VDMA India conducts the VDMA Business Climate Survey to analyze the impact of Covid-19 on the German Mechanical Engineering Industry in India
Germany is the 7th largest foreign direct investor in India. German FDI into India during 2018-19 was to the tune of $ 886 mn. Germany’s cumulative FDI in India from April 2000 to June 2019 amounted to $ 11.9 bn. India is the 6th largest recipient of FDI from Germany. Top sectors attracting FDI inflows from Germany were Automobile industry (37.22%) Services sector (29.34%), Trading (4.87%), Electrical equipment (4.10%), Drugs and Pharmaceuticals (3.27%). These top five sectors accounted for about 78.8% of total inflows from Germany during the last fiscal.
Germany is India’s largest trading partner in Europe. The trade volume between India and Germany, during 1st half of 2019, showed an increase of 7.69%. India ranks 15th globally, in the list of top 50 destinations for the German Mechanical Engineering exports. In 2019, the total import of machinery from Germany reached a volume of € 3.07 billion. This was a drop by 8.6% compared with the same period of time in the previous year.
Among the machinery sectors, major demand of German equipment was for Power Transmission (11.6%), Plastics and Rubber Machinery (6.9%), Machine Tools (6.9%), Valves & Fittings (5.3%) and Air Handling Technology (5.1%). There are other sectors like Construction Equipment & Building Material Machinery, fluid power equipments, Textile Machinery and food processing & packaging, which are growing steadily in India.
Out of the total export of German Mechanical Engineering to Asia of € 41 billion, India is the second largest sales market in Asia for the German engineering industry, with a share of 7.5%, after China (45.8%). In 2019, India imported machinery of the value € 24 bn globally. Germany is the 2nd most important supplier to India globally, share of around 15%.
In 2019, India exported Machineries worth of € 756.2 Million to Germany, and showcased a growth of 3.2% over the previous year. The top sectors which experienced the highest demand were Power Transmission, Precision Tools, Valves & Fittings, Compressors and Pumps
VDMA India conducts the VDMA Business Climate Survey twice every year, in spring and again in autumn. This survey is an integral part of our association’s activities here in India. And we regard this joint initiative between the association and our members as an additional compass playing a major role in future decision making. Our members are the solid ground of our association. And we express our earnest gratitude for the support and trust placed in us over the years.
COVID-19 has had a major impact on businesses this year and despite the prevailing uncertainty our members were able to share their forecast for the next 6 months. 205 participants from more than 160 organizations across different sectors of the mechanical engineering industry shared their evaluations regarding their company’s business and the situation of their most important customer industries.
Mechanical engineering companies in India are much more pessimistic than they were six months ago. This is shown by the results of the current VDMA business climate survey. 2019 was not necessarily the best year for the mechanical engineering sector in India. Many companies were hoping for a better year in 2020, but the corona pandemic shattered all such hopes.
Development of current business situation (Diffusion Index Below)
The diffusion index of the current business situation stands currently at minus 79 percentage points. The index is calculated by subtracting the share of companies reporting a good business situation minus the share of companies reporting a bad business situation.
80% of the respondents assess their current business situation as bad while only 1% felt that their current business situation is good. In autumn 2019, the share was significantly lower (29%). Moreover, the current survey results are the weakest since the start of the survey in 2017. The same applies to the development of the capacity utilization where 75% of the companies report a below normal level. The current level of capacity utilization of their company was seen as “normal” by 54%, whereas 10% are operating at high and 36% at low rates of utilization.
The economic outlook is concerning where 45% of the respondents expect their situation to worsen during the next six months while 25% expect an improving situation. The world has been put in a Great Lockdown and the magnitude and speed of collapse in activity that has followed is unlike anything experienced in our lifetimes. The road to recovery will be slow given the many adverse factors that continue to exert downward pressure on the economy (e.g. lack of orders, labor and raw material shortages, travel restrictions and logistical issues). Companies are forecasting average revenue to decline by 2% compared to 2019.
The restrictions on trade and business due to corona pandemic are the major reason of the slowdown. This could continue to weigh on the Indian economic prospects and business activities of the real economy unless well strategized Government intervention takes place. Industries are hoping for stimulus and other measures announced by the Government to play their role in boosting the economy. What also ails the economy is lack of demand. And the one factor to revive the economy instantly would be “consumption”. Thus it is extremely critical to stimulate demand and drive consumption.