German Chancellor Olaf Scholz visits India this weekend – in an effort to drive a wedge between New Delhi and Moscow and to redirect German Asia business from China to India.
With his visit to India, German Chancellor Olaf Scholz continues his efforts to drive a wedge between New Delhi and Moscow. Scholz will hold talks this weekend in the Indian capital and in Bengaluru, in an attempt to bind India more closely to the West. The Indian government still refuses to join sanctions against Russia or to politically isolate Moscow. It is, instead, expanding its trade with Russia and promoting a negotiated settlement to the Ukraine war. In a concerted effort to prevent this, Western states had applied massive pressure on New Delhi last year. Now they are trying a sort of engagement strategy. Scholz plans to also encourage India to strengthen business relations. Berlin seeks to scale back German business relations with China, and instead expand business with other Asian countries. According to a recent survey among German enterprises in Singapore and India, around 70 percent do not want to invest in India because of widely-known unfavorable conditions.
India’s Business with Russia
Since last spring, India has been accelerating the expansion of its trade with Russia. The import of Russian crude oil at a discount is the main factor. Whereas, prior to the war, Russian supplies had accounted for only one percent, however, it rose to 28 percent in January. Russia has thus become India’s largest oil supplier. The import of fertilizers has also skyrocketed. During the first ten months of India’s fiscal year (April-January), India’s imports from Russia have jumped to US $7.31 billion, five times that of the same period in the previous year. Russia thus ranks fourth on India’s list of suppliers, just behind the USA. India’s exports to Russia, however, is not making headway, nearly stagnating in the low single-digit billions range. This is viewed as disadvantageous in New Delhi, because the trade deficit with Moscow continues to grow. The trade deficit, in turn, is blocking the planned expansion of the rupee trade to become independent of the dollar. Russian traders refuse to accept rupees, fearing that they would pile up because of the lack of reciprocal trade.
Negotiations as a Matter of Principle
India is also maintaining its political cooperation with Moscow. New Delhi is using its relations with Moscow to promote negotiations to bring an end to the Ukraine war. Following the publication of an analysis by the influential Observer Research Foundation, exploring ways to reach a negotiated settlement, the foreign policy expert C. Raja Mohan, who is currently teaching at the National University of Singapore, has also come out in favor of New Delhi intensifying its engagement for a ceasefire and peace negotiations. Apart from the fact that India can successfully strive for a mediation role only because of its sound relations to Russia, Foreign Minster Subrahmanyam Jaishankar has repeatedly defended cooperation with Moscow as a matter of principle. Asked in an ORF interview, why New Delhi did not break off relations in reaction to the Russian intervention in Ukraine, he answered, “I could give you many instances of countries, who have violated the sovereignty of another country. If I were to ask, where Europe stood on lot of those, I am afraid I’d get a long silence.”
The Western countries are still trying to drive a wedge between India and Russia and draw New Delhi over to their side in the power struggle against Moscow. However, they have modified their tactic. They had openly criticized the Indian-Russian cooperation and applied massive pressure on India during the first weeks and months of the Russian intervention, but then, confronted with the futility of their efforts, they have now switched to a sort of engagement strategy. As explained by Christian Wagner, expert for Asia at the German Institute for International and Security Affairs (SWP) in Berlin, they are now “relying on closer cooperation with India, to reduce its dependence on Russia.” This is also one of the objectives Chancellor Olaf Scholz will pursue during his visit to India over the weekend. In light of the Western cooperation proposals, a dilemma in India’s policy toward Russia is often being discussed in New Delhi – the massive Western pressure has led Moscow to draw increasingly closer, not only to India, but also to China – India’s arch-rival. In New Delhi, some consider that in this triangular constellation, India may lose out to Beijing. Therefore, it would be prudent to drop Moscow and again develop closer ties to the West. Berlin also has these voices in mind.
That is also because the German government seeks to win India as a cooperation partner in its power struggle against China – not only politically, but especially economically. For years, politicians and prominent media outlets in Germany have been campaigning to convince enterprises to transfer their sites and supply chains from the People’s Republic to other Asian nations, not least among them, India. Their success has been moderate. For example, trade with India has recently grown from €23.3 billion in 2021 to nearly €30 billion in 2022. This, however, amounts to hardly a tenth of the trade volume with China (about €300 billion). Moreover, the amount of German direct investments in India, which in 2019, following a certain upswing, peaked around €19 billion – only a fifth of the investments in China – had slumped again in 2020 to around €18.5 billion. In spite of powerful political support, business with India still comes nowhere close to that with China.
Analyses and surveys expose the reasons why. Over the past few years, the Indian economy has grown strongly and, in the meantime, reached the fifth-largest in the world – surpassing even Great Britain, the former colonial power. However, this should not obscure the numerous problems India has that render trade and investments in that country less attractive, according to an analysis published in January. These include “rampant poverty,” “around half of the population” is “dependent on state-subsidized food.” This eliminates a large portion of the population as potential customers. Additionally, there is an insufficient educational level, particularly in higher education. India cannot “compete with the Chinese development.” This affects the available potential work force. Foreign companies also repeatedly complained about India’s inadequate infrastructure and excessive bureaucracy. A survey carried out in India and Singapore by the German Chamber of Commerce showed that 70 percent of the responding German companies, currently do not want to invest in India. A fourth of those, already with sites in India, declared they are not prepared to increase their investment. All sorts of economic “barriers” are given as the reasons.
Until Now Unsuccessful
Over the weekend, Scholz – like numerous other German politicians over the years – will be seeking ways to promote German business with India against all odds. Their persistent attempts to reduce German business with China, with India’s help, has, until now, been just as unsuccessful, as their attempts to drive a wedge between New Delhi and Moscow.
 India’s imports from Russia up 384% in April-Jan on back of rise in oil trade. indianexpress.com 15.02.2023.
 India’s soaring Russian oil imports render rupee trade futile. indianexpress.com 14.02.2023.
 C. Raja Mohan: Xi, Modi and peace in Ukraine. indianexpress.com 22.02.2023.
 S. Jaishankar interview in Austria. youtube.com.
 See also Isolate Russia (III) and „Russland isolieren” (IV).
 Christian Wagner: Wie umgehen mit Indien? tagesspiegel.de 06.12.2022.
 See also Deutschland im Indo-Pazifik (III) and China’s Counterpart (II).
 Lukas Menkhoff, Christian Wagner: Indien: eine Alternative zu China? In: Wirtschaftsdienst. Zeitschrift für Wirtschaftspolitik. 103. Jahrgang. Januar 2023. S. 62-67.
 Manager machen einen Bogen um Indien. Frankfurter Allgemeine Zeitung 22.02.2023.