India, Indonesia to begin talks on trade pact next week

India and Indonesia will formally begin negotiations towards entering into a Comprehensive Economic Cooperation Agreement (CECA) next week, when Indonesian President Susilo Bambang Yudhoyono visits New Delhi.

The pact could potentially open up one of the fastest growing Southeast Asian markets, and one of the only three G-20 nations with positive growth during the recession, along with India and China, for domestic firms.

Yudhoyono, who will be the chief guest at the Republic Day parade in the capital, along with Prime Minister Manmohan Singh is slated to jointly announce the commencement of talks for the CECA, Deputy Minister in Indonesia’s Coordinating Ministry for Economic Affairs Rizal Effendi Lukman told Business Standard. Senior officials in the Union Ministry of Commerce confirmed that the joint announcement would be made next week.

In November 2005, Singh and Yudhoyono had signed an MoU for establishing a joint study group (JSG) to examine the feasibility of a CECA. In a report in September 2009, the JSG backed the pact and mooted the formation of a bilateral trade negotiating committee on goods, services, investment and other areas of cooperation.

The India–Indonesia CECA will build on the Free Trade Agreement (FTA) that India already has with the ASEAN (Association of South East Asian Nations), the 10-member trade bloc that includes Indonesia, Malaysia, Philippines, Singapore and Thailand, Brunei, Myanmar, Cambodia, Laos, and Vietnam.

While Indonesia is already India’s third largest trading partner in the ASEAN, with bilateral trade of about $10 billion in 2008, the JSG in its report had suggested that trade could increase substantially with the reduction of trade barriers. By 2020, according to JSG estimates, India’s exports to Indonesia could reach up to $ 7.8 billion, while exports from Indonesia to India were likely touch $ 9.7 billion.

“For Indonesia, India is a strategic country, with a large population. We have a 50-year-old relationship that goes back to the Non-Aligned Movement. Now, we will look at beginning a new chapter, which is timely because Indonesia currently holds the chairmanship of ASEAN and is also a member of the G20,” Lukman said.

$15-bn agreements
Indonesia anticipated signing $14-15-billion deals with companies and local government, the deputy minister said. “About 70-80 Indonesian businessmen are going to New Delhi along with 10-15 members of local governments. We think about $14-15 billion of cooperative pacts will be signed in total,” he said.

Yudhoyono is also scheduled to meet the brass of the Tata Group, Reliance and GVK.

Indian firms already have a substantial presence in the Southeast Asian nation. These include the Aditya Birla Group, Essar, Jindal Stainless, as well as two-wheeler majors Bajaj and TVS. Additionally, in the resources sector, especially coal, there is an increased interest from domestic firms, as to look to bridge the demand-supply gap by acquiring resources in Indonesia, which is the world’s largest coal exporter.

Tata Power owns 30 per cent stake in the two largest coal mines in Indonesia, which it acquired in 2007 for about $1.1 billion, while last year, the Adani Group, India’s largest coal importer had decided to make a $1.65 billion investment to build a port and rail project in the country.