Mit freundlicher Unterstützung durch:

Mit freundlicher Unterstützung durch:

Indo-German Chamber of Commerce Deutsch-Indische Handelskammer Mumbai. Delhi. Kolkata. Chennai engaluru. Pune. Düsseldorf Mumbai, June 5, 2017 IGCC Key findings among German Investors in India and German Exporters to India Part 1 German Investors in India German Investors Optimistic about India s Upward Growth Trend in the Forthcoming Years Managers of German companies expecting growth rates between 6-8% for the Indian GDP in FY 2017-18 Steady trend foreseen for India s medium-term growth Improvements in revenues and profit generation expected Capacity utilization rate stable and moderate increase in investment activities anticipated Favourable outlook regarding India s current policy environment, its investment climate and their impact on business seen amongst German investors ureaucracy and lack of infrastructure identified as the biggest obstacles for business in India Summary German companies in India continue to see promising developments in the Indian business environment and their approach towards growth and investments remains reasonably positive. On account of India performing well on international and domestic fronts, growth in FY 2017-18 is expected to continue its upward trend and medium-term growth is anticipated to increase at a stable rate. With its policy changes directed towards driving growth, India seems to have reinforced its position as a relatively secure investment destination among emerging markets, in a somewhat volatile global economic environment. This is the outcome of the latest edition of the IGCC usiness Monitor, a representative survey of German investors in India.

For the current financial year, FY 2017-18, more than 75% of the survey respondents expect the growth rate of India s GDP to vary between 6-8%. These responses also concur with the projections made by the Reserve ank of India and international institutions such as the World ank and International Monetary Fund. The stated pattern can also be observed with regards the respondents outlook for India s medium-term growth: more than four-fifth of the survey respondents forecast a growth of more than 6%, of which one-fifth expects a growth of more than 8%, over the next three years. With respect to revenues and profits, in the previous financial year, FY 2016-17, German companies assessed their performance as moderate. More than 60% reported a revenue increase whereas more than one fourth respondents observed a more or less unchanged situation. A little more than 20% of the respondents stated a marginal increase of up to 10% with regards to their profits, while more than 30% reported an unchanged situation. In comparison to the actual turnover of the previous financial year, FY 2016-17, managers expect a modest increase in both, revenues and profit. An increase of up to 10% in revenues is anticipated by more than 30% of the companies and nearly one-quarter of surveyed companies expect revenues to grow by 10-20%. While a little less than 20% of the companies expect no change in their revenues, nearly a quarter of the respondents expect revenues to grow more than 20%. Almost two-thirds of the companies anticipate a rise in profits and nearly one-third of the companies expect the situation to remain more or less the same. In this year s survey, managers were cautious in their approach towards hiring people in great numbers and adopted a modest outlook towards salary hikes. Almost half of the surveyed companies plan to have a stable headcount, whereas more than one-third expect the headcount to increase by 10% or less. Increasing the strength and productivity of their existing workforce through relevant training and development, and increasing salaries in order to retain employees seems to be the top priority of German managers: more than 45% of those surveyed, plan to increase average salaries by 5-10% and more than one-third respondents are looking at salary increases of more than 10%. While stabilizing their foothold in the market and acclimatizing to the improving Indian policy environment, German investors plan to remain steady regarding their investment activities in India. Over the medium-term, nearly half of the German companies will continue to invest in a consistent manner, whereas one-third will increase investments moderately. In addition, around half of the managers surveyed view India s current policy environment and investment climate in India as a moderately positive influence on their business. More than a quarter of the respondents believe that these circumstances are very positive for their business. This is a result of a number of efforts from the government s end like liberalizing FDI norms, improving the ease of doing business, moving towards implementing tax reforms like the Goods and Services Tax, promoting initiatives like Make in India, Skill India, Digital India, Smart Cities and Startup India. More than three-quarters of the companies expect India s political landscape to impact their businesses positively.

More than half of the respondents identified bureaucracy, lack of infrastructure and corruption as the three main obstacles to doing business in India. Other hindrances to India s investment climate ranged from tax disputes and labour unrests to the lack of skilled people. SURVEY IN DETAIL: 1. Optimistic expectations for a high GDP growth rate: In the current financial year, FY 2017-18, more than 38% of the respondents expect India s GDP to grow at a rate of 6-7%. More than 41% of respondents anticipate a growth rate of more than 7%, of which 3.25% expect a growth rate of more than 8%. Less than 21% of the respondents expect the GDP to have a growth rate of 6% or less, while 1.63% approximate it to be less than 5%, as shown in Figure 1 below. Figure 1. GDP Growth Expectations for FY 2017-18

2. Moderately optimistic expectations for medium-term GDP growth rate Around 35% of the respondents expect the average GDP growth to vary between 7-8% over the course of the next three years (2017-2020). Another 30% of respondents lean towards conservative growth rates in the range of 6-7%. Less than 16% of the respondents have lower expectations, forecasting growth rates of 5-6% for the GDP, over the next three years. On the opposite end of the spectrum, around 20% of the respondents expect India s medium-term GDP growth rate to be above 8%, while more than 15% estimate it to be between 5-6%, as depicted in Figure 2. Figure 2. GDP Growth Rate Expectation over 2017 2020 Around one-third of the managers surveyed did not alter their estimates of India s medium-term growth trend, as compared to last year. For 45% of the respondents, expectations went moderately upwards, while around 12.5% now expect a moderately slower growth rate than their estimate last year. Around 9% respondents revised their estimates strongly upwards, while less than 1% revised their estimates for India s medium-term growth strongly downwards.

Figure 3. India s Medium-Term Growth Estimates Revised since Last Year 3. Positive review and expectations for revenues and profit: A quarter of the respondents claim that their revenues remained more or less consistent in the previous financial year, FY 2016-17. Around 21% respondents revealed that their revenues increased by up to 10% and another 22% reported a growth between 10-20%. While more than 17% respondents saw their revenues increase by more than 20%, less than 15% saw a decrease in revenues, as shown in Figure 4. Interestingly, the share of respondents stating an increase in revenue by more than 20% in the FY 2016-17 is 6% higher than the last year s expectation of an increase in revenues by more than 20%.

Figure 4. Revenues in FY 2016-17 Around 30% of the respondents expect their company revenues to grow by up to 10% in FY 2017-18, while more than 47% anticipate an increase of over 10% in their revenues. Around 20% of the respondents feel that their company s revenues will remain more or less unchanged, while a small group of close to 2.5% feels that their company s revenues might even decrease in the current financial year. Overall, the German investor community is expecting more revenues in the current financial year, as compared to last year s actual turnover.

Figure 5. Revenue Expectation for FY 2017-18 The responses with regards to profit in FY 2016-17 reveal that more than 31% of the companies interviewed have stated that their profit has remained more or less steady, whereas more than half of the respondents have seen an increase in their profit. Around 15% respondents have stated an increase in profit to be above 20%. The remaining group of around 17% respondents has experienced a decrease in profits. On the one hand, the amount of respondents stating a decrease in profits is larger than in the last year s expectations of profits in the FY 2016-17. On the other hand, the share of surveyed managers of the current year observing an increase in profits in the FY 2016-17 has risen in comparison to the last year s expectations. Interestingly, the percentage of companies stating a profit increase of more than 20% surpasses the last year s expectation by more than 5%, which is a remarkable outcome.

Figure 6. Profit in FY 2016-17 The optimistic profit expectations for FY 2017-18 are building on the positive profit results of the FY 2016-17. Compared to only about 4% of respondents fearing a loss in profits for FY 2017-18, an overwhelming 63.41% have a positive outlook towards the upcoming year. Where a little more than 31% respondents see an increase in profits of up to 10%, there are also close to 13% respondents who expect a profit increase of 20% or more.

Figure 7. Profit Expectation for FY 2017-18 4. Moderate growth in headcount: In this year s survey, a slightly higher percentage of respondents (50.84%) as compared to last year (49.32%) planned on hiring more employees in the upcoming year. A little more than 45% of respondents plan on maintaining their existing headcount, with only a miniscule of 3% respondents expecting to decrease their employee base.

Figure 8. Employee Headcount Expectation for FY 2017-18 5. Judicious increase in salaries: Around 46% of the managers surveyed expect salaries at their companies to increase by 5-10% in FY 2017-18, while around 30% anticipate salary increments of 10-15%. Close to 14% of the respondents expect their salary level to stay more or less the same, and a very small number of companies (0.82%) seem to even be considering pay-cuts.

6. Optimistic investment outlook: Figure 9. Average Salary Expectation for FY 2017-18 With around 54% of the companies surveyed currently achieving a capacity utilization higher than 70%, just 13% of the companies operating below a capacity utilization of 50% and nearly onethird companies operating at a capacity utilization between 50-70%, prospects for rising investment rates seem quite positive in the current scenario, and have the potential to get even better. Figure 10. Current Capacity Utilization of Companies Surveyed

While 45% of the respondents plan their companies investment activity to continue steadily over the course of the next three years, about one-third expects moderately increased investment. With around 15% of surveyed managers forecasting a strong increase in investments and less than 7% expecting a decrease, German companies, in general, appear to be motivated to expand business in India. Figure 11. Companies Proposed Investment Activities in India, for 2017-2020 7. Positive outlook towards the current investment and policy climate in India: Almost 80% of the surveyed managers expect the impact of India s current policy environment and investment climate to influence their business in a moderately positive (50% respondents) to very positive (26% respondents) manner. Almost 12% respondents feel that the current scenario of reformation in policy and overall investment climate has a neutral impact on their business. It is essential to point out that there is still a share of nearly 11%, who feel that the conditions have a moderately negative impact and limit the scope of operations for German businesses, while a minority of less than 1% consider the current investment and policy climate to be discouraging. However, the majority of German companies has a positive outlook about doing business in India.

Figure 12. Views of Companies on India s Current Policy Environment and Investment Climate 8. Political landscape expected to have moderately positive impact on companies: Over 56% respondents expect India s current political landscape to have a moderately positive effect on their companies, with another 19.5% respondents are highly optimistic and expect their business to see a strong improvement in the current political scenario. Only a small 7% of respondents expect their business to deteriorate moderately and close to 18% respondents expect the situation to remain unchanged.

Figure 13. India s Political Landscape: Impact on Companies 9. ureaucracy, infrastructure and corruption emerge as major issues for business: Amongst the major concerns of German companies with regards to investments in India, are the need for an improved infrastructure (41%), the mostly complicated and time-consuming bureaucracy (37%), as well as corruption (34%) within the country. Other significant areas where improvement is required, are education and development of labour (31%), tax reformations (21%), and labour unrests (7%).

Figure 14. arriers to Companies Investments in India About the Survey: Total number of responses received: 125 elow charts illustrate sector- and employee-wise distribution of the companies which participated in the survey.

A. Sector-Wise Distribution A. Employee Strength-Wise Distribution, Direct

A. Employee Strength-Wise Distribution, Indirect NOTE: Numbers written within brackets, next to the percentages mentioned in the figures indicate the actual number of respondents.

Part 2 German exporters German exporters are optimistic again Summary of the results of the IGCC survey of the exporting member companies in Germany In addition to the survey IGCC, where German investors are targeted, the Indo-German Chamber of Commerce conducted a small opinion poll of the German exporters. The results reveal that only slightly more than 50% of the participants are satisfied with their current export business to India. It was not a big surprise that the answers are not so positive in comparison with the results of the survey in India. Obviously it is easier to do business in India as an investor than being dependent on the classical export model. The German exporters faced 4 difficult years with decreasing exports in some time periods. The main reason were the slow growth of the Indian industry, especially in the years 2013 and 2014 the industrial growth was close to zero. After the election of the Modi government the situation is slowly improving. The industry is expanding between 2-3 % per year. This is a sharp contrast to the overall growth rate of about 7% of the Indian economy. The German Exporters are strongly focused on the export of capital goods and electrical equipment to build up capacities of the Indian industry and are therefore dependent on the industry growth. India was and is a highly price sensitive market. Price competition is one of the challenges exporters face in India. Still German companies succeed in many branches due to excellent quality and outstanding technology.

Which challenges do influence your export business with India? Participation in tenders ureaucracy Corruption Intercultural differences Price competition Payment practices % 0 10 20 30 40 50 60 70 80 Chinese competitors have a strong market position as their products are adapted to the need of the Indian market and their prices are extremely attractive. Most of the German exporters have not realized improvements from the wide ranging reforms of the Modi government, many are still complaining about bureaucracy, corruption and high import cost. Another concern is the slow payment of invoices by the Indian business partners. Nevertheless most of our members are positive about the midterm business outlook. Some plan to expand their distribution network and some are even willing to set up a production in India. This positive forecast is backed up by the latest trade figures showing an increase of the German exports to India by more than 18% in the first quarter of 2017.