As the Indian PM urges Germany to invest in India, he must do more to boost free trade with the EU, writes a Handelsblatt Asia correspondent.

(Source: dpa) For German investors, doing business in India is not always a walk in the park.

In a speech to leading German businessmen at the Hotel Adlon this Tuesday, India’s Prime Minister Narendra Modi will make a case for foreign investment into his country. His arguments will sound plausible. With economic growth at more than 7 percent, the subcontinent has pushed out in front of the world’s large economies. And India offers a huge market, with 1.3 billion people.

The country will soon overtake China as the world’s most populated country.

But Mr. Modi’s words will be met with some skepticism in Germany. Even as his airplane flew West, his hosts expressed their doubts about him. Hubert Lienhard, chairman of the Asia-Pacific Committee of German Business and one of the organizers of the German-Indian Economic Forum, set the tone. He is unimpressed by Mr. Modi’s salesmanship and observed that German companies are reluctant to invest in the market. He blames a lack of legal security, a ponderous bureaucracy and inadequate infrastructure for their hesitation.

Mr. Lienhard knows what he’s talking about: He heads the mechanical engineering company Voith, which already delivered a paper machine to Delhi a century ago and is now providing the city’s subway trains with couplings. There is little doubt that there is strong demand for German technology in India, but whoever wants to sell it there must first adjust to one of the most difficult markets in the world.

Mr. Modi, who likes to present himself as a reformer has barely made a dent in the situation. The widely respected Ease of Doing Business Index of the World Bank showed that in the year Mr. Modi took office, India ranked 134 among 189 countries. In the most recent edition, the country was in position 130 – still quite distant from China’s position 78.

Almost nothing can be done quickly in India: Anyone wanting to bring goods into the country must wait as long as 12 days at the border. It takes on average half a year to get a building permit. Even investors want to defend their interests in court must be patient: it can take almost four years to get a verdict.

Mr. Modi deserves credit for at least addressing the situation, and German companies can offer up some praise for his initiatives. Red tape has been reduced and a tax reform scheduled to take effect in the coming weeks could also help. But in day-to-day business, German firms are confronted with more and more new problems. They accuse the Indian government of changing regulations too often and at too short notice. Industry can’t count on stable framework conditions, this leads to rising uncertainty.

Mr. Modi initially ignored opportunities to lessen this uncertainty. His government canceled an agreement on investment protection with Germany and other EU countries – and hasn’t replaced it yet so when controversies arise, foreign companies can no longer rely on courts of arbitration to protect their rights. And in the past, Mr. Modi has also put the brakes on free trade talks between India and the EU.

European and Indian pharmaceuticals have long been at loggerheads over the issue of cheap generic drugs. Talks had begun and broke down. A year and a half ago, Mr. Modi cancelled them outright.

Each sector is fraught. Europeans want simpler market access in the automotive sector; India opposes opening up its financial industry.

It is in the interest of both parties to reconcile these diverging points of view as quickly as possible: A study by the IFO Institute of Economic Research released Monday shows that a comprehensive trade deal will boost India’s GDP by €26 billion annually The EU would get a €21 billion boost.

German industry considers progress in talks with the Indians to be important not only because of the potential impact on business. An agreement with Asia’s third-largest economy would also be an encouraging signal in the era of Brexit and Donald Trump. It would show that in difficult times, Europe is capable of forming new alliances.

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