India and Indonesia: How to turn a strong political relationship into a thriving economic partnership

A situation where political goodwill is not matched by economic partnership is not sustainable. This needs urgent attention

Gurjit Singh January 18, 2022 11:46:29 IST
India and Indonesia: How to turn a strong political relationship into a thriving economic partnership

Prime Minister Narendra Modi shakes hand with Indonesian president Joko Widodo. AFP

In the first week of 2022 when External Affairs Minister S Jaishankar called his counterparts in various countries, one drew attention. That was the Indonesian foreign minister Retno Marsudi, who he called on 5 January. This was quite an early call to an ASEAN country and to Indonesia. This call manifests the growing interaction between India and Indonesia at the political level. The strategic congruence of understanding the commonality of approach to Myanmar and the exchange of views on the Indo-Pacific are giving the India-Indonesia relationship good ballast.

India entered the UN Security Council as Indonesia’s term concluded. Besides, India is a member of the Quad whereas Indonesia champions the ASEAN Outlook on the Indo-Pacific (AOIP). However, between India and ASEAN a commonality has developed on AOIP, which is crafted by Indonesia. At the India-ASEAN Summit in October 2021, a Joint Statement on Cooperation on the AOIP for Peace, Stability, and Prosperity in the Region was issued.

The importance of Indonesia, among the largest, if not the most effective ASEAN countries, is bolstered by the assertiveness of Indonesia among ASEAN countries. Their position on the Rohingya and later on the Myanmar coup showed a willingness to pursue the ideals of the ASEAN Charter. On AOIP and Myanmar, they have taken most of ASEAN along. On the Rohingyas they found a lack of an ASEAN consensus; they provided humanitarian assistance in consultation with Myanmar.

Indonesia took the lead with Singapore and Malaysia for the five-point consensus (FPC) in April 2021. When Myanmar belied the FPC, it was excluded from the ASEAN Summit. The Jokowi style of diplomacy, ably guided by foreign minister Retno Marsudi had come into its own.

As Jokowi heads into the final years of his two-term presidency, which will conclude in 2024, Indonesia will host several important events. In November 2022 it proposes to host the G20 Summit; in 2023, Indonesia will chair ASEAN. Indonesia will be at the helm of ASEAN after 12 years and will also chair the East Asia Summit for 2023. That includes the chairmanship of the ASEAN+1 Summits with Dialogue partners and the ASEAN+3 (APT) meeting with Japan, Korea and China.

Thus, for the next two years, Indonesia’s importance to India and globally will be enhanced and merits attention. The evident rapport that Jaishankar and Retno have stands in good stead.

There is the possibility that an India-ASEAN summit may take place to commemorate the 30th anniversary in 2022. Since the 20th anniversary in 2012, every five years a Commemorative Summit has taken place in India. China too held its 30th anniversary summit in 2021. While no plans have been announced, it is likely that a summit will take place giving another opportunity for leaders to meet. The 25th anniversary Summit was attended by all 10 ASEAN leaders. They were the collective chief guests at Republic Day 2018 setting in motion a new precedent.

Since Prime Minister Narendra Modi made his successful visit to Indonesia in July 2018, it is now the turn of President Jokowi to visit India and the bilateral visit could be on the cards. Jokowi first visited India in December 2016. The bilateral visits have been few but augmented by meetings on occasions of multilateral summits like EAS, UNGA and G20.

Indonesia prefers to carry the ASEAN along like it did on the AOIP and partially on Myanmar but often finds its wider ambitions not getting adequate traction. Given Indonesian stature, there are greater expectations of it from ASEANs partners. Therefore, an ASEAN Plus policy, however slow and steady it may be, is possible in the final years of the Jokowi presidency.

Chinese aggressive intent in Southeast Asia, despite their economic and pandemic largesse, is encouraging some including Indonesia, to seek strategic autonomy. For strategic purposes they would not hesitate to engage with other partners despite what China may think. They prefer avoiding Sino-American rivalry, but dealing with other Quad partners like India, Australia and Japan is part of the process.

India and Indonesia have a successful strategic partnership in defence terms. Since 2002, regular six-monthly coordinated patrols between Sumatra and the Andamans have been undertaken. Since 2015, one has been enhanced to the level of an exercise.

Indonesia and India discussed joint production and defence supplies, but these have not succeeded. They do not have similar acquisition processes, nor ways of doing things. This requires patience and mutual understanding. In Jokowi’s second term the heft is increasing, with India agreeing to provide BrahMos batteries to Indonesia. The visit of Defence Minister Gen Prabowo to India during the pandemic set this going.

Indonesia has offered the facilities at the undeveloped Sabang port in Aceh for connectivity to Nicobar. This requires proof of sustainability, but efforts are underway. Another positive sign is that an Indian company has finally won a contract for developing Medan Airport in North Sumatra. This comes after the longstanding problems with the airport in Yogyakarta, which an Indian company finally gave up on.

Evidently, the political-strategic augmentation of India-Indonesia partnership is increasing, particularly during the pandemic. The Indonesian defence minister’s visit seems more fruitful than the meetings between trade, energy and mining ministers.

Substantively, without greater economic engagement, the relationship cannot become truly strategic. Indonesia has had a strong trading relationship with India, mainly based on exports of coal and palm oil. This makes them the major trading partner for India in ASEAN. Trade diminished in the last three years. After a high of $21.1 billion in 2018-19, it slipped by 9 percent and then 8 percent till March 2021 to $17.5billion. Currently, trade is decreasing by 17.8 percent and is $14.3 billion till October 2021. This is mainly due to lower Indian exports. Market access promised is never clear and NTBs and tardy implementation have driven away export gains for India.

Indian investment in Indonesia has been substantial but the dominance of China in the Jokowi period restricted Indian investment and winning of projects by Indian companies. A special window for addressing Indian investor’s concerns has been dysfunctional. Of the several issues that Indian industry raised only one has been resolved and that too, on paper rather than in practice.

Trade and investment can rise if China+1 supply chains in India and Indonesia can develop with Japan and Australia. This could boost the economic partnership. The India-Indonesia-Australia trilateral has potential and needs invigoration. The vaccine partnership should be expanded to include a pharmaceutical supply chain.

A situation where political goodwill is not matched by the economic partnership is not sustainable. This needs urgent attention. It would be important if Indonesia reached out to India to develop not only Sabang but other mainstream projects in conjunction with Japan and Australia. There is a Japan-Australia-US infrastructure trilateral and the Quad Infrastructure Initiative which could benefit such a plan. An effort to have a lighthouse project under such combined efforts and challenge the Chinese model at the same time would be an important development for India-Indonesia relations.

The writer is a former Ambassador to ASEAN. Views expressed are personal.

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