so far.
Companies like Bosch and BASF are looking to increase their promoter stakes to 75%.
Previous year FDI for India stood at $27.3 billion, lower by 13%.
India has received $15 billion of net FII equity inflows out of the $17 billion inflows into Asia Pac (ex-
Japan / China / Australia)
Inflation rate as of April ’13 stood at 9.4%. The high inflation expectations, coupled to an actual trend
of falling inflation is expected to create a opportunity for investors.
With the 4.9% of fiscal deficit in 2012-13, the government expects more investment in the coming
quarters. Raghuram Rajan plans to liberalise rules for FDI and portfolio investment.
*as of 11th June ‘13
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INVESTMENT IN INDIA
India has a conducive foreign
investment environment that
provides freedom of entry,
investment, location, choice of
technology, production,
repatriation of capital, dividends
etc. which is specifically aimed at
enhancing flow at FDI.
Government has done away with
the complex pre-entry approvals.
FDI can enter India in most
sectors through automatic route.
Source- http://indiainbusiness.nic.in
19
12
7
6
5
5
4
4
4
3
0 5 10 15 20
Services Sector
Construction Development
Telecommunication
Computer Software and Hardware
Drugs and Pharamaceuticals
Chemicals
Power
Automobile Industry
Metallurgical
Hotel and Tourism
SECTOR WISE % SHARE OF
INVESTMENT
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ATTRACTIVENESS OF THE INDIAN MARKET
India has the
Best licensing
regime
|KEARNEY
India is the
most favoured
democracy for
the global
investors |
KEARNEY
India was rated
among the most
favourite
investment
destinations|
UNCTAD,
JETRO, JBIC,
Deutsch Bank,
EIU etc.
6th most
attractive
investment
destinations
|KEARNEY
Business
Confidence
Index, 2003
Major
destination for
foreign venture
capital funds
|Far Eastern
Economic
Review
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TOP 10 COUNTRIES INVESTING IN INDIA
Country (Rank wise)
FDI inflows
August ’91 – Mar ’12
(in US $ million.)
% share of total inflows
Mauritius 67,777 37.1
Singapore 17,496 9.6
UK 16,567 9.1
USA 13,014 7.1
Japan 9,146 5.0
Netherlands 7,737 4.2
Cyprus 6,425 3.5
Germany 5,293 2.9
France 3,207 1.8
UAE 2,254 1.2
SOURCE-www.indien.ahk.de
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GERMANY IN
INDIA
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ECONOMIC STATUS
• From -0.6% in 2012, the GDP showed growth
of 0.1% in Q1 ‘13. Ernst and Young has
forecasted a growth of 19% by 2014
• The industrial production on a rise, at 1.8% in
April 2013.
• Demand from US to increase the exports from
the Euro Zone. The total FDI outflow- $ 66.8
Billion in 2012.
• Structural gaps in the government budgets
due temporary nature of social security fund
surpluses.
• Confidence in real markets will improve
further over the course of the year. This will
give businesses an incentive to invest and hire
additional workers. | Ernst & Young
EUR/USD Exchange Rates
Source- http://www.oanda.com/currency/historical-rates/
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GERMANY AND INDIA
German companies in India have earned an excellent reputation, on the strength of their high technological
standards, efficient business execution and long term commitment.
In 1867, Siemens laid the first telegraph connection. Bayer started local operations in India in 1896.
Germany is India’s fourth largest trading partner (after US, UK and Japan).
From $15,006.36 million in 2007-8, trade increased to $24,218.35 million in 2011-12.
Most investments from Germany to India were from the large German manufacturing corporates. The service
industry and the German Mittelstand have seen great success too.
In the financial services sector Deutsche Bank is a major international player and Allianz Insurance with its
Bajaj Allianz joint venture is the largest foreign insurer in India.
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CURRENT SCENARIO
In 2012, FDI equity inflows from Germany was 38,830.57 million
2nd largest partner for technology collaborations
8th in the list of top ten investing countries since 1991
More than 1,800 German companies & 600 JVs between India and Germany in operation
German FDI inflows since August 1991 to March 2012 is nearly US $5.3 billion
1,620 financial collaborations have been approved for Germany since 1991 (7.8%)
Government of India signed BIPA with The Federal Republic Of Germany for the Promotion and
Protection of Investments
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GERMAN INVESTMENT INFLOWS SINCE 2000
With $1096 Billion in 2008, the
amount of investments abroad
increased to $1315 Billion in 2010
Germany, today is the 4th largest
trading partner
65% of German companies surveyed
by KPMG said they are looking to
expand their India operations further.
**Financial Year followed
Source- http://indien.ahk.de/
0
200
400
600
800
1000
1200
1400
1600
1800
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Total Investment Inflows from Germany**
Total Investment inflows
US$inmillion
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GERMAN FDI EQUITY INFLOWS SINCE 2000
Year FDI equity inflows from Germany*(US$ in
million)
2000 86.39
2001 133.05
2002 138.11
2003 78.80
2004 158.15
2005 83.34
2006 312.70
2007 343.16
2008 788.78
2009 599.93
2010 197.66
2011 1484.26
*Calendar Year followed
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SECTOR WISE FDI EQUITY INFLOWS
71%
5%
4%
3%
3%
2%
2%
2%
1%1%
6%
1 2 3 4 5 6 7 8 9 10 11
Sector % share
1 Miscellaneous mechanical &
Engineering Industries
71.04
2 Services Sector 5.45
3 Construction Development 3.95
4 Industrial Machinery 2.83
5 Telecommunications 2.47
6 Automobile Industry 2.07
7 Chemicals (other fertilisers) 1.96
8 Boilers & Steam generating
plants
1.95
9 Trading 1.40
10 Electrical Equipments 1.08
11 Others 5.8
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TOP 10 GERMAN FDI EQUITY INFLOW CASES
Name of the company Industry
MHM HOLDING GMBH MFG PRINTING INKS/PKG INKD,
RESINS,ENAMELS ADHESIVES
DKY INIL HEALTH HOLDING MANUFACTURE OF POWER CAPACITORS
ALLIEANZ SE INSURANCE CARRIERS, LIFE
METRO CASH & CARRY INTERNATIONAL
GMBH
TRADING
OIL TANKING INDIA GMBH(JV) CONSTRUCTION AND MAINTENANCE
DEEREE AND CO. INTERNET SERVICES
LANXESS DEUTSCHLAND GMBH MANUFACTURE OF CHEMICAL PRODUCTS
DEUTCH BOARSE A.G. SECURITIES DEALING ACTIVITES
Source- http://dipp.nic.in/
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REGION WISE FDI INLOWS FROM GERMANY
• The RBI regional office in
Mumbai(Maharashtra, Dadar & Nagar
Haveli, Daman & Diu) received the
maximum FDI inflow of 37% in 2010-
11.
• The Delhi region(Delhi, part of UP and
Haryana) received the maximum FDI in
2009-10.
• Top 3 investment locations:
Maharashtra - 39%
Delhi (incl. UP & Haryana)-17.8%
Karnataka-14.2%
73.91
21.82
21.47
18.2
10.3
8.58
4.32
2.42
1.44
0.72
0.31
0.04
0.03
0.03
36.15
US$INMILLION
REGIONAL OFFICES
For April’10- March’11
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SMALL AND MEDIUM INDUSTRIES
• SMEs in Germany are strong in areas of
auto components, machine and hand
tools, toys and pharmaceuticals
• Mittelstand companies account for nearly
50 per cent of the country’s GDP
employing about 70 per cent of the
nation’s workforce.
• SMEs constitute 99.7 per cent of the
companies in Germany
• German companies face challenges like
red tapism, corruption, poor
infrastructure and requirement of
number of licenses to start a business.
Break-up of SMEs in India
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INDIA ADVANTAGE
Labour costs
in India are
considerably
low.
Availability of
skilled
manpower
Rich natural
resources at
competitive
costs
Regular
reforms in the
financial
sector.
Access to the
vast domestic
and South
Asian market
Growing
consumerism
and growing
middle class
Growing
working age
population
Source-http://www.ibef.org
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CONCERNS AND OPPORTUNITIES
Opportunities
• Large talent pool and the low cost of operation.
• Increased demand due to the growing middle class.
• Hub for Global outsourcing, Manufacturing and design
• The software IT parks, BPOs, SEZs instrumental in the growth
• Untapped rural market
Concerns
• Lack of stable policies, High tariffs and Bureaucracy
• Study shows SMEs find it difficult to train employees
• Infrastructure growth hasn’t kept pace with the growth of the
Economy. It makes the deliveries of the services difficult and
costly.
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PROMOTION OF INDO-GERMAN TIES
• Indo-German Chamber of Commerce
The IGCC is one of the most important
institutions promoting Indo-German trade
relations.
Founded in 1956, It is now the largest German
chamber abroad with more than 6500
members.
IGCC is headquartered in Mumbai with branch
offices in New Delhi, Chennai, Kolkata,
Bangalore and Düsseldorf and liaison offices
in Hyderabad and Berlin.
• Indo–German Joint Economic Commission
The IGJEC deals with matters of bilateral trade
and investment
The main Indo-German economic agreements:
• Agreement for the Avoidance of Double
Taxation, which came into force on Dec 19,
1996
• Agreement for the Promotion and Protection
of Investments, which came into force in July
1998
• Agreements on co-operation in scientific
research and technological development of
1971 and 1974
Source- http://www.ibef.org
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ROAD AHEAD
FUTURE OUTLOOK
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EDUCATION AND RESEARCH
The Education sector in India is on the rise. The literacy rates have increased to 67%. The
Indian government plans to open up 70 new universities for further studies by 2020.
Education will emerge as an attractive investment theme in India, with the
population’s median age below 25 years, and with a visible shift in mass mindset
towards spending for education.
India and Germany to spend €3.5 m each on research and innovation
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INSURANCE
Munich Re has entered the Insurance sector and has signed a number of joint ventures
in India covering Non-life Health Insurance (their subsidiary DKV launched a joint
venture with Apollo Group); Non-life (Non Health) Insurance (their subsidiary ERGO
signed an agreement with HDFC) by way of a joint shareholding (26%) in HDFC.
Allianz and CARE agreed to become partners for micro-insurance in India for the
tsunami-affected people in Tamil Nadu.
An MoU has been signed between General Insurance Council of India and the German
Insurance Association on April 3, 2008 to promote cooperative relationship, mutual
understanding and exchange views and information on matters and activities of
common interest.
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TECHNOLOGY
The technological partnership of India and Germany is very crucial for development of further
trade relations and corporate alliances.
Germany's leading news magazine Der Spiegel has cited India as the No.1 destination for
offshore development by German software companies.
Cooperation with Germany in the field of Information Technology, biotechnology, auto
components and renewable energy is increasing.
Indian Government has accorded approval to the Special Incentive Package Scheme to attract
investments for setting up semiconductor fabrication and other micro and nanotechnology
manufacture industries in India.
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FUTURE OUTLOOK
The trade between India and Germany is expected to reach Euros 20 billion
According to a recent study by KPMG more than 80% of the German companies see India with tremendous
growth potential.
Despite challenges that the German companies face, especially the SMEs, they remain quite bullish about the
Indian Market.
Harsh Pati Singhania, President, FICCI highlighted two main forces which would stimulate Indo-German ties
in future.
• First, the mutually reinforcing link between economy and technology in the bilateral relations.
• Second, the trend of bilateral investment and third, is a partnership in the global arena on concerns of global impact
such as poverty, disease, environment and climate change, energy security etc.
The German pharmaceutical industry has seen tremendous growth and Generics constitutes one-fifth of that
growth. Germany has developed affordable generic medicines and now collaboration with India will make
them available to Indian SMEs.
Indonesia, Vietnam, Myanmar and Russia are the emerging markets which could draw away investments
meant for India.
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FOR PROSPECTIVE INVESTORS
A large market size,
and population having
varying tastes, the
German companies
should look to have a
wider portfolio of
customized products
Indian market is
price sensitive.
Pricing of the
products should
be done keeping in
mind the local
mindsets.
German SMEs
have difficulties in
procuring talent.
SMEs typically do
not have the funds
or resources to
conduct training
sessions.
The companies setting
up business in India
should lay focus on
quality, technology and
after sales support.
It can prove
beneficial for
German
companies to find
a local partner.
Doing business is
easy and entry
becomes
convenient too.
Due to large
market size,
company
encounter lower
volumes and
larger business
cycles. Thus, it is
crucial to have a
reliable vendor.
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CONCLUSION
• India has expertise in knowledge based industries. The R&D centres and BPOs make India an attractive destination.
• The efficiency of the policies and the lack of proper infrastructure makes the trickle-down effect difficult.s It is
difficult for corporates to tap the potential of Indian market in absence of proper procedures and innovative systems
to reach the heart of India.
• The working age population is on the rise and the dependency ratios are lower. This means, the strain on the public
finances is going to decrease, having a positive impact on the deficits and growth of the economy.
• Although, the growth of the middle class in India is a boon to the companies, but the income levels are still lesser
than those in developed countries making it imperative for business’ to price their products sensitively.
• India does have an edge over other countries when it comes to the supply of resources and skilled manpower. India
is a hub for outsourcing.
• According to a survey, tapping into new sales markets (66 percent) and sources of supply (49 percent) were the
main motives for SMEs to operate internationally. Apart from this, 34 percent mentioned "access to knowledge“, 23
percent "skilled workers" and "low-cost labour" was a motive for another 9 percent.
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