By Bernhard Mattes
The access to foreign markets is essential for the automotive industry. This is true for India and Germany. The example of India underlines that emerging markets are becoming more important for German manufacturers and suppliers. Yet, to ensure fair and free trade for both the countries, there is still need for action.
The German automotive industry sees considerable potential in India. Of the 1.3 billion inhabitants of this country, more than half of the population is younger than 30 years (54 percent). Likewise, India’s economy has developed positively in the last few years. The gross domestic product of the seventh largest national economy increased by 7.4 percent in 2017 and industrial production rose by almost four percent. Further encouraging is the development of the Indian passenger car market. More than 3.2 million cars were sold, almost nine percent more than in 2016. In our forecast we assume that in the current year the Indian passenger car market will expand by 10 percent – to a volume of almost 3.6 million units.
This means that for the first time the Indian passenger car market will overtake the German car market in terms of volume. Furthermore, the Indian passenger car market still offers a lot of room for growth. At a rate of only 25 cars per 1,000 inhabitants, the number here is still low by international comparison. By the way of comparison: In Germany, there are 560 cars per 1,000 inhabitants. A growing middle class with rising incomes offers additional potential for growth.
The relationship with India is significant for the German automotive industry. German automotive manufacturers have their own production facilities in India. Automotive suppliers, too, are represented with production sites. Last year German suppliers delivered parts and components worth 561 million Euros to the Indian market. In return, Indian suppliers exported parts worth 218 million euros from India to Germany. With regards to passenger cars, India has even a trade surplus: India delivered passenger cars worth 243 million Euros to the German market, while Germany only delivered cars worth 33 million Euros to India. On the one hand, this underlines India’s high level of competitiveness; this also shows that both the countries profit from mutual trade.
That the Indo-German relationship is developing in a positive direction cannot least be observed with regards to the cooperation of associations from both. In 2017, with support from the German Federal Ministry for Economic Cooperation and Development (BMZ), VDA launched an ‘association partnership’ with the Automotive Component Manufacturers Association of India (ACMA) and the Society of Indian Automobile Manufacturers (SIAM). With this partnership, the two countries prove how successful transcontinental cooperation can be. The partnership facilitates cooperation within various areas of mutual interest, such as climate protection policy, quality management and trade shows.
A further established event in Germany is our ‘IAA-India-Day’ that is held regularly for more than 10 years at the International Motor Show (IAA). It is supported by our Indian partners ACMA, SIAM, and the Indo-German Chamber of Commerce (IGCC). High-ranking representatives from industry and politics of both the countries have been able to exchange their expertise within the context of these meetings. In the other direction, German companies regularly exhibit at Auto Expo in New Delhi; suppliers even show up with an official German Pavilion, initiated and supported by VDA.
Another important platform for cooperation is the ‘Indo-German Working Group on Automotive’ (IGWG) which was founded in 2006 under the aegis of the Ministry for Heavy Industry and the German Ministry for Transport. Together with important industry associations and bodies the group offers a unique opportunity to discuss all automotive-related issues.
For India and Germany, to tap the full potential of mutual trade, further steps are necessary. VDA has been keen to promote the continuation of negotiations on a free trade agreement between the European Union (EU) and India. To date, they have not come to fruition and are on hold. From the outset, VDA has supported the removal of import duties in the automotive sector; even if this is associated with longer transition periods.
Current increases of import duties affect both the manufacturers and suppliers, as almost all companies have to import parts for their production in India. They present a sign in the wrong direction. For India as well as Germany, access to international markets is an essential and strategic asset. Stable direct investments and free trade are two sides of the same coin and integral aspects of sustainable business to everyone’s mutual benefit. For the Indian and German automotive industries, there is further potential for the extension of bilateral trade and investment.
EU and India should take into consideration the advantages of a fair Free Trade Agreement between the two strong partners. Growth and prosperity can only develop once both the economic areas pull together. For this, a mutual free trade agreement would be a step in the right direction. (APA)
(Bernhard Mattes is the President of VDA, the German Association of the Automotive Industry. Views expressed are personal)