Encouraged by the excellent performance of their local businesses, German investors are confident that India’s economy will keep steaming ahead this year. Managers remain equally optimistic about the country’s long term growth momentum, which they expect to match China’s soon. This is the result of a representative survey conducted by the Indo-German Chamber of Commerce (IGCC) among 175 German companies operating in India.

"German investors affirm greater faith than ever in the fundamentals of India’s growth story", says Bernhard Steinruecke, IGCC Director General. There are good reasons for their optimism: Last year, German subsidiaries here were rewarded with a significant boost to their top and bottom lines, and the outlook for this year proves even better.

Investor optimism is scaling new heights compared to IGCC surveys in previous years: More than half of respondents (57%) now expect India’s GDP to rise by 8 to 9% in 2011-12. 12% forecast even higher growth. The longer term outlook is equally bright, with 70% expecting average growth rates above 8% over the next three years.

India’s growth rate to match China’s – Firms gear up for higher investments

What is more, eight of ten managers expect India’s growth rate to match or exceed China’s within a decade. Among these optimists, about half forecast the economic expansion rates in Asia’s two giants to converge within the next five years already.

Pervasive optimism is rooted in solid company results: More than half of all firms surveyed (55%) enjoyed revenue increases above 20% in the last financial year. 16% reported a plus of 10 to 20% and 12% saw sales grow by up to 10%. Profits also fared well in 2010-11: More than one third of all companies recorded a profit surge of more than 20%. A further fifth reported a plus of 10 to 20%.

"Undeterred by rising interest rates and persisting inflation, managers have even higher sales and profit expectations for the current year," says IGCC Director General Steinruecke. More than half (55%) expect sales to surge by over 20% in 2011-12. A further third (30%) anticipate an increase between 10 and 20%.

Strong business performance is a key reason why those German companies which are already present in India are planning to pump in substantial new investments. Almost half (44%) of all IGCC survey respondents indicate plans to strongly increase their investment activity in India over the next three years. A further 29% envisage a moderate hike in investments. "FDI inflows are bound to receive an additional boost from new German companies setting up factories and offices here", forecasts IGCC Director General Steinruecke. "India has emerged as a core growth market where German companies invest for the long term, confident of sustained expansion."

Scams hurt India’s image – Investment decisions not yet affected

The survey also sheds light on topical issues like a rise in reported corruption scandals and a perceived policy deadlock. A vast majority (85%) of all managers feels that recent scams have sullied India’s global image. About one third (30%) judges the reputation damage as "high", while 40% see it as "medium". For an equal number (85%) policy issues weigh on India’s reputation. Asked if political deadlock, lack of reforms or regulatory uncertainty hurt India’s image, 17% of managers confirm "high damage". 47% note "medium", 22% "low damage".

Significantly, these negative image effects have not yet started to cloud manager’s overall assessment of India as an investment destination, and their impact on actual investor decisions remains minimal: 93% of all respondents do not consider reducing or deferring planned investments because of corruption or policy problems. But over a third (37%) of all managers indicates they are re-assessing India’s investment risks due to policy or governance deficits. "Future investment decisions may be scrutinized more carefully should India fail to tackle these issues", comments IGCC Director General Steinruecke. "Despite tremendous optimism and general goodwill, investors clearly expect India’s government to curb corruption and to revive reforms in order to ensure robust long term economic growth."

German companies see the greatest scope for an improvement in India’s investment climate in the area of infrastructure, which tops the list of concerns for 31% of those surveyed. Reducing corruption (19%) and taming bureaucracy (15%) are seen as the other two most significant ways to boost confidence and attract more FDI.

German investors hire aggressively - Create substantial employment in India

The survey reveals that German companies are hiring aggressively in India in order to meet rising demand for their products and services: More than one third (37%) intend to grow staff by 20% or more this year. One quarter (25%) plans to increase headcount by 10 to 20%. The extent to which German companies are already involved in India becomes evident in a new statistical report researched by the IGCC in addition to its annual "Business Monitor" survey: Taken together, the 120 largest German companies in India currently employ about 173,000 staff. Over and above, they give employment through exclusive agents, dealers, vendors, franchisees and suppliers in the range of 300.000 jobs. This means German companies are a major employment generator in India.