A Historic Milestone in Bilateral Relations
Indonesia is India’s largest trading partner within ASEAN,
and bilateral ties are set to deepen further. The visit of Indonesian President
Prabowo Subianto as the chief guest for Republic Day is a significant event.
This marks the fourth time an Indonesian President has received this honor,
underscoring the strategic importance of the India-Indonesia partnership.
Expectations are high for this visit, given the robust trade, investment, and
cultural ties between the two nations.
A Robust Economic Foundation
The economic relationship forms the cornerstone of
India-Indonesia ties. Bilateral trade has grown significantly, from $4.33
billion in 2005-06 to $38.84 billion in 2022-23, though it slightly declined to
$29.4 billion in 2023-24. Indonesia enjoys a trade surplus, driven by its
exports of coal and crude palm oil, with India being the largest buyer of
Indonesian palm oil and the second-largest importer of coal.
India’s exports to Indonesia include refined petroleum, commercial vehicles,
telecom equipment, pharmaceuticals, and agricultural products. However, coal
and palm oil dominate trade, making them critical to future economic
engagement.
Barriers to Trade Expansion
Despite the extensive trade relationship, Indian exports
face significant non-tariff barriers in Indonesia. Under the ASEAN-India Trade
in Goods Agreement (AITIGA), Indonesia presents the toughest market access
challenges among ASEAN-6 nations. Indian pharmaceuticals, bovine meat, and
agricultural products face stringent phytosanitary standards that restrict
exports.
Achieving the ambitious $50 billion trade target requires addressing these
barriers and diversifying trade. The AITIGA review must prioritize improved
market access for Indian goods and ensure mutual respect in trade policies.
Investment Landscape: Untapped Potential
Indian investment in Indonesia is substantial but often
underreported. Official estimates place Indian investment at $1.56 billion, but
the actual figure exceeds $10 billion due to indirect flows through Singapore.
Key sectors include infrastructure, power equipment, textiles, coal mining, and
consumer goods.
Indonesian investments in India remain modest, at around $650 million, focusing
on agriculture, processed foods, IT, and logistics. Strengthening ties between
Indian and Indonesian CEOs is vital to unlocking the full potential of
bilateral investments. Revitalizing platforms like the India-Indonesia CEOs
Forum and the Biennial Trade Ministers Forum can provide consistent engagement
and direction.
Healthcare, Agriculture, and Strategic Cooperation
Indonesia seeks Indian expertise in public healthcare, food
security, and the digital economy. However, significant non-tariff barriers
hinder Indian pharmaceutical exports. Addressing these barriers could lower
healthcare costs for Indonesians and attract Indian investment. Indian
hospitals, such as Apollo and Artemis, are already collaborating with
Indonesian counterparts to improve healthcare infrastructure, showcasing the
potential for deeper cooperation.
In agriculture, India consistently advocates for better access to the
Indonesian market for rice, sugar, and bovine meat. However, Indonesia often
restricts these imports, allowing them only during domestic shortages. A
consistent import policy would enhance Indonesia’s food security while
addressing India’s trade deficit.
Tourism and Defence: Emerging Areas of Collaboration
Tourism has emerged as a strong pillar of the relationship,
with Indian tourists frequenting Bali and Jakarta. Direct flights by Indian
carriers like Vistara, Air India, and IndiGo have boosted this trend. However,
efforts to promote Indonesian tourism in India remain limited.
In defence, Indonesia has expressed interest in acquiring Indian equipment,
including the BrahMos missile. Extending rupee-based credit lines for defence
exports could align with Indonesia’s budget priorities and deepen bilateral
defence ties. Expanding cooperation to include other defence technologies would
further enhance the partnership.
A Balanced and Dynamic Partnership
To fully realize the potential of their relationship, India
and Indonesia must address challenges such as regulatory barriers, inconsistent
market access, and limited engagement between business leaders. Regular forums,
enhanced trust, and a focus on emerging sectors like healthcare and the digital
economy are critical.
President Prabowo Subianto’s visit offers a unique opportunity for both nations
to celebrate their shared history and lay the groundwork for a dynamic
partnership that benefits both economies and societies.
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