German Investments in India Germany is India s 8 th largest investor

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1 German Investments in India Germany is India s 8 th largest investor Each year Germany has featured in the top ten list of investing countries in India. Since liberalization, Germany has been the 8 th most important investing country for India. During the last financial year ( ), however, it ranked 9 th in the list of top ten investing countries. Investment inflows from the country declined by 5.3% due to recessionary trends. Highlights: Cumulative FDI inflows since August 1991 is US $ 3.5 billion accounting for 2.62% share Germany ranks 8 th in the list of top ten investing countries since 1991 Top sectors attracting FDI inflows from April 2000 to May 2010 are Services Sector (18.2%), Chemicals-other than fertilizers (14.5%), Electrical Equipment (8.5%), Automobile Industry (8.0%) and Trading (7.8%) technical collaborations (14%) of Germany have been approved out of a total of all countries since 1991 Top five sectors inviting technology transfer from Germany since liberalization are Industrial Machinery (209), followed by Electrical equipment- incl. computer software & electronics (168), Chemicals other than fertilizers (127), Misc. mechanical & engineering industry (102) & Transportation industry (94) Delhi, part of UP and Haryana attracted the maximum and nearly 51% of German investments( US $ 319 million) during Apr. 09- Mar. 10 Germany s investments into India during Apr. 09 to Mar. 10 amounted to US $ 626 million, accounting for 2.4% of total investments in India in that year. German Investment inflow in the last decade In the last decade (since the year 2000), Germany has invested to the tune of US $ million accounting for 2.4% of total investments into India (Table 7). During the last 3 years investments from Germany have gone up substantially even though the percentage share in the total investments remains more or less the same. This shows that German investments have kept pace with the growing investments from other countries of the world during the last 3-4 years. In the last financial year Apr Mar.10, there was a slight decline in German investments of about US $ 3.1 million, nevertheless, the percentage share of 2.4% was maintained. Sector-wise inflows of German FDI (Apr. 09-Mar. 10) Among the top five frontrunners as far as the German investment sectors during the last year go were Electrical Equipment (US $ mil.,27.7% share), Chemicals (US $ mil.,17.0%), Services Sector (US $ 76.9 mil.,12.3%), Automobile Industry (US $ 65.8 mil.,10.5%) and the Trading Sector (US $ 45.3 mil.,7.2%)(table 8). These five sectors accounted for nearly 75% of total investments made by Germany into India during the last financial year (Apr. 09-Mar. 10). During the previous year (Apr 08-Mar 09), the top five sectors were the Services, Construction activities, Trading, Miscellaneous mechanical & engineering industries and Chemicals (other than fertilizers). Table 8 Table 7 Source: DIPP Source: DIPP Annual Review

2 Sector-wise break up of German FDI inflows (Apr. 09-Mar. 10) % share Electrical equipment 27.7% 2. Chemicals (other than fertilizers) 17.0% Services sector 12.3% 1 4. Automobile industry 10.5% Trading 7.2% 6. Metallurgical industries 7 3.6% 7. Miscellaneous industries 2.9% 6 8. Industrial machinery 2.8% 9. Textiles (incl.dyed, printed) 1.8% Printing of books (incl. litho printing industry) 1.5% 11. Drugs & Pharmaceuticals 1.3% Hotel & Tourism 1.3% 13. Power 1.2% Computer software & hardware 1.1% 15. Others 7.8% What is noteworthy is that German investments in the Printing of books segment has suddenly increased during the last year as also in Hotel & Tourism. These two categories occupied the 29 th and 28 th position respectively in the list of German investment sectors in the previous year. Last year they were in the 10 th and 12 th positions respectively(table 10 overleaf). Also, there were no investments in the Drug & Pharmaceutical sector in the previous year ( ), while last year ( ), this category attracted German investments worth US $ 8.3 million. Region-wise distribution of German FDI Delhi and the neighbouring region overtook Maharashtra as the top destination for German investments during the last financial year by attracting nearly 51% of total investments (US $ 319 million). Maharashtra followed with investments totaling US $ 188 million taking up 30% of the share (Table 9). The third most attractive destination for German companies was Andhra Pradesh with US $ 32.4 million worth of investments and a share of 5.2%. During the previous year (Apr. 08-Mar 09), the top three investment locations were Maharashtra, Karnataka and Gujarat. Two new areas that have attracted German investments during the year Apr. 09-Mar 10 are the Guwahati and Chandigarh regions though the share of investments here is still very low. Table 9 Annual Review

3 Table 10 Source: Department of Industrial Policy & Promotion, Govt. of India 118 Annual Review 2010

4 German Investments through Automatic Route Foreign direct investments in India are approved through two routes: 1. Automatic approval by RBI: As per FDI policy of Government of India, 100% Investments are allowed in most sectors under the Automatic Route subject to sectoral caps and permission, if any required from concerned Ministry. 100% FDI is allowed under Automatic Route in Mining and exploration of Metal and non-metal ores including diamond, gold, silver and precious ores but excluding titanium bearing minerals and its ores subject to the Mines and Minerals ( Development & Regulation) Act, % FDI is allowed in Coal & Lignite mining for captive consumption FDI will not be allowed in Mining of prescribed substances issued by the Department of Atomic Energy. FDI in India on automatic route is not allowed in the following sectors: Proposals that require an industrial license and cases where foreign investment is more than 24% in the equity capital of units manufacturing items reserved for the small scale industries. Proposals in which the foreign collaborator has a previous venture/tie-up in India. Proposals relating to acquisition of shares in an existing Indian company in favour of a Foreign/Non-Resident Indian (NRI)/Overseas Corporate Body (OCB) investor; and Proposals falling outside notified sectoral policy/caps or under sectors in which FDI is not permitted and/or whenever any investor chooses to make an application to the Foreign Investment Promotion Board and not avail of the automatic route. 2. FIPB Route: Foreign Investment Promotion Board (FIPB) considers and recommends foreign direct investment, which do not come under the automatic route. Normal processing time of an FDI proposal in FIPB is 4 to 6 weeks. FIPB is located in the Department of Economic Affairs, Ministry of Finance As is evident from Table 10, with increasing liberalization across the various industrial sectors, more and more German investments are coming in through the automatic route i.e. through RBI, not requiring the government s approval. During the financial year , out of the total of US $ million German investments made in India, around US $ million (82.5%) came through the automatic route or via the Reserve Bank of India. In the year , 61.8% had come through the automatic route, while in , 66 % were routed through the RBI. Top FDI inflow cases from Germany in the last decade German companies remain strong investors in India as the statistical numbers as well as the recent IGCC business monitor, a representative survey conducted by the Indo-German Chamber of Commerce, show. Almost half of the respondents see the GDP growth rate between eight and nine per cent in the current financial year and German investors have positive long-term expectations for the Indian market. Almost one-third of the respondents plan to strongly increase their investment activities in India in the next three years, and almost one-half of the respondents indicate a moderate further investment increase. Only the remaining respondents (not even a third) do not currently plan to invest further. None of the respondents plans to decrease investments in India or even to withdraw from the market. Important large-scale German investors in India continue to be companies like Volkswagen, Daimler, Siemens, and Lanxess. The Volkswagen plant in Pune has a yearly production capacity of cars and continues to be the largest single investment of a German company in India ( 580 million). Volkswagen is not the only German automobile investor in India. Daimler set up another production plant in Pune in early 2009 as well as is currently setting up a new plant in Chennai, where starting trucks will be produced. Automotive supplier Schaeffler is also planning in investing in India and plans to establish a new 400-employee production facility. In July 2010, crane manufacturer Demag Cranes, opened a new facility at Chakan near Pune. The facility was built in eight months at a cost of 8 million as well as has a capacity of constructing 600 standard cranes and 100 process cranes every year. Specialty chemicals group Lanxess remains committed to its growth strategy in India and intends to set up a new production site in India. Construction of the new compounding facilities will begin this year, will have an investment of over 10 million and is due in In total, Lanxess has invested around 50 million in the 13-hectare Jhagadia site and will have a workforce of approximately 250 employees at this site by the end of Baerlocher will also invest about 1 million to double its production of PVC heat stabilisers at its Indian plant in Dewas to meet the local Indian demand in pipe production for irrigation and water management projects. The world leader in independent safety and quality testing for solar modules, TÜV Rheinland, opened its seventh laboratory worldwide in Bangalore for testing solar modules and systems. TÜV Rheinland invested 2 million in this new solar test centre, which in particular will offer services to India s growing solar industry. German engineering major Siemens will invest around 250 million in India Annual Review

5 Table 11 Source: Department of Industrial Policy & Promotion, Govt. of India over the next three years, which will be double of the company s current investment level in India. Siemens also plans to increase its workforce in India from to employees by the year A large part of the investment will be in renewable energies. According to the data received from the Department of Commerce, Govt. of India, FDI inflows worth around US $ million were received from Germany through Indian companies over the last decade from April 2000 to May In the list of top investing companies during this period were MHM Holding GmbH for manufacturing printing/packaging inks, resins, enamels, adhesives etc. with Micro Inks Ltd.; DKV International Health Holding for manufacturing power capacitors with Apollo Energy Pvt. Ltd. and Allianze SE who are Insurance carriers through their Indian counterpart Bajaj Allianz ((Life insurance). 120 Annual Review 2010