Slovakia has so far made only minimal use of India’s potential
Many European countries are struggling in a difficult economic situation. There is no better example than Germany, whose slowdown is affecting the entire bloc, especially the Eastern European countries that have a brisk trade relationship with it. Many businesses in Slovakia exporting to Germany are experiencing a decline in orders. Being tied to one economy shows the riskiness of this strategy.
Against fears of economic stagnation at home, India’s rapid economic growth stands out. The latest figures from the third quarter of last year speak of growth of 8.4 per cent, almost three times the rate at which the world economy was doing. India’s rapid growth of over a decade exceeds the average level of seven per cent.
The economy is growing
While a decade ago India was the world’s eighth largest economy, it has now risen to fifth place, having reached a size of $3.6 trillion. It will grow to five trillion dollars by 2027, according to analysts at investment group Jefferies.
Prime Minister Narendra Modi’s economic policies are the main reason for the recent growth and other optimistic expectations. He came up with the “Make in India” strategy in 2014, which aims to become a developed economy by mid-century.
A number of factors are playing in India’s favour. One is demographic growth – the country has become the world’s most populous nation. Not only that, unlike China, its population will continue to grow for decades to come, which has the potential to offer the world a large, cheap and relatively well-educated workforce. With the entire Western world struggling with a shortage of workers, the Indian government wants to place a hundred million workers in the market. This mass of people will become increasingly wealthy with the current economic growth and thus will also pull down domestic consumption.
Moreover, India is a politically neutral country that trades briskly with both Western and Eastern countries. Unlike China, which is the target of political and economic criticism, India does not have this problem. This is clearly perceived by investors as many of them are diversifying their business through shifting FDI from China to India.
A case in point is Foxconn, Apple’s largest supplier, which plans to double production of iPhones in India. Already ten per cent of its production is there. Many other international firms are building similar projects, with FDI in India averaging nearly two per cent of GDP a year. The government expects it to exceed one hundred billion dollars in the next few years.
We need to produce at home
Not only the high domestic public investment of 4.5 per cent in 2023, but also the tens of billions of dollars flowing in from abroad. In addition to direct investment, it is portfolio investment that has made the country one of the most successful stock markets of our time. With such capital growth, some economists expect a continuation of sustained high economic growth in excess of seven percent of GDP.
India wants to produce at home and sell abroad. Its share of exports to developed countries is growing strongly. Exports to the US, for example, have tripled in the last two years compared to Chinese exports. There is unlikely to be an end to such a trend. On the contrary, it is a question of whether Slovak companies will be able to participate in it.
Despite the size and potential of the Indian market, Slovak exports to it are negligible. In 2022, it amounted to just over 150 million euros, which is 0.14 per cent of the export share. Moreover, Slovakia has a negative trade balance with India, importing four times more than it exports. However, for both countries, these are again only negligible amounts, as in the case of India, exports to Slovakia are still less than 0.1 per cent of GDP.
Among the largest items of Slovak exports to India in 2022 were passenger cars and other motor vehicles worth almost 30 million euros, or machinery and apparatus for processing rubber and plastics worth twelve million euros, or bearings worth 7.3 million euros.
Among the largest items of Slovak imports in 2022 were iron ore and its concentrates worth 73 million euros, but also car parts worth almost 50 million euros or parts for engines and tyres worth almost 50 million euros. India is thus a relatively important supplier for the Slovak auto-tive, which is related to the presence of the Jaguar Land Rover car company in Slovakia. The latter is a subsidiary of the Indian company Tata Motors. However, there are also opposite cases when Slovak companies invest in India. In 2015, a manufacturer of freight wagons – Tatravagónka from Poprad – entered the market by buying a 20 per cent stake in Jupiter Wagons. A year later, Microstep – MIS established a subsidiary in Bangalore, South India, to sell systems for collecting and evaluating meteorological data for 67 military airports in India. And in December 2021, the Slovak company Grand Power established a new plant in Coimbatore. Also investing in India is Envien Group, which has launched a joint venture with India’s Zuari Group to build a biofuels plant in the state of Uttar Pradesh. There could be much more cooperation in the field of international trade or investment. India still largely remembers Czechoslovak production, especially in the heavy engineering and defence sectors. It is in the military that there is potential for significant use of Slovak companies, as the domestic army still uses equipment of post-Soviet provenance.
Building on the brand
When bridging to the present, the opportunity to take advantage of the opportunity to supply spare parts could be well perceived, given the large share of post-communist trade relations, where Slovak companies have experience and know the technical specifics of this production, which is a competitive advantage over the countries of the Western bloc or overseas markets. There is therefore potential to build on the Made in Czechoslovakia brand. As India is not part of the European trade area, entrepreneurs may have questions related to financing, guarantees or insurance. In territories where the banking system is diametrically opposed to EU countries, Eximbanka SR provides banking relationships with key partners in the banking market. No other Slovak commercial bank currently has direct correspondent relations with Indian partners. During its presence on the market, Eximbanka has thus supported exports to India with a total volume of up to EUR 150 million.
However, as it is the case in third countries, it is important for entrepreneurs to open the “political door” to enter a given market. For this reason, in February, the Ministry of Foreign and European Affairs organised a business mission to the capital of the world’s most populous country, New Delhi. The aim of the delegation was primarily to promote and develop business relations between Slovak and Indian companies. More such missions should be carried out.
Source: TREND