India’s Trade and Investment Cooperation with Indonesia -Where to Invest in the Next Decade? Dr. Arup Barman (Director i/c, Centre for East Asian Business Studies, CEABS) Associate Professor, Department of Business Administration, Assam University, Silchar-788011(India), Email:
[email protected]
India and Indonesia have shared more than two millennia of close cultural and commercial contacts. During respective struggles for independence, the national leaderships of India and Indonesia led by the then Prime Minister Jawaharlal Nehru and President Sukarno collaborated closely in supporting the cause of Asian and African independence and later on the two countries became independent, the two leaders together laid the foundation of the Afro-Asian and Non-Aligned Movements at Bandung Conference in 1955. There are around 80,000-100,000 Indonesians of Indian origin in Indonesia mostly concentrated in Greater Jakarta, Medan, Surabaya and Bandung. They are mainly affianced in trade dealing in textiles and sports goods. There are around 5,000 Indian nationals living in Indonesia including engineers, consultants, chartered accountants, bankers and other professionals. With the strong links, bilateral trade size should have grown bigger. Now the strategists in international collaboration are looking huge scope and opportunities to increase the trade. Indian Prime Minister Modi and the president of Indonesia holds same vision as stated that both countries have similar policies as the Modi‟s „Make in India‟ initiative‟.
India-Indonesian Trade Collaboration India-Indonesia became one important and largest trade partner considering the India‟s Trade within ASEAN 10 countries. Among all partnering countries Indonesia holds 2 nd and third and third ranks in terms of export from India (table-1). Indonesia had given the place to India to organize „Made in India‟- show at Jakarta in August 2009. The third joint meeting to explore commerce and trade between India and Indonesia identified new fields of bilateral co-operation ranging from special economic zones and alternative energy sources to legal assistance, biotechnology, space related applications, tele-education and tele-health. India has substantial investments
in
Indonesia
in
the
textiles,
steel,
automotive, banking which statistics revealed. Major Indian companies operating in Indonesia include the Aditya Birla group which has a viscose fibre plant and downstream units, Essar which has a cold-rolled steel mill near Jakarta and Jindal Stainless Steel in Surabaya.
2005-06 2006-07 2007-08
Table-1 India’s Export to Indonesia (Ranks Among ASEAN) 2nd out of ASEAN 10 after Singapore 2nd out of ASEAN 10 after Singapore 3rd out of ASEAN, after Malaysia
2009-10 2010-11 2011-12
2nd out of ASEAN after Singapore 2nd out of ASEAN after Singapore 2nd out of ASEAN 10, after Singapore
2012-13 2013-14 2014-15
2nd out of ASEAN 10, after Singapore 3rd out of ASEAN 10 after Vietnam 3rd out of ASEAN 10 after Malaysia
Year
Source: Department of Commerce, GOI
There are two Indian motor-cycle manufacturers – Bajaj and TVS - in Indonesia. The State Bank of India and the Bank of India has branches in a number of Indonesian cities. Tatas own 30% of the two largest coal mines in Indonesia. 40 Indian companies are currently mining or exploring coal blocks in Indonesia. Gujarat State Petroleum and Essar have won an exploration license for gas on-shore in Sumatra Balmer Lawrie signed a joint venture agreement for manufacturing grease and lubricants in Indonesia. In 2009, NALCO also signed a joint
venture agreement to establish an aluminium smelter and a 1250 MW power plant at a cost of US$ 4 billion in South Sumatra.
India-Indonesian Strategic Partnership Indonesia has been supportive to India‟s „Look East Policy‟ and opinionated as the ASEAN Coordinator for India‟s Dialogue Partnership with the ASEAN. Indonesia was also a strong advocate of India‟s participation in the East Asia Summit. India‟s “look east” policy and Indonesia‟s desire to develop stronger ties with large democratic neighbourhood which „provides a unique opportunity to enhance structured long term cooperation between these two countries in numbers of high priority areas relevant to Indonesia‟s development plan. India‟s comprehensive achievements in the fields of information technology, higher education, pharmaceuticals and medicine, e-governance, anti-corruption as well as the effective public-private partnerships in infrastructure investment, all generate a high level of interest in Indonesia‟. On the other hand, the large Indonesian market and its enormous resource base, ability to navigate two major economic crises in a single decade, strong record on poverty alleviation, management of social conflict and resilient GDP growth continue to attract new Indian investment into Indonesia. Thus, India-Indonesian relation provides a positive hope for mutual and shared development partnership bilaterally. Further, Indonesia is keen on expanding the collaboration with India in areas such as agricultural products, healthcare and pharma, science and education. As a consequence, Indonesia issues about 500 visas a month to the Indians. “It means a lot of Indian businesses have presence in Indonesia” expected that Indonesia will remain as the potential market for investments. Annually, about 7 million people are moving from poor to middle class due to high economic growth‟‟1. The Indian food industry is projected to reach $300 billion in 2015 2. Both the countries are acknowledging the cooperation in education, media, air services, energy resources including oil, gas, coal, and renewable energy, prevention of smuggling, prevention of illegal trade in Figure-2 Investment Opportunities in Future Power Generation Labour Intensive Industry Import Substitution Industry Export Oriented Industry Downstream Industry of Natural Resources Maritime Tourism
3G New Projects
7 GW Project in Pipelines
Textile
Food & Beverage
Chemical and Pharmaceuticals
Iron and Steel
Electronic Machinery
Furniture
Toys
CPO and derivative products Rubber Products
Wood Products, Pulp and Papers Fish and Derivative Products
Automot ive Shrimps
Cacao
Sugar
Smelter
Shipping
Shipbuilding
Sea Ports
Strategic Tourism
Mice
Cold Storage
ICT for Maritime
Source: http://www7.bkpm.go.id/contents/general/117105/investment-opportunities
narcotics, disaster management, cooperation in the area of small and medium enterprises, meteorology, climatology and geophysics including climate change, health, marine and fisheries 3. They reiterated their
common desire for accelerating the implementation of cooperation in these areas and monitoring such cooperation through the mechanism of Action Plan on Implementing the New Strategic Partnership 4.
Indonesian Priority Sectors for Development Sluggishness of social development due to low quality of infrastructure is a particular issue of development economists of Indonesian economy. Whether it is 'hard' infrastructure (such as roads, airports and electricity supply) or 'soft' infrastructure (such as social welfare and health care), Indonesia seems to have hard time pushing for efficient development. Iinadequate or lack of quality infrastructure causes Indonesia's logistics 5
costs to rise steeply, thus reducing the country's competitiveness and attractiveness of the investment climate . Indonesia is often weighed down by the routine blackouts due to shortage of country's electricity supply. Even with abundance of energy resources, Indonesia has structural problem regarding the public energy supply. The main problem for Indonesian government is to invest in country's infrastructure owing to lack of financial resources. Therefore, private sector participation - both foreign and domestic - is needed6. For development of Indonesia, the Badan Koordinasi Penanaman Modal (BKPM) 7 focuses on seven priority sectors in accordance with the government‟s work program. Those seven sectors appeared in the figure-2. BKPM aimed to achieve US$ 39.4 million which was 14% growth compared to the previous year‟s achievement. The investment target includes Domestic Direct Investment of US$ 13,5 million and Foreign Direct Investment (FDI) of US$ 26,4 million. This investment target till 2015, had have been driven by all industries such as primary industry, secondary or downsteam industry and service 8.
India’s Investment Snapshot Foreign investment from India in Indonesia dates back to the 1970s. In recent years there has been a new wave of investment focusing on the mining, the automotive and banking sectors. Having invested close to $ 15 billion in Indonesia, Indian firms have lined up further $ 15-16 billion investments for the South East Asian nations and the India and Indonesia have agreed to cooperate in new sectors like film production. Commerce and Industry Minister- Anand Sharma (2013) stated "Indian investments in Indonesia are in the range of $ 12-15 billion... another $ 15-16 billion is in the pipeline. That will take the total Indian investments in Indonesia to $ 26-31 billion"9. Even the India-Indonesia had agreed to expand their cooperation in new sectors like film production and they have agreed not only for the joint production, but also agreed to make available India‟s film institutes and the animation studios to Indonesian entities. The government of India was also striving to increase foreign investment at home. PM-Monmohan Singh said that in 2007, foreign investment accounted for 1.3 percent of all investments in the country and by 2017; foreign investment is expected to account for 5 percent10.
Projection and Provocation for Investment Hariyanta Soetarto, Acting Consul-General of Indonesia, expressed to the Business Line, mumbai that Jakarta is looking for investors to set up crude refineries in Java and Sumatra islands in his word “we are open to both 100 per cent investments and joint ventures”11. Indonesia is inviting investments in mining of nickel, gold and copper, because, it is the ninth largest gold producer, accounting for four per cent of global production. The world‟s largest gold reserves (67.4 million ounces) are believed to be at the country‟s Grasberg mine show declining production, production fell from 141 tons in 2003 to 97 tonnes in 2011. The Government of Indonesia is looking for fresh investments and technology. Indonesia as the single largest holder of proven natural gas reserve in the Asia Pacific region is emerging as an important energy supplier to East Asian countries such as
Japan, Korea and China. With reserves of 112 trillion cubic feet, Indonesia has expanded gas pipe network to neighboring countries, i.e. Singapore and Malaysia. So far, Indonesian investments in India were about $612 million, as against Indian investment in Indonesia at only $64.9 million. China, Singapore, Japan and Korea have emerged as the biggest investors in Indonesia. Indonesia's Trade Minister Gita Wirjawan said India and Indonesia are yet to achieve the true potential of their economic partnership and such forums would benefit both the countries. To realize the full potential of cooperation India‟s investment need must go to the field of infrastructure sector, media, air services, and energy resources including oil, gas, coal, and renewable energy of Indonesia. The issues deepening of strategic cooperation through the investment must not be subsided at the time of investment. To strengthen the India-Indonesian ties India has the scope of investment of at least ten times more in addition to the present level of investment $64.9 million.
Let India look the investment opportunities to its neighboring countries
meticulously for future investment.
Notes and References 1
Indonesia keen to beef up trade ties with India; (Updated: April 29, 2015 00:00 IST ), http://www.thehindu.com/business/Industry/indonesia-keen-to-beef-up-trade-ties-with-india/article7151364.ece 2 India Keen to Boost Investment in Indonesia, Ambassador Says By SP/Siprianus Hardum & Khara Kessek on 03:06 pm Mar 21, 2013 3
Barman. Arup, (2011); Intensity of Cross National HRD Collaboration: An Assessment on India and South East Asia; Article in SSRN Electronic Journal · August 2011; DOI: 10.2139/ssrn.1908367; Url: https://www.researchgate.net/publication/228286012_Intensity_of_Cross_National_HRD_Collaboration_An_Assessment_o n_India_and_South_East_Asia. 4
Barman. Arup (July,2011), HRD Collaboration through Scientific and Cultural Diplomacy – A Review on India‟s HRD Cooperation with Indonesia, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1897082 5
Indonesia Investment, URL: http://www.indonesia-investments.com/business/risks/infrastructure/item381
6
Idid 2
7
http://www7.bkpm.go.id/contents/general/117105/investment-opportunities
8
Investment Opportunities: URL: http://www7.bkpm.go.id/contents/general/117105/investment-opportunities
9
Indian investments in Indonesia to reach $26-31 billion: Anand Sharma; (PTI Oct 12, 2013, 07.02PM IST); http://articles.economictimes.indiatimes.com/2013-10-12/news/42968451_1_brunei-darussalam-indian-investments-asean 10
India Keen to Boost Investment in Indonesia, URL: http://thejakartaglobe.beritasatu.com/business/india-keen-to-boostinvestment-in-indonesia-ambassador-says/581115/ 11
Virendra Pandit (Indonesia seeks Indian investment to mine gold, refine http://www.thehindubusinessline.com/news/indonesia-seeks-indian-investment-to-mine-gold-refine-crudeoil/article6249878.ece
crude
oil)
