INDONESIA-INDIA

INVESTMENT COOPERATION:
PROSPECTS AND
CHALLENGES

Teddy Lesmana
Economic Research Center
The Indonesian Institute of Sciences
Forum Kajian Pembangunan
Media Center - LIPI, Gedung Sasana Widya Sarwono lantai 1, Jl
Jenderal Gatot Soebroto 10, Jakarta Selatan 12710



Outline
Introduction
India Investment Opportunities
Indonesia Investment
Opportunities
Challenges
Recommendation.

Introduction
The economy of India is the tenth-largest in the
world by nominal GDP and the third-
largest by purchasing power parity (PPP).
The country is one of the G-20 major economies, a
member of BRICS and a developing economy that
is among the top 20 global traders according to
the WTO.
Indonesia is also classified as G-20 and the tenth-
largest by purchasing power parity (PPP).
Given the economic description above, India and
Indonesia have potential economic opportunities to
co-operate in investment.
Key features of Indias
attractiveness

India was the fourth-largest recipient of FDI in terms of projects started in 2012, and in
terms of value, it accounted for 5.5% of global FDI. Although the number of jobs declined
slightly in 2012 (due to a drop in industrial projects) India still accounts for 9.4% of jobs
created by FDI around the world.
Investors across the world recognize Indias FDI potential. Between 2007 and 2012, the
US invested the most in India, with 30.2% of projects, followed by Japan with 10.4%.
Seven of the top 10 investors in India during 2007-12 were from Western Europe, led by
the UK and followed by Germany and France. India's pool of business partners is growing,
with a striking 123.3% rise in the number of projects from the Middle East in 2012, mostly
in financial services. Southeast Asian countries are also expanding their investment in the
country, with projects mainly originating from Singapore, Malaysia and Thailand.
Actual FDI performance and our survey results both show that metropolitan cities, such as
Mumbai, Bengaluru, the National Capital Region (NCR), Chennai and Pune, remain key
attractions. On the other hand, there is a significant awareness gap about tier-II and tier-III
Indian cities, which also offer opportunities for investment. Forty-three percent of
respondents could not think of any city other than the main metropolitan areas. Among
those who responded, Ahmedabad was the preferred choice in emerging cities, followed
by Jaipur, Chandigarh, Coimbatore and Surat.
Source: http://www.ey.com/in/en/issues/business-environment/ey-india-attractiveness-survey

Indias trade with Indonesia (US$
Millions)
Why Indonesia Matters
A polity transformed within a generation,
Indonesia is now playing a role commensurate
with its status as the fourth largest country, a
nation with the largest Muslim population, a
thriving democracy strategically located in the
Indian Ocean and Indo-Pacific region. It is a
country that seeks to lead the ASEAN without
dominating it, demonstrating an instinct for a
balanced relationship with other Asia-Pacific
powers such as the US, China, India, Japan,
Australia and South Korea.
Indonesias Economy in Brief
Growth in gross domestic product (GDP) moderated to
5.8% in 2013 from an average of 6.3% over the previous
3 years.
Growth in fixed investment slowed to 4.7% in 2013 after
strong increases of about 9% annually in 2010-2012.
Private consumption remained robust in 2013,
expanding by 5.3% and contributing half of the growth in
GDP on the expenditure side.
Government consumption grew by 4.9%, which signaled
some improvement in budget execution.



Selected Indonesia Economic
Indicator




Source: Asian Development Outlook (ADO) 2014; ADB estimates.

Selected Economic Indicators (%) - Indonesia 2014 2015
GDP Growth 5.7 6.0
Inflation 5.7 4.8
Current Account Balance (share of GDP) -2.9 -2.0

Indonesia Investment Priority
Sectors
The Government of Indonesia sets its investment
priority sectors every five years. Under the 2010-
2014 National Mid-Term Development Plan, the
priority sectors are:
lnfrastructure/Transportation
Oil, and Gas
Power
Mining
Telecommunications
Manufacturing and Agriculture

Potential Projects by sectors
No Sector /Sub-sector Quantity Project Cost
(C$ Billion)
1 Air Transportation 7 1.52
2 Land Transportation 2 0.27
3 Marine Transportation 12 2.83
4 Railways 9 9.33
5 Toll Road 35 26.23
6 Water Resources - -
7 Water Supply 24 1.81
8 Solid Waste and Sanitation 6 0.27
9 Telecommunication - -
10 Power 5 3.95
11 Oil and Gas - -
Total 100 46.21

The Government of Indonesia is consistently sustaining the
momentum of Public Private Partnership (PPP) development
in order to accelerate the provision of infrastructure. The
following projects summary are adopted from The PPP Book
2013, which is primarily intended to inform potential
investors, lenders and contractors about the opportunities
available in Indonesia to become a private partner in a PPP
Project. The PPP Book is therefore the presentation of PPP
opportunities in Indonesia to the world.

The PPP Book now consists of 27 projects, arranged in three
categories: potential, prospective, and ready for offer PPPs.
In this 2013 edition there are 14 prospective projects and 13
potential projects. To date, 21 projects listed in previous
books have already gone to tender.

Public-Private Partnership
Projects
Challenges in Investment
(India)
Political Challenge: The support of the political structure has to be
there towards the investing countries abroad. This can be worked
out when foreign investors put forward their persuasion
for increasing FDI capital in various sectors like banking, and
insurance.
Federal Challenge: Very important among the major challenges
facing larger FDI, is the need to speed up the implementation of
policies, rules, and regulations. The vital part is to keep
the implementation of policies in all the states of India at par.
Resource challenge: India is known to have huge amounts of
resources. There is manpower and significant availability of fixed
and working capital. At the same time, there are some
underexploited or unexploited resources.
Equity challenge: India is definitely developing in a much faster
pace now than before but in spite of that it can be identified that
developments have taken place unevenly.


Challenges in Investment
(Indonesia)
Indonesia is faced by the less developed of
infrastructure. Road, electricity supply, harbor, and any
other infrastructures, which support the economy
activities.
Harmonization of national and regional implementation.
Investment procedure is still long enough compared to
countries.
Insufficient supply of energy required for industrial
activities.
Regulations that impede investment climate.
The distribution of investment is still concentrated in
Java and less optimal implementation of technology
transfer.

Prospects
India-Indonesia Comprehensive Economic
Cooperation Arrangement (India-Indonesia
CECA)
The Indian government is keen to step up
investment in Indonesia, especially in the food,
automotive, manufacturing and infrastructure
Indonesia is keen on attracting Indian
investments in manufacturing and value added
processing than just in exploitation of its
natural resources.

Prospects
In a partial-equilibrium framework, the projection-
estimates of Indias exports to Indonesia are in the
range of US$. 1.7 billion - US$ 7.8 billion by the year
2020. The estimates of exports from Indonesia to India
would be in the range of US$ 3.4 billion - US$ 9.7 billion
by 2020.
Welfare gains of the proposed CECA on trade in goods
have been estimated using a multi-sector computable
general equilibrium (CGE) model. According to which,
the welfare gains accruing to India could be to the tune
of 1.0 percent of GDP and to Indonesia to the extent of
1.4 percent of GDP under the scenario of full tariff
liberalization along with setting in place the trade
facilitating infrastructure.
Source:
Report of the Joint Study Group on the Feasibility of India-Indonesia Comprehensive Economic
Cooperation Agreement (CECA)
Conclusion and
Recommendation
In the economic domain, Indias trade deficit with Indonesia is
the tenth largest it has with any country. Indonesian
investment in India still remains very low, while Indian imports
from Indonesia still focus mainly on extractive industries like
coal and palm oil.
Tourism is limited because there are still no direct flights
between the two countries. While a joint study
group recommended that India and Indonesia negotiate a
Comprehensive Economic Cooperation Agreement as early
as September 2009, leaders are still at the exploratory stages
of negotiations four years later.
As both existing and new ideas are implemented over the
next few years, close attention will have to be paid to not just
boosting the level of bilateral trade and investment, but also
resolving issues regarding the distribution and content of
these flows.
Conclusion and
Recommendation
Improve government procedures and the ease of doing
business. Better governance will reduce transaction costs,
helping a wide range of activities, including growth in exports.
Setting up infrastructure and connectivity between two countries.
Technological transfer and mutual investment cooperation.
Setting up bilateral Trade Negotiations Committee (TNC).
Commencing negotiations on trade in goods, trade in services,
investment and other
areas of cooperation as a single undertaking by TNC with a
view to establishing a
Comprehensive Economic Cooperation Agreement (CECA).



Conclusion and
Recommendation
Thank You