Rise of China could bring India and Indonesia closer
Indian Prime Minister Narendra Modi and Indonesian President Joko Widodo signed 15 agreements and pledged to upgrade the relationship between the two countries to a ‘comprehensive strategic partnership.’ The agreements cover defence, railways, scientific cooperation, maritime matters, and other areas. Notably, these agreements are memorandums of understanding (non-legal agreements) and the question is whether India and Indonesia will finally realise the true potential of what ought to form one of the most natural alliances between any two countries in the world.
India and Indonesia are united by shared historical and cultural bonds but have never managed to build a bilateral relationship of any substance. Modi has a singular opportunity to correct this historic wrong. He must seize the chance and here’s why.
The Indonesian archipelago comprises 17,508 islands and is located in an area of high strategic significance. The country has the fourth largest population with a plurality of religions, ethnicities, languages, and cultures that is perhaps only rivaled by India. It is also the world’s largest Muslim country.
Indonesia shares strong historical connections with India. India had trade relations with Sumatra dating back at least to the beginning of the Christian era. And it is lamentable that the once significant relationship with the archipelago atrophied over centuries despite the influence of shared languages, cultural attributes, and religions.
In the post-colonial period, India-Indonesia relations had an opportunity for revival due to their leaders’ shared commitments to non-alignment. Despite initial promise, the relationship never took off and was probably stymied by economic deprivation and a greater emphasis on other partnerships. Against this backdrop of lost chances, there are visible green shoots in the bilateral relationship in recent years. Trade between the two countries grew 28 per cent from 2016 to reach $18.13 billion in 2017. India’s top import goods from Indonesia include palm oil, coal, manganese ore, and natural rubber whereas it exports frozen meat of bovine animals, ground nut, rice, stainless steel, aluminium, coconut, and automobiles.
Despite recent growth, the bilateral trade relationship is vastly underdeveloped. By comparison, Indonesia exported over $16 billion worth of goods to China in 2016 and imported over $30 billion worth of goods. Its import bill for goods from the small nation of Singapore was $14.5 billion in 2016, and Japan about $13 billion. This indicates that India has a substantial opportunity to export more goods to Indonesia — especially products higher up the value chain —technology, machinery, capital goods and consumer goods. Aside from goods, there is also significant potential to increase trade in services as the economy transitions.
Modi will have noticed that Indonesia is on a steep upward trajectory. Its economy is expected to be the fourth largest by 2050. The country also has extremely favourable demographics — over two-thirds of Indonesians will be of working age by 2030 and the middle-class population is likely to be in excess of 135 million. This population could be major consumers of Indian services — education, tourism, technology services, professional services, healthcare and financial services. Education alone could be a highly lucrative opportunity for India given the significant under-development in the Indonesian tertiary sector. Indonesian employers report high skills shortages and there is a lack of capacity in fields requiring higher order skills.
This is an opportunity for India. For example, Australia derived over $1.3 billion from services exports in 2015-16 with education and tourism being the largest contributors. It is a major destination for Indonesian students — about 8,000 Indonesian students choose to study in Australia every year. This is just the tip of the iceberg. Given the number of high quality educational institutions in India, the country could attract significantly more than 8000 Indonesian students — particularly in science, medicine, and technology disciplines. The development of educational and technological exchanges could be a win-win for both countries. Modi and Jokowi clearly recognise this potential. They have committed to increasing the value of trade to $50 billion by 2025. But talk is cheap and opportunities have been missed before. This time might be different due to another imperative — the rise of China and the shared interest of India and Indonesia in protecting their interests. The Indian Ocean and the South China Sea have both witnessed increasing attempts at imposing Chinese dominance. India and Indonesia acting alone cannot contain these efforts. Together they could work with other interested countries such as Sri Lanka and Malaysia to protect freedom of navigation and reduce militarisation of the blue economy.
Modi’s visit ought to be followed up by sustained efforts at translating MoUs into tangible dollars and developing a broader maritime and security relationship. If the paper agreements are turned into greenbacks and action, we can move to a modern relationship based on mutual gains between two peoples who have more commonalities than differences.
The development of educational and technological exchanges could be a win-win for both countries