Modi in Berlin: Can India Replace Russia as a German Investment Destination?

Germany had invested a lot in its Russia ties. But with the Ukraine war, it’s now paying the price.

Prime Minister Narendra Modi with German Chancellor Olaf Scholz in Berlin. 

(Photo: Twitter/@narendramodi)

The war in Ukraine cannot but be the flat wash upon which the picture of Prime Minister Narendra Modi’s quick visit to Germany will be drawn. Both countries are deeply affected by the war in different ways.

But, as the joint statement on the 6th India-Germany Inter-Governmental Consultations suggests, they have papered over their differences and agreed on the importance of “a rules-based international order” that includes “respect for the sovereignty and territorial integrity of all States”.

Steely Determination in Germany to Break from Russia

However, it was left to Germany alone in the joint statement to condemn the “unlawful and unprovoked aggression against Ukraine by Russian Forces”. The very fact that this was included in the statement is significant.

Equally significant, though was Prime Minister Modi’s statement that “no one will be the victorious party in this war” and the only way out was through talks.

India is in a deeply uncomfortable position of being seen as being on the same side as China and Russia on the issue. It has not actually suffered any direct loss; indeed, it has gained by buying discounted Russian oil and being wooed by both parties. But the future could be different if the Russian arms industry atrophies along with its economy.

Germany, which had invested a great deal in the Russian relationship, has made many important breaks and is paying the price upfront. It began with terminating the brand new Nordstream II gas pipeline and then imposed a range of tough sanctions on Russia. And now, it is contemplating the banning of Russian oil, to be followed in a somewhat more distant future by gas.

The total Russian trade between Germany and Russia is €60 billion (2021). Despite the 2015 sanctions over Crimea, this is just 2.5 per cent of Germany’s overall trade, and not all that significant. Over 3,600 companies, including Mercedes, BMW, Metro and Henkel have invested some €25 billion in Russia, and many have now shuttered business. The Germans had hoped to expand their footprint significantly in the coming years. But now, there is a steely determination now in Germany to break with Russia on account of what it is doing in Ukraine.

An Opportunity for Both India & Germany

Though somewhat reluctantly, both New Delhi and Berlin sense an opportunity here, of India replacing Russia as a target for German industries and investment. Germany’s trade in India as well as its investments are a fraction of what they are with Russia. The total trade in 2020-21 was $21.76 billion and investment was some $13 billion.

German companies like Mercedes, Volkswagen, BMW, Bosch and Siemens are already around. India imports German machinery, vehicles and chemicals, while it exports chemicals, textiles and machinery.

So, the highlight of the Prime Minister’s visit is the Intergovernmental Consultations (IGIGC), through which the two sides hope to identify “priorities for the medium and long term”.

The IGIC is a unique mechanism that involves senior ministers on both sides, as well as the respective heads of their government. While a great deal of the relationship will work out through the activities of the private sector, the IGIGC aims to provide a push in the area of green technology and agriculture.

In addition, they hope to promote closer ties through academic exchanges, science and technology cooperation, and collaboration in the area of healthcare.

A Change of Heart in Germany?

Chancellor Scholz hopes to build on the Berlin meeting by inviting Modi to attend the G-7 as a special guest next month at its summit in the Bavarian Alps. Initially, the Germans, who hold the G-7 rotating Presidency, were reluctant to have India there. But there seems to be a change of heart and the grouping now seeks to redouble its efforts to woo India.

In an interview with the Indian Express, Chancellor Scholz said that despite India’s varying approach to the Ukraine issue, he was convinced that “there is broad agreement between our two countries” that the war was against the core principles of the UN Charter and the sovereignty and inviolability of international borders.

He was clear that despite the economic costs they would suffer, countries like Germany were determined to impose sanctions on Russia. He also referred to the “very ambitious policy to reduce our dependency on the import of fossil fuels from Russia”.

(The writer is Distinguished Fellow, Observer Research Foundation, New Delhi. This is an opinion article and the views expressed are the author's own. The Quint neither endorses nor is responsible for them.)