Executive summary

The Internationalisation Monitor describes trends in globalisation and the consequences thereof for the Dutch economy and society. It is published quarterly as part of the Globalisation research agenda at Statistics Netherlands (CBS), commissioned by the Dutch Ministry of Foreign Affairs.

In this edition, we focus on the different aspects of the Netherlands’ trade relations with India. 2023 will be India’s year. India will become the most populous country and holds the G20 presidency this year. Moreover, the International Monetary Fund projects India to be the fastest growing major economy in 2023, responsible for 15% of the global economic growth. In terms of GDP, India became the 5th largest economy in 2021 and is on its way to becoming the 3rd largest economy behind the United States and China, at the expense of Germany and Japan. India is fully committed to attracting more foreign direct investment through a programme of incentives and other subsidies. The ‘Make in India’ campaign is an important initiative through which the Indian government aims to solicit foreign investors and create jobs for its population by strengthening its manufacturing industry.

Everything seems ready for the Netherlands to intensify its trade relations with India. In the policy brief of the Dutch Ministry of Foreign Affairs, India is dubbed an ‘economic heavyweight with significant opportunities for the Dutch business community’. India is one of the countries in which the Netherlands wants to make trade and development investments. Besides rapid growth, India is facing major socio-economic challenges and large disparities between rural and urban areas regarding progress in welfare improvements. India’s potential became evident through its booming economy, young and highly skilled population, well-developed IT industry, and increasingly significant role in international trade relations. But will the country overcome its challenges? Will it succeed in further reducing poverty and manage to close the urban-rural divide in terms of educational enrolment and unemployment? Will India live up to the high expectations for its economic future?

Reason enough to discuss India and the Netherlands’ relations with the country in this publication. This Internationalisation Monitor highlights the Indian economy and focuses on the trade and investment relationship between the Netherlands and India. The interdependence between the two countries in global value chains is also discussed, as is the footprint.

Listed below are some of the main findings presented in the chapters of this edition:

Chapter 1: Economic profile of India

  • India was the world’s 5th largest economy in 2021, with a GDP of €2,696bn. The Indian economy in terms of GDP is three times larger than the Dutch economy.
  • India’s GDP per capita was approximately €2 thousand in 2021. In the Netherlands, it was 25 times larger: €49 thousand. India ranked 153th in the list of countries with the highest GDP per capita.
  • India is the world's most populous country as of 2023 and is densely populated: 1.4bn people in India live on a much smaller surface than 1.4bn inhabitants of China. Population density in India is comparable to the Netherlands, with on average 470 people living per square kilometre. India’s population is relatively young: only 7% are over the age of 65, compared to 13% of China’s inhabitants.
  • India recorded an economic growth of 8.7% in 2021, which is higher than worldwide growth (5.9%) and comparable with China’s economic growth (8.1%) in 2021.
  • Despite rapid economic growth, India is facing multiple challenges. More than half of the population do not have access to internet; 140 million people live in poverty, educational attainment (primary) is only 60% and unemployment rates are high. There are large disparities between urban and rural regions in India. Poverty, poor internet access and unemployment are more problematic in rural parts of the country.
  • The most remarkable difference in India’s economic structure and development compared to many other developing countries is its well-developed and historically large service sector. Already in 1960, services contributed almost 40% to GDP, and the sector has continued to dominate the Indian economy (50% in recent years). Manufacturing has never been the dominant sector of the Indian economy; it contributed 25% to GDP in 2021.
  • The main reason for India’s large service sector is the policy focus on the domestic economy from the 1950s onwards. Protectionism through regulation of foreign investments and limiting of international trade resulted in rapid economic growth, which started to decline in the 1980s. India had to deal with a large trade deficit and government debts. From 1991 onwards, India started to decrease regulation and opened up for trade and foreign investments, which resulted in continued GDP growth.
  • Despite India’s attempts to attract more investors, international firms continue to face obstacles to enter the Indian market. India introduced programmes aimed at protection of domestic industries. The ‘Make in India’ programme was launched in 2014 by the Modi government in order to boost the manufacturing sector, raise its contribution to GDP and create manufacturing jobs.
  • Over the past two decades, India has integrated into the world economy. In 2001 it was still the 23rd largest goods importer and 30th largest goods exporter worldwide, and it had climbed to the 10th and 16th position respectively in 2021.
  • India exported €335bn worth of goods in 2021, while its imports were as high as €484bn. These figures combined result in a trade deficit of €149bn.
  • India’s most important export destinations in 2021 were the US, the UAE, China, Bangladesh and Hong Kong. India’s top exports were refined petroleum, processed diamonds, medicines, jewellery and rice.
  • The top countries of origin for India’s imports in 2021 were China, the UAE, the US, Switzerland and Saudi Arabia. The most imported goods were processed diamonds, coal, natural gas, mobile phones and processors.
  • India has a large service sector. In 2020, it ranked 10th worldwide as service importer and 8th as service exporter. It ran a trade surplus of €81bn as it imported €95bn while exporting almost €176bn worth of services.
  • IT services are the top exported services for India; the top imported services are business services.
  • Indian employees (Indian as first nationality) working in the Netherlands earn on average with €37 per hour more than Dutch or Chinese employees with €27 and €23 per hour, respectively.
  • Indian employees are also younger: the average Indian employee is 35 years old, compared to 37 years for Chinese employees and 43 years for Dutch employees.
  • Indian employees are more often male than female. This is true for Dutch and Chinese employees as well, but the gap is more pronounced among Indian employees: almost 68% of Indian employees are male, compared to 52% and 55% for Dutch and Chinese employees, respectively.
  • Differences between average hourly wages are also more pronounced among Indian employees than among Dutch and Chinese employees.
  • Indian employees are more often employed in sectors such as information and communication and professional, scientific and technical activities. These are also sectors in which the hourly wages are higher than average.

Chapter 2: Dutch goods trade with India

  • With the Netherlands as a gateway to Europe for goods trade, there are increasingly close trade relations with India. The Netherlands imported €6.8bn in goods from India in 2022, equivalent to 1% of total Dutch imports and making India the 20th largest country of origin in goods trade. Between 2002 and 2022, imports became 8 times larger in value.
  • Primary goods imported from India by the Netherlands were mainly manufactured goods (such as non-ferrous metals, clothing, zinc, aluminium), chemical products (such as medicines, pharmaceutical products and organic chemical products) and mineral fuels (such as refined petroleum products).
  • Dutch exports to India had a value of €3.3bn in 2022. India thus accounted for only 0.4% of total Dutch exports, ranking it 35th among all export destinations. Over the period 2002–2022, exports increased by a factor 6. The Netherlands' trade deficit with India was €3.5bn in 2022.
  • Exports to India mainly comprised chemical products (e.g. pharmaceuticals and plastics), machinery and equipment (e.g. computers, laptops, tablets and electro-medical and radiological devices) and raw materials (e.g. scrap iron or steel). Moreover, in percentage terms, many more domestically produced goods are exported to India than to an average other country.
  • Compared to China, India is of much smaller significance to Dutch foreign traders. Between 2015 and 2021, the number of firms trading with India rose by 880: from 6,705 firms to 7,585.
  • In 2020, during the coronavirus pandemic, the number of firms trading with India fell temporarily. Trade recovered in 2021, but the total number of traders was still lower than in 2019. The number of firms trading with India recovered more rapidly from the coronavirus pandemic than the number doing business with China.
  • Two-thirds of the firms trading goods with India in 2021 were independent SMEs. The main business activities for Dutch firms active in India include: wholesale and retail trade, manufacturing, and specialised business services.
  • In exports to India, water and waste management services have the highest value, followed by manufacturing. In imports, mining and quarrying tops the list with the highest median import value.
  • The number of structural exporters increased every year between 2015 and 2021. 1,925 firms were exporting to India on a structural basis in 2021, i.e. typically exported goods to India in at least three of the previous four years (2018–2021).

Chapter 3: Dutch services trade with India

  • International trade in services is important for the Dutch as well as for the Indian economy. The contribution of services trade to Indian GDP was 12% in 2021, while it contributed 3.3% to GDP back in 1990.
  • The Netherlands has a services trade deficit with India that amounted to €2.8bn in 2021. The deficit has grown in recent years, but appears to have stabilised again over the first three quarters of 2022.
  • Dutch service imports from India amounted to €4.0bn in 2021, i.e. €2.3bn more than in 2014, the first year available in services trade data.
  • Between the start of 2020 and Q2 2021, the growth in service imports from India stagnated in response to the coronavirus pandemic. As of Q3 2021, service imports from India were on the rise again. The total value of imported services from India exceeded €1bn for the fifth consecutive quarter in Q3 2022.
  • 1.9% of all services imported by the Netherlands in 2021 came from India. India was the 11th largest supplier of services to the Netherlands in 2021.
  • In 2021, India was more important for Dutch service imports than China (12th). India became the largest non-European supplier of services behind the United States. Moreover, India is now the most important BRICS partner for Dutch imports of services.
  • Telecommunications, computer and information services (€1.9bn in 2021) and business services are the most important categories in Dutch service imports from India. More than half of all imported services in the first three quarters of 2022 were telecommunications, computer and information services; 42% belonged to business services. The leading imported telecommunications, computer and information services are computer services while business and management consulting were the primary imported business services from India.
  • India’s IT service exports contribute 13.4% to the global amount of IT services exported. India is a major worldwide supplier of IT services.
  • 9% of all telecommunications, computer and information services imported by the Netherlands in 2021 were imported from India. Only four countries were more important suppliers of telecommunications, computer and information services to the Netherlands than India. The share of India in the total import of these type of services was almost 10% in the first three quarters of 2022, indicating an even more important position for India in the future.
  • Total service exports from the Netherlands to India stood at €1.2bn in 2021, growing by 39% compared to 2014. The total of imported services was more than three times larger than total exported services to India in 2021.
  • Dutch service exports to India more than doubled between 2014 and 2019 (from €887 million to €1.7bn). With the outbreak of the coronavirus pandemic in 2020, service exports to India decreased from €1.7bn in 2019 to €1.2bn in 2021, recovering in Q3 of 2021. In Q3 of 2022, the value of exported services to India was around the pre-pandemic level.
  • Of all exported Dutch services, 0.7% was destined for India in the first three quarters of 2022.
  • In 2021, India ranked 28th on the list of most import destinations of Dutch services.
  • Telecommunications, computer and information services are the most important category in service exports to India and make up 40% of the total value of services destined for India. Transport services and business services are the second and third largest categories, contributing 23% and 20% respectively.
  • The value of telecommunications, computer and information services exports to India rose substantially between 2014 and 2019: in 2019, India was the 10th largest destination for Dutch telecommunications, computer and information services, up from 16th position in 2014. In the first nine months of 2022, the total value of these type of services exports to India stood at €538 million, close to the level of 2019 (€594 million in the first three quarters).
  • In 2019, India was a more important destination for Dutch telecommunications, computer and information services than China (21st place).
  • In the period 2018–2020, India was the most important offshore destination for Dutch firms after its EU partner countries. Most firms relocated activities in the categories of administrative and management functions and IT services to India. Cost saving is the most frequently cited motive for offshoring.
  • The OECD's Services Trade Restrictiveness Index (STRI) reflects the trade openness of countries' service sectors. India ranks 47th according to the STRI Index in 2022, above the OECD average.
  • Due to the war between Russia and Ukraine, Russia dropped in 2022 from 44th to 48th place in the STRI, allowing India to move up one place. India has been progressively implementing reforms in recent years, which has contributed to a slight liberalisation of trade in services in some sectors, particularly between 2019 and 2021.

Chapter 4: The Netherlands and India in global value chains

  • In 2021, the value added generated by the Dutch economy as a result of goods and services exports to India stood at around €1.5bn, accounting for 0.2% of the Dutch gross domestic product. This makes India the 31th largest export partner of the Netherlands in terms of export revenues.
  • Most of the revenue from exports to India is generated by exports of services with €720 million, followed by exports of domestically produced goods with €650 million and re-exports with €128 million.
  • In 2021, a large share of the earnings from exports to India was generated through wholesale trade, followed by the ICT sector.
  • In 2021, almost 12 thousand full-time equivalent jobs (FTEs) were related to export activities from the Netherlands to India, the majority of which were generated by exports of services.
  • In 2021, Dutch firms imported goods to an amount of €4bn and imported services worth €3bn from India. Around 45% of the imported goods and services from India was due for further processing. The majority of these intermediate imports consisted of services (€2.1bn).
  • The sector repair of consumer articles imported relatively the most services from India (6.1% of total sectoral imports of services), followed by the ICT sector. The pharmaceutical industry imported relatively the most goods from India with a share in sectoral goods imports of 4.8%, followed by mining and quarrying.
  • Besides direct exports to India, the Netherlands also earns from exports to India via other trading partners in which Dutch intermediate goods and supporting services are further processed and used in the exports of these other trading partners, with India as the final destination. According to calculations based on Eurostat figures, in 2020 the Netherlands earned €1.7bn from indirect exports to India. Most of the Dutch value added that is generated due to indirect exports to India came from supplying goods and services to neighbouring countries Germany (10.4%), Belgium (9.4%) and France (7.5%). The Netherlands mainly exports to India via other European countries. In the same year, the Netherlands earned €1.8bn from direct exports to India. The Netherlands thus earned a total of approximately €3.5bn in direct and indirect exports to India in 2020.
  • €2.9bn out of total Dutch export earnings from trade with India is due to final consumption expenditure in India. The remainder of the export earnings results from intermediate goods and supporting services that are used as inputs in the production of Indian exports, in which US and Chinese consumers and investors play an important role.
  • In 2020, India earned €4.5bn from exports to the Netherlands. This is €1bn more than the €3.5bn that the Netherlands earned from exports to India in that same year. India earned €3.4bn from direct exports to the Netherlands and €1.1bn from indirect exports.
  • In 2020 the bulk of India’s export earnings to the Netherlands was derived from goods and services exports that were destined for the Dutch domestic market. About €2.6bn of the €4.5bn India earned in total from exports to the Netherlands is related to consumption or investments in the Netherlands. The other €1.8bn is related to consumption of Indian exports elsewhere in the world, in particular to Germany (12%), the US (11.9%) and China (7.1%).
  • India ranks 7th on the list of countries with the largest greenhouse gas footprint for final consumption in the Netherlands. While greenhouse gas emissions in the Netherlands decreased between 2010 and 2018, the Dutch footprint in India has increased, especially since 2014. Imports of services from India more than doubled during this period.
  • This can be explained by several facts, for example that a lot of coal is still being used in India to generate energy; indirect imports from India have increased; and relatively more greenhouse gas is emitted due to production in India or an increase in the emission intensity (the emissions per euro of production) in India.
  • The Dutch greenhouse gas footprint in India is largely generated within four Indian industries: agriculture (particularly livestock farming), energy supply, manufacturing (particularly the steel and iron industry and chemical sector) and mineral extraction. More than 90% of emissions from the Indian energy sector is caused by the burning of coal. In Indian mineral extraction, coal extraction is another leading cause of emissions.

Chapter 5: Investments in India

  • Since 2014, the Indian government has been actively soliciting more foreign investments using various policy initiatives such as ‘Make in India’ and ‘Production Linked Incentive’.
  • According to statistics from De Nederlandsche Bank (DNB), €3.1bn of the total Dutch outward FDI went to India in 2021, after adjustment for investments through SPEs. This is almost six times more than in 2015 and twice as much as in 2018. We also see an increase in Dutch investments in China, albeit less than in India.
  • The number of Dutch firms of which the ultimate controlling institutional unit (UCI) lies in India rose by 30% between 2015 and 2020, to a total of 195 firms. These 195 firms provided jobs to altogether 19 thousand employees in the Netherlands.
  • Between 2015 and 2020, the number of Dutch firms with foreign affiliates in India decreased from 235 to 220. However, during that same period, India’s ranking amongst the BRICS nations as a recipient of Dutch investments increased from 4th to 2nd. The number of employees working at these Indian subsidiaries also increased by 50% to a total of 39 thousand employees.
  • Foreign direct investment can be broken down into horizontal and vertical investments. This is the first time we apply such a breakdown to Dutch investment worldwide. As expected, Dutch manufacturers engage mainly in vertical FDI (54%) worldwide. By contrast, firms active in services (68%) or wholesale and retail sales (76%) engage more in horizontal FDI.
  • Investments in China by Dutch manufacturers are predominantly horizontal (54%), compared to only 48% in India, for example. This may be due to relatively higher trade barriers in China, such that firms prefer to start a foreign affiliate behind the border and sell directly from there.
  • 86% of Dutch investments in India by firms active in services are horizontal. This high percentage can mainly be explained by the attractiveness of the Indian ICT sector, leading to many investments from Dutch ICT firms.
  • Given its ambiguity, the relationship between investments and trade has long been food for discussion. On the one hand, they can be substitutes and on the other hand they can be complementary. We show that 45% of the firms investing in India also export to India; 35% even do so on a structural basis.
  • When we dig further into types of investments, we see that vertical investments appear to be complementary to export, as 90% of firms investing in India also export to India. For firms with a horizontal investment, this is only 45%.
  • Of the total nominal value of outgoing investments in all BRICS countries, India only accounts for 5.9%. China (58%) and Brazil (33%) account for the vast majority. So while Dutch firms have similar numbers of foreign affiliates in India compared to Brazil, for example, their average nominal value is significantly lower.

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Sarah Creemers

Dennis Cremers

Loe Franssen

Daniël Herbers

Bas Kerckhoffs

Angie Mounir

Tom Notten

Leen Prenen

Janneke Rooyakkers

Christiaan Visser

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Janneke Rooyakkers

Manon Weusten

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Sarah Creemers

Daniël Herbers

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We danken de volgende personen voor hun constructieve bijdrage aan deze editie van de Internationaliseringsmonitor:

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Deirdre Bosch

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