Country Profile – Indonesia

• Indonesia is a member of G20 and is also categorized as a newly industrialised country. It is the 16th largest economy in the world by nominal GDP and the 7th largest in terms of GDP (PPP).
• Indonesian exports to the world in 2018 were at US$ 180.2 billion, while imports were at US$ 188.7 billion. Exports and imports of Indonesia surged at a snail’s pace of 1.6% and 2.1% from 2014 to 2018.
• Indonesia has emerged as the second largest trading partner of India in the ASEAN region. Bilateral trade has increased from US$ 15.3 billion in 2016-17 to US$ 21 billion in 2018-19. This grew at a CAGR of 16.1%, which seems significant.
• India is the second largest buyer of coal and crude palm oil from Indonesia and imports minerals, rubber, pulp and paper and hydrocarbons reserves. India exports refined petroleum products, commercial vehicles, telecommunication equipment, agriculture commodities, bovine meat, steel products and plastics to Indonesia.

Indonesia’s economy headed into 2020 with a sluggish outlook as household consumption, exports and investment are expected to further weaken due to global economic risks including the coronavirus crisis. In January, the manufacturing PMI continued to signal worsening operating conditions, exports fell and consumer confidence declined amid rising fears over the coronavirus outbreak. Moreover, the virus is now likely to affect the external sector via reduced Chinese and South Korean demand.

Indonesia is the largest economy in South East Asia. It’s industry accounts for the largest share of GDP, i.e. 44.2% of total GDP. Within the industry, the most important is manufacturing, which has been one of the main growth engines. Mining and quarrying account for 12% while services contribute about 43% of total Indonesian GDP. Indonesia is a member of G20 and is also categorized as a newly industrialised country. It is the 16th largest economy in the world by nominal GDP and the 7th largest in terms of GDP (PPP).

Manufacturing sector continues to underperform due to dampened global demand and rather limited improvement in the industry’s competitiveness. It is expected that the ongoing monetary easing will provide some support for credit growth in 2020.

GDP growth in Indonesia clocked just a little above 5% in the final quarter of 2019. Also, the domestic economy exhibited an enervated outlook. But, on the other hand fixed investment outweighed upbeat private consumption, the external sector continued to support the economy due to a further sharp fall in imports, amid the government’s import substitution policies.

Macroeconomic Indicators of Indonesia

Indonesian bilateral trade figures, in US$ billion

Source: ITC Trade Map

Indonesian exports to the world in 2018 was US$ 180.2 billion while imports were US$ 188.7 billion. Exports and imports of Indonesia surged at a snail’s pace of 1.6% and 2.1% from 2014 to 2018. Downside risks to Indonesia’s growth outlook continue to be severe with protracted trade tensions posing additional risks to commodity prices, international trade flows, global business sentiment and investment growth, and China’s growth outlook.

Trade Snapshot of Indonesia

Source: ITC Trade Map

Stagnating trend in exports, coupled with rising demand for imported goods, has reversed the usual trade surplus into deficit since 2018. Looking forward, non-oil export performance might not improve significantly in 2020, due to the ongoing US-China trade war and signs of the global economic slowdown. The lagged transmission effect from global shocks into Indonesia’s real domestic economy will keep trade from falling apart in the near future. Also, the slight drop of Indonesia’s Ease of Doing Business Index to 73rd position in 2019, from 72nd in 2018, shows that this country is slower in reforming the investment climate compared to other rival countries.

India-Indonesia trade relations

Indonesia has emerged as the second largest trading partner of India in the ASEAN region. Bilateral trade has increased from US$ 15.3 billion in 2016-17 to US$ 21 billion in 2018-19. This grew at a CAGR of 16.1%, which seems significant. India is the second largest buyer of coal and crude palm oil from Indonesia and imports minerals, rubber, pulp and paper and hydrocarbons reserves. India exports refined petroleum products, commercial vehicles, telecommunication equipment, agriculture commodities, bovine meat, steel products and plastics to Indonesia.

Source: Ministry of Commerce and Industry, Government of India

India’s exports to Indonesia surged from US$ 3.1 billion to US$ 4.78 billion in the past three years, growing at a CAGR of more than 18%. Also, India’s imports from Indonesia surged by US$ 4 billion in the same time frame. There are about 30 Indian investments and Joint Ventures in Indonesia. As per Indonesian official statistics, Indian investment in Indonesia is US$ 995.18 million in 2,215 projects during 2000-2018. In comparison, Indonesia’s investment in India is about US$ 629.16 million (April 2000- March 2019). There are around 120,000 citizens of Indian origin in Indonesia mostly concentrated in Greater Jakarta, Medan, Surabaya and Bandung. They are mainly engaged in trade dealing in textiles and sports goods.

According to the Ministry of External Affairs, India and Indonesia have set a US$ 50 billion target for bilateral trade by 2025. Even as India has stayed out of the Regional Comprehensive Economic Partnership (RCEP), the two nations are already engaged via the ASEAN-India FTA agreement. The two sides have identified significant economic complementarities which can be exploited for mutual gains. One instance is the pharma sector, wherein Indian firms are unable to penetrate the Indonesian market due to stringent regulations for foreign players. Some other products where untapped export potential for India exists include semi-finished products of iron and steel, parts of motor vehicles, semi/wholly milled rice, and insecticides.

The two sides are set to launch negotiations for a Comprehensive Economic Cooperation Agreement (CECA) to ensure economic cooperation while trading in goods, services, and investments. This mechanism could prove fruitful in addressing areas of untapped trade potential and help reach the trade target.