Introduction

The deep rooted relations spanning thousand of years, that have existed between India and Indonesia, are so remarkable that both can be classified in that rare category described simply as ´natural friends´; and indeed facts all around do but proclaim how close this natural friendship has been in the past, and hence should be so too in future. The time tested Indo-Indonesian relationship dates back to the First Century AD, when Indonesia came in contact with Indian civilisation through the gradual influx of Indian traders over there. There was considerable trade between the two countries over the centuries. Both countries were the founder members of the Non-Aligned Movement (NAM). Both countries are also committed to the South-South cooperation. Now that India-ASEAN ties have been put on the fast track with the signing of the framework agreement on comprehensive
economic cooperation between India and ASEAN, the existing ties between India and Indonesia are bound to improve further. In the light of these remarkable relations, it becomes very important for us to explore sincerely better opportunities for cooperation between the two countries. In an era of globalisation and mutual inter-dependence of the countries, where tapping each other´s rapidly growing market has become the need of the hour, the significance of this task becomes even more important.

Economic climate in Indonesia

Indonesia realised the growing need for inter-dependence among countries long back. During the 80s and 90s, the Government of Indonesia continuously demonstrated its ability to respond successfully to economic developments both domestically and internationally and to the emerging economic & trade and investment opportunities among the nations. The tragic developments in

the East and South East Asian region in 1997-98 no doubt put Indonesia into a difficult situation for some time, but it is being widely recognised the world over that the overall situation is fast becoming normal. In a bid to overcome the crisis, the successive Indonesian governments have come out with a clear-cut and well-formulated plan of action and vision for the future.

On the economic front, the far-reaching fiscal, trade, industrial and investment policies initiated in consultation with the International Monetary Fund have started showing positive results. All these policies have been aimed at restoring the confidence of not only the foreign creditors and investors into the Indonesian economy but also that of the Indonesian people themselves. In response to Indonesia´s all-out efforts to improve its economy, and the strong commitment and deep resolve being shown by the present Indonesian government under the effective leadership of Madam Megawati to this end, Indonesia is once again establishing itself as one of the most prospective business partners in south-east Asia.

According to recent estimates of Bank Indonesia, Indonesia´s growth rate would remain intact within the 3.5 to 4.0 percent range in 2003. In the third quarter of 2003, it reached 4.14 percent (y-o-y) or higher than 3.76 percent (y-o-y) in the second quarter. While inflation rate is envisaged to stay low (between 5 to 6%) at the year-end, exchange rate is also expected to remain stable with strengthening tendency.

Reforms in India

On the other hand, India has also witnessed wide ranging economic reform measures being implemented successfully during the past twelve (12) years or so. Significant policy changes have been introduced into the economy in fields of such vital importance as

trade, investment and finance. It is a matter of great satisfaction that the current Indian government, despite its ,
stress on ´swadeshi´ (i.e., the philosophy that India shall be built by Indians), continues to further liberalise the Indian economy, and that the fruits of these reform measures are already coming out strongly.

Judged by the speed at which economists the world over are rating up India´s growth prospects during the current financial year, it seems almost certain that the country would achieve an overall gross domestic product (GDP) growth of around 7 percent in 2003-04. With economies in the US, Europe and Latin America still wobbly, India´s emergence thus could be one of the world´s most important economic stories of the next two decades.

Bilateral trade

Realising each other´s potentialities, strengths and mutual needs, there has been a steady growth in the two-way trade between India and Indonesia over the past few years. As per the statistics, the value of trade between these two countries, which stood at US$1575.8 million in 2001-02, increased up to US$2212.2 million in 2002-03. This shows a solid 40.39 percent increase in absolute terms during the period. During the period April-July 2003 also, the value of the two-way trade increased up to US$919.9 million from US$658 million recorded in April-July 2002. This also represents an impressive growth of around 39.8 percent during this period.

Indonesian exports to India increased from US$1O40.3 million in 2001-02 to US$13529.1 million in 2002-03, showing a growth rate of 33.04 percent. For the period April-July 2003 again, Indonesian exports to India stood at US$506.8 million, representing a robust growth rate of 82.61 percent from the earlier recorded US$277.6 million in April-July 2002. On the other hand, Indonesian imports from India touched

US$828.1 million in 2002-03 as compared to US$535.5 million in 2001-02, showing an impressive growth of around 54.63 percent. For the period April-July 2003, however, Indonesia´s imports from India increased only up to US$203 million from US$187 million in April-July 2002. This represents a growth rate of around 1.56 percent.
Nevertheless, as it is obvious from these trade accounts, the bilateral trade of this level between Indonesia and India is still far behind the real potential and the abounding complementarities that exist between them. Therefore, it is pertinent to expand and diversify our trade relations further.

Investment scenario

As a result of the various deregulation packages over the years, there was a remarkable surge in foreign investment in Indonesia in the last decade or so. Because of the economic crisis of 1997-98, however, there sure was a temporary set back in this direction. But since then foreign investment has once again showing signs of improvement. Unfortunately, however, Indian Investment in Indonesia can be termed nothing but marginal considering the conducive conditions and the potential that exists.

According to data released by Indonesian Investment Coordinating Board (BKPM), India´s approved investment in Indonesia during the period 1997 to September 30, 2003 was merely US$108.8 million, constituting just 0.10 percent of the total approved foreign direct investment in our country for the same period. On the other hand, as per the statistics of Ministry of Commerce and Industry, Government of India, the total approved Indonesian investment in India during the period 1991 to August 31, 2003 stood only at Rs. 5269 million, which was just 0.18 percent of the total approved foreign direct investment entering India.

The negligible Indonesian investment in India is rather unfortunate. Only one major project, approved in August 1994, is under implementation. This project, a paper and pulp mill by Indonesia´s Sinar Mas Group is listed as investment from Mauritius in Indian Government statistics. The main reason for such negligible Indonesian
investment in India may be that till recently India had been following inward-looking economic policies, leading to a highly protected economy.

Even today, it is being widely felt that although India might have liberalised many of its economic policies to attract foreign investment and technology, a lot still remains to be done.

View to the future

The trade and investment relationship between India and Indonesia is small. There is mutual ignorance of opportunities and perhaps some complacency that each has done well without the other till now. It would, however, be tragic if this continues. India is the largest functioning democracy in the world. It is also one
of the largest emerging markets of the world. On the other hand, Indonesia has also been classified as one of the largest emerging markets of the world by India. Indonesia´s huge population would certainly be able to absorb the quality Indian products to a great extent. India being one of the strongest economies of South Asia, Indonesia can use it as the centre point for expanding its trade with South Asian and Central Asian countries. Similarly, because of the geographical as well as economic significance of Indonesia in the East Asian region, India can very well use it as the centre point for expanding its trade with other East Asian countries as well as Pacific countries like Australia and New Zealand. In fact, both Indonesia and India´s strategic location provides a natural "East-West Trade 8 Investment Link" that would connect the markets of the East and the West. Mutual India-Indonesia economic relationship will also add to the long term economic stability and security of the region. For all this to happen, however, the following programme of action is called for:

Both India and Indonesia should try to develop the direct shipping and port facilities between the two countries. At present, all the maritime trade between India and Indonesia is being performed indirectly through Singapore. This has led to a sort of communication gap between the traders of the two countries. This needs to be removed as soon as possible.

Promotion of direct airway links between India and Indonesia is also utmost necessary. Until now, travelling between the two countries has to be indirect-through Singapore, Thailand or Malaysia. This has not helped much in promoting a healthy sense of friendship between the people in general and the businessmen in

particular of the two countries. However, now that Prime Minister Vajpayee has unilaterally announced an ´open skies´ arrangement with ASEAN to allow designated airlines from the regional grouping to run daily flights to India, let us hope that this major irritant will be removed sooner than later.

Tourism between India and Indonesia is one area, which has tremendous potentialities for improvement in the near future. As we know, Indonesian culture has been tremendously influenced by the Indian culture because of the historically close links between the two countries in the past. So naturally, people of both India and Indonesia are not only historically inseparable from each other but they have also developed close interest to each other´s places of beauty and importance also. This fact needs to be exploited by the Governments of both countries to their mutual benefit.

For promoting two way trade, trade barriers must go and tariff rates must come down to the minimum. We therefore welcome the recently signed Framework Agreement on Comprehensive Economic Cooperation between ASEAN and India. As per this agreemen t, India´s free trade arrangement with ASEAN would come into being in 10 years. We are delighted to note that India would align its peak tariff to East Asian levels by 2005. Elimination of tariffs for Indonesia would be realized by 2011.

Trade relations could be further strengthened and diversified with the use of counter trade by the concerned institutions of our two countries under suitable financial mechanisms. Aside from saving on revenues, such an arrangement would help in promoting trade of Indonesian primary commodities such as palm oil, textile, and furniture products in exchange for Indian expertise in information technology, construction of railway lines, port development, etc.

The India-Indonesia interaction in banking and insurance has not been significant till now. Although Bank International Indonesia has started operating in India, there are very few Indian banks operating in Indonesia. There is need for reciprocity in this area.

India´s product specific export organisations and their counterparts in

Indonesia should establish mutual contacts to remove misgivings about their products. Some past Indian exports to Indonesia and vice-versa have resulted in unsatisfactory quality I delivery and has left bad memories. This has got to be removed.

In addition to the above-mentioned measures, it is also necessary that the outstanding trade disputes between India and Indonesia be settled quickly. A mutually agreed trade dispute settlements authority must be identified within the WTO disputes settlements procedure, whose decisions would be final. A mutual investment protection agreement between the two countries is also the need of the hour.

Conclusion

India and Indonesia must forget their past indifference towards each other and also the sense of complacency that each can do well without the other. We must look forward to the bright future lying ahead. Political differences, if any, need to be ignored in the larger interest of improving the economic ties between the two countries. This is of vital importance because otherwise, history would not forgive us. There should not be any doubt whatsoever that there lies a palpable promise in economic cooperation between India and Indonesia. If because of similar structures and on account of cultural affinity, Europe and America were able to engage in investment and trade with each other to great mutual benefit, there is no reason as such why India and Indonesia cannot expand their economic cooperation to their mutual benefit similarly.

The geographical proximity between India and Indonesia can reduce the transportation costs significantly. Moreover, India´s achievements in science and technology, information technology, human resource development, and relatively cheap labour only make for considerable complementarities in relation to Indonesia, rather than competition. Already, the last few years have shown that India-Indonesia trade has registered impressive growth. The good news is that the Indian and Indonesian business communities are showing signs of grabbing the opportunities with each other with both hands, heartily in trade in investments.

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