With an expanding economy and increasingly favourable investment climate, Indonesia stands as a key economic entity in the ASEAN region. Its abundance of natural resources and a flourishing manufacturing sector have ensured a successful relationship with the booming Indian economy in areas of trade and investment.

Though trade relations were formalized with the signing of a Trade Agreement in 1978, there was an absence of a forum for periodic talks between the two countries. The bilateral effort was revitalized with the first ever India-Indonesia Joint Commission Meeting (JCM) held in Yogyakarta in September 2003. The meeting resulted in the formation of an India-Indonesia Expert Working group with the primary objective of enhancing and diversifying bilateral trade and investment relations. So far, the JCM has met thrice with the most recent meeting in 2007, producing a comprehensive "Plan of Action" in areas comprising trade, infrastructure, and investment. This underlines the increasing political support for the bilateral process which would provide the much-needed political impetus to deepen economic relations between the two countries.

Indonesia is presently India's second-largest export market in ASEAN (second only to Singapore). India mainly exports refined petroleum products, oil seeds, chemicals and iron and steel products to Indonesia. On the other hand, it is one of Indonesia's largest buyer's of crude oil and further, imports its mining, petroleum and paper products. In 2006, India's exports increased by 33.77 per cent to US$1.407 billion from US$1.052 billion in 2005. Imports on the other hand grew by 17.18 per cent in 2006 to US$3.39 billion from US$2.878 billion the previous year. The two countries intend to work towards a Free Trade Agreement (FTA) with an aim to boost bilateral trade to US$10 billion by 2010.

In the area of investment, there are more than twenty major Indian manufacturing joint ventures in Indonesia. Majority of these investments were undertaken in the 1970s and 80s mainly in textiles, synthetic fibre and steel industries with India being among the top 5 investors in Indonesia up to 1985. Major Indian companies that established themselves in this phase included, the Lohia Group (Indorama Synthetics), Ispat Group (Indo Ispat), Aditya Birla Group (having four units in textiles and yarns) and Tolaram Group among others.

The recent upturn in the Indonesian economy and the accompanying political change has encouraged a greater emphasis on investments in new industries. There has been a distinct shift from basic raw material industries to automobiles, infrastructure, energy, and services. TVS Motors of Chennai has invested US$45 million in a motorcycle plant near Jakarta while Bajaj Auto is converting traditional three wheelers into CNG-powered ones and launched its new two wheeler model 'Bajaj Pulsar' in the Indonesian market in November 2006. Various private entities have also made investments in areas like coal mining, plantations for bio-fuels and extraction of minerals. Along with investments in new industries, new Indian players have started making an entry into the Indonesian market. Companies like the Tata Power Company Limited and Essar Steel Limited are looking to invest in energy and steel along with public sector giants such as the National Aluminum Company Limited (NALCO), National Thermal Power Corporation (NTPC), and Rail India Technical and Economic Services Limited (RITES).

On the other hand, Indonesian investment in India is rather low and ranks 36th in the FDI inflow to India. Though there has been increasing participation by Indonesian groups especially in West Bengal, the stringent regulatory climate in India is perceived as a primary deterrent for Indonesian companies looking to invest in a big way. Limited direct flights between the two countries and restrictive visa requirements by India have further proved to be a hindrance to greater Indonesian participation in India.

Recently, the two countries have been at logger heads over differences pertaining to the India-ASEAN FTA. Indonesia has been pushing for greater access of its palm oil exports to India while India wants a reworking of the negative list put forward by Indonesia. Further, at a bilateral level, there are also issues pertaining to the Indian demand for the removal of non-tariff barriers on its exports of meat and processed foods. Though India is one of the largest exporters of halal bovine meat in the world, Indonesia continues to ban India's bovine meat and milk products on the grounds that India is not free from Foot and Mouth Disease (FMD).

Despite the mentioned issues between the two countries, there is optimism about the potential that exists for greater economic ties. With both countries facing daunting infrastructural and energy challenges, there is tremendous opportunity for investments on both sides. With opportunities and forum for cooperation in place, it is important that economic actors in both countries step up and work towards enhancing economic partnerships. Companies in both countries need to actualize potential synergies for their mutual benefit and ensure that attempts at cooperation are not restricted to inter-governmental meetings and commissions.