Merkel, who brought up the matter during an interaction with Modi on the sidelines of the G20 summit here, also invited the prime minister to visit Germany.
The Chancellor told Modi that India should work on a system where children can learn German in schools.
"Merkel did raise the issue of teaching German language in Indian schools. She raised in a manner requesting the Prime Minister to have a look in it and see what would be the best way forward," External Affairs Ministry spokesperson Syed Akbaruddin told reporters.
"Prime Minister assured her (Merkel) that he himself is the votary of young Indian children learning other languages. He said how it is best done within the confines of Indian system, we will work it out," Akbaruddin said.
Merkel also told Modi that Germany is looking forward to his visit to the country.
"Our relations are deepening...Waiting for your visit," a tweet posted by the MEA said.
The Sanskrit issue has already been raised by German Ambassador to India Michael Steiner with the Indian government, hoping for a "pragmatic" solution.
The 2011 Memorandum of Understanding that made German a third language was signed between the Kendriya Vidyalayas and Goethe Institute-Max Mueller Bhawan.
Union HRD Minister Smriti Irani has defended the move, saying the existing arrangement was in violation of the three-language formula. She, however, said German would continue to be taught as an "additional subject of hobby class".
In the three-language formula, schools teach Hindi, English and a modern Indian language.
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