Saina Nehwal lost the first game 15-21 and in the second game threw away a 20-16 lead at one stage to lose the decider 21-23.
Earlier in the day, Pranav Chopra and N. Sikki Reddy defeated their German opponents to advance to the next round in the tournament.
On Tuesday, World champion P.V. Sindhu and B. Sai Praneeth made impressive starts to their campaign while Parupalli Kashyap and Sourabh Verma crashed out early after losing their first-round matches.
Sindhu registered a straight game win over Indonesia's Gregoria Mariska Tunjung in the women's singles competition. She defeated former World Junior Champion Gregoria 22-20, 21-18 in 38 minutes.