By Dhurjati Mukherjee
German Chancellor Fredrich Merz’s recent visit to India resulted in promising economic discussions. He assured Prime Minister Modi of progress on the European Union trade deal, while Germany formalized 19 defence and technology agreements. Eight other announcements seek to boost cooperation in areas like people-to-people contact, Indo-Pacific ties, green development, and visa-free transit for Indian passport holders through Germany.
A key outcome was the joint declaration of intent to strengthen bilateral cooperation, with Prime Minister Modi indicating that both parties will collaborate on a strategic roadmap aimed at enhancing defence industry partnerships and fostering new development opportunities.
At the same time, Spain, Germany, Belgium, and Poland are becoming reliable export markets for India in the EU, according to commerce ministry data. Spain saw a 56% increase in Indian exports, reaching $4.7 billion between April and November, while exports to Germany rose 9.3% to $7.5 billion.
These figures show that India is diversifying its export strategy across Europe, achieving rapid growth in Spain, steady gains in Germany, and stability in Belgium, reflecting a balanced export profile combining market diversification from traditional markets, according to government officials.
There are also reports that in various other areas, exports are showing a healthy trend. Mention may be made regarding apparel exports to the U.K., Russia and Germany as Bangladesh is in a turbulent situation presently. If the trade deal with the EU is signed early, India may greatly make up for some loss that has happened as regards the US market.
Coming to China, New Delhi has rightly decided to open up the Indian economy. This would signify the consolidation of the bilateral relationship that had witnessed seismic shocks in the light of Chinese incursions on the Indian border. However, new shoots of calm have been sprouting for a while as last year both New Delhi and Beijing agreed upon a series of mechanisms to improve relations.
It makes sense for India to develop closer trade relations with China and the EU. As is generally agreed, an economic engagement with China is thus very much desirable. However, India’s trade gap with China is expected to exceed $100 billion in 2025, with exports estimated to improve last year but imports surged much faster from $87.7 billion in 2021 to $109.6 billion in 2024, according to data from the Global Trade Research Initiative.
If the trade deficit must be checked, India should give special focus on electronics and critical minerals to reduce dependence on China. In recent years, electronics manufacturing, including mobile phones, increased in the country but imports haven’t come down as the manufacturers rely on components produced in other countries, especially China. This should not happen and manufacturers should see and use Indian products and prove their worth.
Apart from China, India’s economic relations with the UK, Australia, Germany, France, Israel, Brazil and some African countries are on strong foundation and expected to be enhanced. The Indo-Japan strategic dialogue held a few days back agreed to boost cooperation in AI and critical minerals while seeking enhanced engagement on issues related to South Asia, West Asia and Africa.
At the same time, with India taking up the leadership role in BRICS, it would help engage with all other and new members, specially Egypt, Ethiopia and the UAE. India is also giving a thrust to increase trade with the African world, and this may help boost up exports.
Regarding attracting foreign direct investment (FDI), it is tragic that over the next decade, India dropped in the rankings for net FDI/GDP from 12th to 19th among the 25 largest emerging countries. While the net numbers have been depressed recently by foreigners repatriating past profits, gross profits are low too, with India ranking below most emerging markets last year.
In the past year, the government has introduced major reforms to reduce bureaucracy by streamlining labour codes, simplifying bankruptcy rules, and digitizing many public services. These changes are expected to encourage greater investment and stimulate economic growth.
While foreign direct investment (FDI) plays a role, it is also important for domestic private investment—especially in manufacturing—to become more active, supported by favourable reforms. Promoting innovation and increasing both domestic and foreign investment are essential for boosting exports, driving broad-based growth, and creating new jobs.