India and Germany mark the 70th anniversary of their diplomatic relations as modern countries this year. Over the last decade, Germany has been a steadfast partner for India and amongst its closest friends in Europe. Much of this credit goes to India's bipartisan outreach to Germany and the continuity of Chancellor Angela Merkel.
However, 2021 is a critical year globally, with the pandemic, the challenge to globalisation, and new rules of engagement and partnership. This is also the year that Chancellor Merkel will relinquish office after the elections in Germany in September. India would, thus, engage with a new leadership in Germany later this year. Germany is likely to remain committed to the partnership, though the nuances could certainly be different, depending on the priorities of the new Chancellor.
During the last few years, several big ideas have emerged between India and Germany, mainly through the unique process of the intergovernmental consultations (IGC). These are similar to large joint commissions, but at the summit level, between the German Chancellor and the Prime Minister of India. A number of ministers participate, and the intensity has been maintained. Started in 2011, the sixth session is due this year.
The Indo-German partnership somehow seems to lack the momentum to leap forward. It’s been on a springboard for a while, and has much potential to fulfil. In the current period, some reengagement appears necessary. In this context, if some big ideas, which emerged between India and Germany, were to be successfully implemented, it could perhaps create a wider and deeper paradigm of Indo-German partnership.
The Indo-German partnership somehow seems to lack the momentum to leap forward. It’s been on a springboard for a while, and has much potential to fulfil. In the current period, some reengagement appears necessary
Collaboration on High-Speed Railways
One of these is the collaboration in high-speed railways (HSR), which has been discussed since 2015. India's interest in HSR, beginning with the partnership with Japan for the Shinkansen between Mumbai and Ahmedabad, was matched by a German response. Over the last five years, Germany worked with the Indian railways to produce a feasibility report for an HSR corridor between Chennai-Bengaluru-Mysuru. This would strengthen the industrial corridor in that region, and could have considered either an augmentation of existing railway tracks or, as India preferred, a full HSR system, standing on its own. The feasibility study appears to have been completed. Its anticipated cost could be around US $18 billion. A ‘Joint Declaration of Intent (JDI) Regarding Cooperation on Strategic Projects’ focusing on railways was signed during the IGC in 2019.
However, this big idea, somehow, is not progressing. It appears to be chugging between incomplete understandings on how to proceed. German technology is acceptable in India, its companies are well known, and there is no apparent commitment to use only Japanese technology for all HSR in India. If the German proposal succeeds in a cost-effective manner, it could open business opportunities in six more HSR projects in India. While the Japanese are always clear about the terms of financing first, the technical details come later. In the case of Germany, the financing details have been slower to come by. Perhaps, therein, lies the gap in understanding.
Germany is already involved in financing metro projects in India. It has agreed to provide 500 million euros to Maha Metro Special Purpose Vehicle (SPV) for the Nagpur Metro and this could extend to the Pune Metro as part of a consortium with Agence Française de Développement (AfD) of France and the European Investment Bank (EIB), which has supported the Pune Metro with 600 million euros. In November 2020, KfW announced its largest support of 545 million euros for two lines of the Mumbai Metro. Under the‘Joint Declaration of Intent (JDI) on Indo-German Partnership for Green Urban Mobility’, the water metro in Kochi, which aims connects 10 island through battery-driven boats is included.
Need for clarity with the Strategic Financing Initiative for Asia
The second big idea is linked to these efforts. The Strategic Financing Initiative for Asia (SFIA) of 2016 was to compete with the Asian Infrastructure Investment Bank (AIIB) and the Belt and Road Initiative (BRI) in general, but more with Japan in India. The initiative was developed by a team from the Chancellery, Ministry of Economy, and the KfW Development Bank. The main idea of this initiative was that Germany should raise its development cooperation profile from sustainability aspects into major infrastructure connectivity. It was clear that they could not match the rate of lending of Japan, which Germany believes is beyond the Organisation for Economic Co-operation and Development (OECD) mandate. The German idea was that they would, perhaps, increase the grant component and create a compound economic package whose debt servicing would be attractive and reduce the overall cost of a project. This mixed finance option, however, was unclear in the terms. This did not appeal to the Indian interlocutors who wondered what the final rate of interest will be. The Germans awaited a specific project to be discussed, to which the compound product would be applied.
This idea was applied to the economic package from the German Federal Ministry for Economic Cooperation and Development (BMZ) and KfW for the Mumbai Metro. It included a ‘development loan of 345 million euros and a promotional loan of 200 million euros’. The interest rate varies between 0.07 percent to 0.82 percent over periodic tranches. This is amongst the lowest rates of interest on an infrastructure loan in India. Thus, the SFIA has a basis of a package in operation.
Now that the railway HSR project feasibility is ready, it is time for Germany to come up with a clear financial proposal, which shows exactly how much of the anticipated cost of US $18 billion would be covered by grants, promotional credits, and concessional credits from which India could clearly determine the cost. If Germany could grasp this opportunity, they would make a big entry into development of HSR in India and could do it either by themselves or with other European Union (EU) partners. The EU–India Connectivity Partnership, clearly mentioned the railways as a major thrust area.
If Germany could grasp this opportunity, they would make a big entry into development of HSR in India and could do it either by themselves or with other European Union (EU) partners
Revival of the High Technology Partnership Group
Another big idea was a High Technology Partnership Group (HTPG) launched in 2013, with considerable thought going into it. It was peeled off from the Bilateral Foreign Office consultations. This mechanism was to look at future areas of collaboration by identifying technologies in Germany, which could lead to closer collaboration with India. Initially, the mechanism was well established within the foreign offices, which disseminated agreed ideas to concerned ministries. The metros, the HSR, the solar projects, and the green transmission lines were amongst the ideas which were discussed in the meetings of the HTPG. The IGC in 2015 recognised HTPG’s role in ‘Make in India’ and defence industries in India. However, since 2016, this has ceased to take place. There was no mention of it after 2016 when Dr Jaishankar as Foreign Secretary met Markus Ederer for the third meeting of the HTPG while holding FOC with the other State Secretary Stephan Steinlein. This was mainly because of German lack of interest within the Foreign Office. They believe that other ministries are now engaging India directly due to the expansion of the partnership and don't need, or care, for the good offices of the Foreign Office to take such discussions forward. This may be true, but it certainly leaves out a mechanism of consultation, which was above sectoral interests, and could guide the Indo-German partnership in a better way. The Indo-German Consultative Group which was praised in the IGC in 2013 and on which the Germans were keen at a track 1.5 level, was discontinued due to a similar lack of interest on the Indian side. A way to revive such functional discussion avenues is required.
Engaging Germany as a defence industry partner
The HTPG as well as the SFIA could both assist in the realisation of the fourth big idea: Germany becoming a reliable defence industry partner. German Howaldtswerke-Deutsche Werft (HDW) submarines are in India. Now Germany remains keen to provide the six API submarines required by the Indian navy. ThyssenKrupp Marine Systems is leading the German thrust to enhance the Indo-German partnership in defence production. Germany put its government's weight behind the offer as an exception to their normal aloofness from commercial bids. During the visit of Ursula von der Leyen in May 2015, the then Defence Minister of Germany and currently the President of the EU Commission, pledged formal support for the submarine collaboration. This idea is still alive as ThyssenKrupp Marine Systems has made it to the final shortlist and also has good plans in place with the selected Indian strategic partners, Mazagon Docks and Larsen & Toubro (L&T). Now what remains to be seen is the selection of the foreign technology partner by the Indian Ministry of Defence. If it goes in favour of Germany, it would add considerable momentum to the Indo-German partnership.
Given the German Policy Guidelines on the Indo-Pacific, there is a continuing keenness to enhance the partnership with India. This is more market-driven than a China+1 strategy. The expansion of connectivity through metros and HSR can give India another definitive partnership as with Japan. The submarine contract can diversify the source of technology. All these could then focus on an effective use of the SFAI, which will be a major growth of the Indo-German partnership from development and sustainability to modern infrastructure,
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