The Hindu Business Line : Cultivating Berlin

THE GERMAN CHANCELLOR, Mr Gerhard Schroeder's visit to New Delhi last week can be viewed as just another routine trip by the leader of an important European country, or as an eye-opener for the policy-makers to the major obstacles to investing in India as perceived by foreign investors. Indeed, the high point of the Schroeder visit was perhaps his reference to what he saw as the biggest roadblock to larger German investments in India — an "inefficient" bureaucracy and the maze of regulations. Admittedly, this is a problem for long known to hamper seriously the faster development of the economy. The issue is finding a solution that has been proving elusive even in this reforms era.

It is in this context that the Prime Minister, Dr Manmohan Singh's response to the German leader's interest in expanding trade and investment ties with India needs to be seen. Among other things, Dr Singh said he would do all in his power to remove the obstacles to higher economic interaction between the two countries. The mandate of his Government, he said, was to carry forward the reforms which he had initiated in 1991. What this in effect means is the Prime Minister will have to focus much more on reforming the administration — a task which, though not unattainable, is certain to take some time. But this gestation period may test the patience of German, and other, investors. The potential for trade and investment exchange between the two countries is indeed vast. Indian companies have invested a total of $1.2 billion in Germany, the reverse flow being just $1.5 billion, which is peanuts considering German investments elsewhere in Asia. Mr Schroeder expects German investments to rise "significantly" in two-three years, the expected expansion in overall bilateral trade doubling from the roughly $5.5 billion now to $11 billion in the next six years. Though the Chancellor brought with him a high-power delegation of business leaders who, presumably, saw for themselves India's economic vibrancy, without the active support of New Delhi and Berlin, the anticipated trade and investment targets will not be met. Of particular interest would be the closer involvement of Germany's small and medium enterprises (SME) sector, which provides almost 70 per cent of that country's employment. For New Delhi, the IT sector continues to be the brightest jewel in the Indo-German trade crown; according to one German estimate, by 2008 almost 20 per cent of the budgets of Germany's largest companies will go to Indian IT providers, entailing annual payments of around $15.5 billion.

Apart from trade, ties with Germany have another important aspect which deals with larger, multilateral issues and, more directly, India's position in the international community at large. These are overall German support for India's campaign at the WTO, for the reduction of farm subsidies; in the UN, for a place on the Security Council; and on the G-8, for membership. New Delhi would do well to cultivate Berlin more assiduously than has been the case till now in these specific spheres, leveraging the German influence on the world stage today for better rich-poor cooperation tomorrow.

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