India - Indonesia Economic and Commercial Relations

Indonesia’s market of 220 million is the largest among India’s ASEAN partners. The Indonesian economy has stabilized after its 1997-98 crisis, its strengths resting on the country’s enormous natural resources (oil and gas, coal, copper, gold, forestry and plantation products) and manufacturing for the domestic and export markets (textiles, footwear, electronics, automotive, pulp and paper). While stable in macro-economic terms, the Indonesian economy is marked by low investment growth, slowing exports and high unemployment, making it largely consumption driven.

Trade relations between India and Indonesia go back to ancient times, contributing to the historical and civilizational affinities between the two countries. In the modern era, trade relations were formalized under a Trade Agreement signed in June, 1978, committing both countries to take all appropriate measures to facilitate, strengthen and diversify bilateral trade. Periodic discussions have taken place at the Ministerial and official levels to strengthen economic and commercial ties within the framework of this agreement. JBC/business level meetings have also been convened periodically, particularly in conjunction with high level visits. A bilateral Agreement on Avoidance of Double Taxation between the two countries was concluded in January, 1986. An Agreement for the Promotion and Protection of Investments, which was signed in February, 1999, came into force in January, 2004. The first ever India-Indonesia Joint Commission Meeting (JCM) was held in Yogyakarta in September, 2003. Apart from taking major decisions to promote bilateral economic and commercial relations in various fields, the JCM decided to constitute an "India-Indonesia Expert Working Group" with the specific mandate of reporting back to the JCM with concrete recommendations for enhancing and diversifying bilateral trade, economic and investment relations. Both sides are in the process of constituting this Working Group.

Bilateral Trade :

Indonesia is our second largest export market in ASEAN (after Singapore) and one of our leading export destinations among developing countries. Bilateral trade, which has tended to be in Indonesia’s favour, is likely to cross the US $ 2.5 billion mark in 2003-04. The trade baskets are complementary. India is Indonesia’s largest buyer of Crude Palm Oil (CPO) and importer of its mining, petroleum and paper products. India exports refined petroleum products, wheat and rice, sugar and iron and steel products to Indonesia. As Indonesia has emerged from its economic downturn, bilateral trade has surged in the past two years. However, there remains vast untapped potential for further growth. The profile of bilateral trade may be seen in Annexure I.

Investments/Joint Ventures/Projects :

There are over a dozen major Indian manufacturing joint ventures in Indonesia with direct Indian participation or financed by overseas Indians. The bulk of these investments were made in the 1970s and 80s, and in fact upto 1985 India was among the top five investors in Indonesia. Major investments are in the fields of synthetic fibres, textiles, garments, steel and hand tools. Major Indian companies with assets in Indonesia include the Aditya Birla Group (Indo-Bharat Rayon), the S.P. Lohia Group (Indo-Rama Synthetics), the Ispat Group (Ispat-Indo), Jaykay Files Indonesia, Gokak Indonesia, and ESSAR Dhananjaya. Overall, Indian investors hold around $ 1.5 billion in assets in Indonesia and the annual output of these companies is between US $ 1 - 1.5 billion.

A large number of Indian companies have been involved in supplying equipment to and undertaking projects in Indonesia. These include WAPCOS, IRCON, RITES, STUP Consultancy India Ltd., TCIL, PUNJ LLOYD, KEC International, TELK Ltd., BHEL and Bharat Heavy Plates. NIIT/APTEC/LCC Infotech have established IT Education Centres in Indonesia. Reliance, Kirloskars and Thermax maintain representative offices in Indonesia. Bajaj Auto is in an advanced stage of setting up a joint venture for the assembly/production of three wheelers and two wheelers in Indonesia. IRCON is currently bidding for Road Construction Projects in Indonesia and exploring Railway Rehabilitation and Construction Projects as well as prospects for leasing Locomotives. STC and MMTC have been active participants in trade with Indonesia.

Promising areas for investment/joint ventures/services :

These include oil and gas, manpower and engineering consultancy services for the petroleum industry, mining, plantation products(particularly CPO), IT education and services, ports and railways, telecommunications, pharmaceuticals and education (both School and University).

Banking :

Indonesia has both State-owned banks and private banks. All major international banks have a presence in Indonesia. The Bank of India maintains a representative office in Indonesia while Bank Indonesia International (BII) has a branch in Mumbai.

Non-tariff barriers :

Indonesia does not permit import of meat and meat products from India on the ground that India is not free from foot and mouth disease even though India exports frozen, deboned and deglanded meat to countries in the Middle East and South East Asia (Philippines and Malaysia) which conform to the guidelines stipulated by the Office International des Epizootes (OIE). Sunset review for continuation of anti-dumping duty on import of ampicillin trihydrate and amoxycillin trihydrate from India has been initiated in November, 2003 and the duty is still operative. Sunset review in 2002 for import of hot rolled coil from India recommended discontinuation of anti-dumping duty. Recommendations for final anti-dumping measures on import of carbon black and phthalic anhydride from India are under process with the Indonesian government.

Global trade of Indonesia and India’s share (in US$ millions)

Source : Central Bureau of Statistics, Jakarta (Indonesia) publications and The Jakarta Post issue of 4.2.2004 (for 2003 figures)

Major Components of Bilateral Trade
( January – September, 2003 )

Source : Central Bureau of Statistics, Jakarta (Indonesia)

Source : India High Commision , Indonesia