"Pace of development of our relations is fast, direction positive and destination clear. Germany will always find India as powerful, prepared and capable partner," Modi said at a joint press interaction after holding talks with Merkel.
Following their talks, the two sides also signed 12 MOUs/agreements in fields like cyber policy, development initiatives, sustainable urban development, continued development of cluster managers and skill development, digitalisation, railway security and promoting vocational training.
The two leaders underlined their common concern about the threat and global reach of terrorism and extremism while condemning terrorist violence in all its forms and manifestations, the joint statement said.
"They agreed on the need to take strong measures against all those who encourage, support and finance terrorism, provide sanctuary and safe havens that sustain and support terrorist groups and organisations," it said.
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India and Germany hailed their closer collaboration in countering these challenges through regular meetings of the Joint Working Group on Counter Terrorism.
Making a reference to terrorism, Modi said it was a big problem that faces future generations and all forces of humanity must come together to fight the menace.
"Both our countries will work together to tackle this problem together and cyber security and intelligence sharing is a very important aspect of this cooperation," he said.
Modi's remarks assume significance as they come in the wake of a spate of terror attacks that have struck European countries like Germany, France, the UK and Sweden recently. The latest terror attack to have rocked Europe was at a concert in Manchester where a suicide bomber blew himself up, killing 22 people.
"A quantum jump in economic relations can be seen between India and Germany and an outcome-oriented momentum can be seen building," he said.
"At the last IGC in New Delhi, we had set up a fast-track system for German companies to invest in India and that has shown very good results, especially the Mittlestand (medium enterprises) companies," Modi told reporters.
On her part, Merkel said India has proved to be a reliable partner and the two sides have been able to deepen cooperation.
Modi also made a call for European Union (EU) unity and said India would play a positive role in enhancing that through Germany.
"EU unity, proactiveness and strong relations with other countries is extremely important for global development. We want the EU to become stronger and India will play a positive role towards that through the medium of Germany," Modi said.
"Europe and the world are facing lots of challenges and to fight those, India believes, the world needs the strong leadership of Chancellor Merkel," he said.
Noting that India and Germany were "made for each other", Modi highlighted that skills development was a key area of cooperation.
India, with 800 million youth and 65 per cent of the population under the age of 35, will be benefited by skills development that Germany can provide, he said.
Modi said bilateral cooperation will extend to the field of sports and the Indian youth can benefit from Germany's strong football training skills.
Merkel said India and Germany had further expanded and deepened the bilateral relationship during Modi's visit.
"There has been signing of a number of declarations of intent with 1 billion euros going into development cooperation between the countries," she told reporters.
Germany also backed India's bid for the Nuclear Suppliers Group (NSG).
Both countries, that are part of the G4, reaffirmed the urgent need for a comprehensive reform of the UN Security Council, including its expansion in both permanent and non- permanent categories of membership, to make it "more effective, efficient and responsive" to the existing challenges to international peace and security and representative of the contemporary geo-political realities, the statement said.
India and Germany agreed to continue cooperation towards the common aim of developing climate-friendly, efficient and sustainable solutions for India's expanding energy needs and other areas of sustainable development, the statement said.
"Both sides looked forward to a successful conclusion of the work of the UN Group of Governmental Experts in the Field of Information and Telecommunications in the Context of International Security," the statement said.
Modi and Merkel also underlined their determination to ease bilateral trade and investment.
They pointed to the potential of open markets and the importance of investment protection for foreign investors for deepening trade relations and for attracting investments to the mutual benefit of both countries.
The signing ceremony for the MoUs took place at the Chancellery, the office of the German Chancellor, between senior Indian and German ministers and envoys before Modi and Merkel addressed the media.
The two leaders' formal IGC deliberations lasted over an hour.
Modi was joined by his delegation of senior ministers includingMinister for Science and Technology Harsh Vardhan,Commerce Minister Nirmala Sitharaman, Energy Minister Piyush Goyal and Minister of State for External Affairs M J Akbar.
Modi and Chancellor Merkel later proceeded to their meeting withseniorbusiness leadersbefore inaugurating the Indo-German Business Summit 2017.
Germany is the largest trade partner for India in the EU and one of the leading sources of foreign direct investment (FDI) into the country.
"There has been FDI of 2 billion dollars (from Germany) in the past two years," Indian Ambassador to Germany Mukta Dutta Tomar, said, highlighting the success of a fast track mechanism set up in 2015 to assist German businesses work in India and improve the ease of doing business.