Indo-Indonesia: A Growing Strategic and Economic Alliance

For thousands of years, India and Indonesia have shared deepening ties as two ancient civilizations. With notable references in the Ramayana and Mahabharata, it is evident that the two nations have maintained close connections for centuries, spanning both cultural and commercial exchanges.

As dynamic economies, India and Indonesia share common interests in political sovereignty and economic resilience, serving as a catalyst for strengthening their bilateral ties. Both nations play pivotal roles in the maritime economy and hold key positions in the Indo-Pacific region. The past year was particularly significant, marking 75 years of diplomatic relations between the two countries.

This relationship has evolved into a Comprehensive Economic Strategic Cooperation with special focus on areas of national and maritime security and safety, trade connectivity, infrastructure, and economic development, thereby promoting sustainable development of marine resources; expanding cooperation in disaster risk management; fostering tourism and cultural exchanges; promoting maritime safety and security; and strengthening academic, science and technology cooperation.

Today, Indonesia has emerged as India’s 2^nd largest trade partner in ASEAN region. The Total Bilateral Trade (as per DoC) during the fiscal year 2023-24 was USD 29.4 billion with USD 5.98 billion worth of exports and USD 23.41 billion worth of imports. There is considerable potential for expanding trade between the two countries in the areas of pharmaceuticals, automotive components, automobiles, engineering products, IT, biotechnology, and healthcare.

Areas of Cooperation

Healthcare and Pharma

Having earned the moniker of “Pharmacy of the World,” India has played a critical role in supplying vaccines, essential medicines, and medical supplies during the COVID-19 pandemic and beyond. On the other hand, Indonesia has the largest and one of the fastest-growing pharmaceutical markets in Southeast Asia. Owing to increased purchasing power, growing awareness and better access to healthcare services, demand for pharmaceutical products and healthcare services in the country has increased which in turn increases the opportunities for collaborations.

There can be joint forums or partnerships similar to the Indonesia-India Health Business Forum, held in February 2024, to promote further dialogues between government officials, industry representatives, and dignitaries from both countries, with an aim to strengthen trade, investment, and partnerships in the healthcare and pharmaceutical sectors. 

Energy Transition

With increasing energy demands there are a plethora of opportunities in infrastructure development in both countries.  India has made a significant footprint for itself in the Indonesian oil and gas sector and also has made substantial investments in Indonesia’s coal industry, with India being one of the largest buyers of Indonesian coal.

Similar to the India-Germany Green Hydrogen Roadmap, Indonesia and India share the common goals of reducing their reliance on fossil fuel imports, decarbonising their economies, and establishing robust national green hydrogen economies. Collaborating with their unique respective strengths, both nations aim to make green hydrogen economically available on a global scale, contributing to the Paris Agreement goals. There can be infrastructure and tech collaboration in regard to India’s deployment of smart grids and digitalising energy systems which can encourage similar advancements in Indonesia, thus enabling better efficiency and reliability in power distribution.

Food & Agriculture

India is one of the major players in the agriculture sector worldwide and it is the primary source of livelihood for ~55% of India’s population. Being Southeast Asia’s largest economy and the fourth most populous country globally, Indonesia has emerged as a key investment destination for Indian businesses. With its vast natural resources, growing middle class, and government-backed initiatives, the country presents numerous opportunities in agriculture, poultry, food processing, and technology.

To overcome the various challenges, such as outdated farming techniques, inefficient irrigation, and vulnerability to climate change, there are immense opportunities for Indian companies. Indian agri-tech companies, which have pioneered innovations in precision farming, drone technology, and AI-based irrigation systems, can introduce these solutions to improve crop productivity in Indonesia, to help local farmers achieve higher yields while minimising resource use

Manufacturing

Owing to sectors like automotive, engineering, chemicals, pharmaceuticals and consumer durables, manufacturing is now an integral pillar in the country’s economic growth. India is gradually progressing on the road to Industry 4.0 through the Government of India’s initiatives like the National Manufacturing Policy which aims to increase the share of manufacturing in GDP to 25 percent by 2025 and the PLI scheme for manufacturing which was launched in 2022 to develop the core manufacturing sector at par with global manufacturing standards.

Similarly, to boost industrial growth, the Indonesian government is working towards the Industry 4.0 transformation, which encompasses the integration of modern and advanced technologies into production processes to improve efficiency, product quality, and reduce production costs.

There are opportunities for collaboration in the defence sector, focussed on indigenous manufacturing, specially under India’s Atmanirbhar Bharat initiative, which aims to reduce dependence on foreign defence imports. India and Indonesia can collaborate on ventures similar to the India Indonesia Investment Synergy Forum, to find synergies and collaboration opportunities for sustainable growth, thus building on both Make in India and Bangga Buatan Indonesia.

Recently, with an aim to foster and deepen collaborations between India and Indonesia, CII organised the 3^rd meeting of the India – Indonesia CEO Forum, constituted by the two governments, was organised on 25 January 2025 at New Delhi. This coincided with the visit of H.E. Prabowo Subianto, President of Republic of Indonesia to India from 25-27 January 2025, who was a guest at India’s Republic Day Celebrations. At the forum, 25 CEOs each from India and Indonesia, deliberated on collaboration opportunities, issues faced in doing business and the way forward in five focus areas relevant to both countries, namely, Food and Agriculture, Energy Transition, Healthcare and Pharmaceuticals, Manufacturing and Technology with focus on AI, Digital and Fintech.

Coinciding with the CEOs Forum, CII undertook various initiatives to engage with the accompanying Indonesian CEOs and business delegation.

In conclusion, as India and Indonesia continue to build a dynamic and multifaceted partnership, spanning trade, defence, culture, and regional cooperation, the road ahead looks promising, paving the way for greater economic growth, security, and mutual prosperity.