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The Economic Ties between India and Indonesia – Prospects and Challenges

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When talking about economic ties between India and Indonesia, a close look is required to assess the relationship dynamics between both. Indeed, India and Indonesia share more than century’s old historical and cultural linkage. These two populous nations in Asia carry lukewarm trade relation and over a period of time, with their gradual and consistent growth, they have come close on a few economic indexes too. Both these peace-loving societies, together with the common economic platform, can set a benchmark for whole Asia and beyond by expanding their arms in each other’s investment and trade arena.

In the past, trade between the two countries has been modest and growing steadily due to non-committal affinity. Although their bilateral trade has grown manifold up to $20 billion (whereas the target was to achieve bilateral trade of $25 billion by 2015) over one decade from $4.3 Billion in 2005-06, the economic relations between these two are still far from its true potential.

Recently during the recent visit of Indian Prime Minister Narendra Modi, both leaders agreed to set an ambitious target of “$50 billion bilateral trade by 2025” to strengthen their trade affinity which however needs for synergizing the effort for further smoothening the process and eliminating trade barriers. Few sectors like pharmaceutical; heath Care, IT, infra, automobile, etc. still has considerable potential for future expansion of trade and investment prospects.

As a matter of fact, the initiative was taken last year (upgrading their ties to Comprehensive Strategic partnership and MOU signed in pharmaceutical, infra, and health care, etc.) by both leaders might deepen business, government and corporation bonding. The vast population of India, its skilled manpower, expertise in IT coupled with vibrant youth population and strategic location of Indonesia might serve as a platform for inclusive growth for both.

Similarly on the investment front too, India’s investment in its look-alike economy is not substantial, Indian investment in Indonesia has been modest and currently accounts for around USD $285 million only .as per BKPM data which is still less than other neighbor counties.

Hence as an initiative to boost the investment prospects between both, CII has decided to open up an overseas office in Jakarta by 2019 which aims to facilitate Indian industries in establishing their arms in Indonesia which might enhance and strengthen trade and investment association. Indian Investors are willing to invest in sectors like infra, health care, pharmaceutical, automobile, etc. where future potential growth prospects exist. The First India Indonesia Infra forum (IIF) held in 2018 emphasized on boosting Indian investments in the infrastructure sector. Such forums are paving the way for future sustainable investment for both economies.

On the contrary, Indonesia presence in the Indian market is not noticeable as compared to its presence in China, Japan, and other countries. Perhaps trade barriers, Bureaucracy, regulatory issues, poor infra, etc. are holding back Indonesian companies from investing in India. India needs to make its policy reform and regulations more transparent and appealing for Indonesia to come forward. Further, more frequent CEO forums, trade promotion, delegate visits, and participant exchange programs are required to upgrade the economic ties between them.

However, despite being such long-standing historical linkage, the economic ties between these twin brothers have been largely under-developed which might improve in the long term under the dynamic leadership of both leaders. Whether that will happen is still to be witnessed and depends on this year election’s results but overall the relationship between these two siblings should continue to grow, albeit a little slowly.

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The Economic Ties between India and Indonesia – Prospects and Challenges

By: Anubha Srivastava Read time: 3 min