By far Europe’s largest economy, Germany is in a state of transition in terms of foreign policy. The shock of the Russian invasion of Ukraine for Berlin in the security, economic, and humanitarian domains has been severe.

As a consequence, the rearming of Germany ~ following the path of its fellow Axis Power during World War II, Japan, which has come a long way from its pacifist Constitution with the release of its 2022 National Security Strategy ~ is laden with historical irony.

It is also a reflection of how fundamental the geopolitical impact of the rise of China and its alliance with Russia has been for Germany. Germany’s 100 billion pledge in military investment, raising its defence allocation to 2 per cent of its GDP, will, when fully deployed, give it the largest defence budget in the world after that of the USA and China.

Going ahead, the impact of the extent of German rearming on the country’s future trajectory and its implications for its partners including India will be consequential. Traditionally, opinion polls have shown there is an aversion to Germany rearming among a population still collectively guiltstricken by the horrors perpetuated by the Nazi regime.

But Russia’s invasion of Ukraine seems to have marked a shift in the German leadership’s approach towards the nation’s security-military requirements. That Berlin’s conciliatory approach towards Moscow despite Russia’s annexation of Crimea in 2014 did nothing to prevent Russian President Vladimir Putin’s so-called ‘special military operation’ in Ukraine seems to have impacted popular sentiment too. This was apparent in the “Zeitenwende (turn of an era) speech” by German Chancellor Olaf Scholz in February 2022, which signalled a reorientation of Germany’s hitherto rather passive security and foreign policies.

To start with, came the announcement on raising the defence budget. The initial pusillanimity of the government in the wake of the Russian invasion of Ukraine, when it appeared hesitant to supply heavy weaponry to Kiev and was indecisive about introducing fierce sanctions against Moscow, has passed. Berlin has also now ensured it is no longer dependent on Russia for energy.

Germany, as it eases off on efforts to establish a so-called European ‘super state’ and focuses on adding military heft to its considerable economic might, could make a compelling case for India to act in concert with it in a Europe-Asia

Intermediate Powers alliance to negotiate the geostrategic flux which has accompanied the emergent Sino-US confrontation and Russo-Chinese axis. The stumbling block for such an alliance, however, is Germany’s trade overdependence on China ~ with which it incurred a trade deficit of 84 billion in 2022 ~ much like its energy overdependence on Russia till the Ukraine war. Trade between Germany and China rose to a record level in 2022 making the Asian giant Germany’s most important trading partner for the seventh year in a row despite warnings in Berlin about excessive dependence. Goods worth 298 billion were traded between the two countries, up around 21 per cent from 2021. In 2022, Germany imported goods worth 191 billion from China, a third more than in 2021.

Exports of German goods to China, though, increased by only 3.1 per cent to around 107 billion. A major cause for German overdependence on China is critical raw materials or rare earth elements, a group of 17 metals which are essential components for semiconductors, batteries, electronics, renewable energy technologies, and defence/GPS equipment.

Germany’s transition to cleaner energy and transport depends on this critical raw material and it imports about two-third of its requirement for rare earth elements from China, which has a dominant hold on the market with 60 per cent of global production and 85 per cent of processing capacity. In 2021, global demand for rare earths reached 125,000 metric tons.

By 2030, it is forecast to reach 315,000 tonnes. These figures suggest the need for Delhi to adopt a circumspect policy approach towards Germany despite recent talk in the Berlin establishment about reassessing the country’s decades-long engagement with China and pivoting towards India against the backdrop of great power rivalry.

Sino-German economic decoupling will not be accomplished in a day, as it were, even if Berlin is au courant that the cost of passivity in the face of China’s concerted attempt to reshape the international order outweighs the commercial benefits of trading with Beijing. The issue is: Has Germany truly grasped that its accommodative approach towards autocracies ~ whether out of economic self-interest or in the interest of conflict-management by engaging deeply with them ~ is subject to the law of diminishing returns? Further, has Berlin understood how damaging overdependence on absolutist states is?

If, however, over the coming months and years, there are clearer signs that Germany can wean itself off its trade overdependence on China as it did visà-vis its energy overdependence on Russia, there could emerge an opportunity to significantly deepen and broaden Indo-German strategic engagement. At the bilateral level, IndoGerman ties are proceeding apace.

The early German commitment to Skill India, Digital India, the Smart Cities initiative, and Namami Gange were welcomed by Delhi, as was the German support of 1 billion for India’s solar energy programmes. The Green and Sustainable Development Partnership announced in May 2022 brought an additional 10 billion from Berlin to the table.

But should India and Germany be satisfied with a business-as-usual attitude in an unstable, even volatile global geopolitical scenario? India-Germany trade was pegged at $24.85 billion in 2021-22 ~ just Berlin’s trade deficit with Beijing is more than three times that figure, to put the numbers into perspective. On the face of it, there lies room for a massive upside.

If India can rapidly transform itself ~ with a special focus on reforming labour/land legislation and growing its green footprint ~ into the preferred destination for Germany’s China+1 strategy, it could attract the capital, technological prowess, and human resource upskilling expertise required to make the country a manufacturing hub of scale. The size of the Indian market is a major attraction for German businesses.

Germany, apart from being a technology power, is also a source of climate change finance which is sorely needed by India in its sustainable growth journey.

[The writer is a Fellow at the Pahle Indian Foundation]