The Growth Potential for Indian Firms in Indonesia

Why Indian Firms Should Expand to Indonesia

  • InCorp Editorial Team
  • 21 January 2025
  • 7 minutes reading time

India and Indonesia enjoy a growing economic partnership driven by new trade and investment opportunities. With the unprecedented growth in bilateral trade and the successful presence of numerous Indian firms in Indonesia, the stage is well-set for expanded investments across key sectors.

This article highlights the investment opportunities available to Indian investors and focuses on strengthening economic ties between the two countries.

History of India-Indonesia Trade Relations

Trade relations between India and Indonesia started in 1978 with formal agreements that initiated economic cooperation between the two countries. In 1986, the DTAA was established to avoid double taxation for companies, and it was revised in 2012 to facilitate more financial transactions.

Both countries created the Joint Commission Mechanism (JCM) in 2003. This initiative aims to emphasize economic ties and trade partnerships. Their vision of achieving USD 50 billion in bilateral trade by 2025 furthers this.

Bilateral trade between India and Indonesia has increased because of the policies and agreements that promote cooperation, including the India-ASEAN FTA. The trade volume reached USD 38 billion in FY 2023, an eightfold increase since 2005.

Exports From India to Indonesia

India exported a diversified basket of 4,165 commodities to Indonesia in FY 2023:

  • Petroleum Products: A major contributor with exports worth US$3.87 billion.
  • Motor Vehicles and Cars: USD 523 million, representing India’s automotive capability.
  • Sugar: USD 435 million, indicating the country’s agricultural significance.
  • Iron and Steel: The country exported USD 389 million worth of iron and steel, which will go into the construction and manufacturing sectors.

Imports From Indonesia to India

The diversified offerings by Indonesia had strengthened the trade relations, with 2,221 commodities imported by India in FY 2023:

  • Coal and Coke: USD 14.58 billion, ranking first in the list, catered to India’s energy requirements.
  • Vegetable Oils: Strategic imports are valued at USD 5.63 billion
  • Iron and Steel: Imports amount to USD 1.59 billion, supporting infrastructure development.
  • Cosmetics and Toiletries: Demonstrating a diversifying trade, valued at USD 632 million.

Strategic Partnership

Indonesia has emerged as India’s biggest trading partner in ASEAN. India is Indonesia’s fourth major export destination. Important sectors such as agriculture, biotechnology, and IT, among others, provide broad prospects for further deepening their economic relationship.

Indonesian Investment in India

From April 2000 to March 2023, Indonesian investments in India totaled US$647 million. These investments ranged from agriculture and food to infrastructure and transportation, including projects in highways, airports, and oil refineries.

Indian Investment in Indonesia

India’s current investment in Indonesia is enormous, at US$54 billion, primarily through Singapore. Key Indian companies operate mainly in infrastructure, power, and mining. 

Other growing interests of Indian investors in Indonesia involve pharmaceutical marketing, developing a new Indonesian capital, and building more connections with the Indonesian automotive sector.

Types and Sizes of Indian-Owned Businesses in Indonesia

Indian businesses in Indonesia reflect strong collaboration between the two countries across key strategic sectors. From large corporations to small enterprises, these businesses leverage energy, technology, medicine, and agriculture opportunities.

Energy Sector

Large Indian companies like Tata Power and Adani dominate the Indonesian energy landscape. They are also investing in coal, oil, gas, renewable energy, and conservation projects that address Indonesia’s energy needs and support the global energy transition goals of 2030.

Technology and IT Enterprises

Indian IT giants such as TCS, Tech Mahindra, and HCL have established bases in Indonesia to provide leading-edge solutions for digital transformation and infrastructure projects. The sharp demand for IT services created a 158% jump in Indian interest in this industry for investments, accelerating the growth of mid-size technology enterprises.

Pharmaceutical and Healthcare Firms

The footprint of Indian pharmaceutical companies in Indonesia is growing, inspired by collaboration in healthcare and pharmaceuticals. Large firms explore opportunities for local manufacturing, while smaller enterprises focus on supplying healthcare products and services.

Agriculture and Food Businesses

Indian SMEs are successful in agriculture and food, especially in the rice and spices trade. Strategic agreements, such as possible annual exports of one million tons of white rice to Indonesia, demonstrate how small and medium-sized businesses play a significant role in enhancing food security and strengthening bilateral trade.

Market Opportunities in Indonesia for Indian Investors

The Growth Potential for Indian Firms in Indonesia

Indonesia’s growing economy offers many opportunities for Indian investors in various sectors. Some of the important sectors are discussed below:

Agriculture

  • Agri-tech Solutions: Implementing precision farming, drone technology, and AI-based irrigation to boost crop productivity.
  • Seed and Fertilizer Exports: Supplying high-yield seeds and agrochemicals to enhance agricultural output.
  • Agribusiness Partnerships: Engaging in joint ventures for crop processing and sustainable farming practices.

Poultry Industry

  • Farm Modernization: Investing in advanced breeding and feed production technologies.
  • Supply Chain Enhancement: Improving logistics and cold chain management to reduce post-harvest losses.
  • Value-Added Products: Developing processed poultry items to meet rising consumer demand.

Technology and Startups

  • Fintech: Offering digital payment solutions and financial services to a tech-savvy population.
  • Industry 4.0 Technologies: Providing AI, IoT, and automation solutions to support Indonesia’s industrial modernization.
  • Startup Investments: Exploring opportunities in Indonesia’s rapidly growing startup ecosystem.

Infrastructure Development

  • Special Economic Zones (SEZs): Participating in projects within SEZs to benefit from tax incentives and integrated facilities.
  • Transportation Projects: Contributing to developing highways, ports, and airports to enhance connectivity.
  • Urban Development: Engaging in smart city initiatives and urban infrastructure projects.

Renewable Energy

  • Solar and Wind Projects: Investing in renewable energy installations to support Indonesia’s sustainability goals.
  • Energy Storage Solutions: Developing battery technologies to complement renewable energy systems.
  • Green Technology: Introducing eco-friendly innovations to reduce environmental impact.

Why Indian Firms Should Invest in Indonesia

Indonesia offers many investment-friendly advantages, such as supportive government policies and a vibrant market environment. Let’s explore why Indian firms should expand to Indonesia. 

Simplified Regulations

The Omnibus Law on Job Creation, enacted in 2020, aims to enhance the investment climate by eliminating bureaucratic obstacles and simplifying procedures for foreign investors. This legislation is designed to attract foreign investment by creating a more efficient regulatory environment.

Special Economic Zones (SEZs) 

Indonesia’s Special Economic Zones offer a range of incentives designed to attract investment and foster economic growth. These include tax breaks, exemptions from specific duties, and enhanced infrastructure support. The SEZs focus on agriculture and technology, helping to promote growth and new ideas in these important fields.

India-ASEAN Free Trade Agreement (FTA)

Indian businesses can utilize the India-ASEAN Free Trade Agreement as a strategic pathway to enter the Indonesian market. This agreement also allows them to expand their reach into Southeast Asia.

India-Indonesia Economic and Financial Dialogue (EFD)

The India-Indonesia Economic and Financial Dialogue, which commenced in July 2023, aims to strengthen cooperation and align economic policies between India and Indonesia. This initiative fosters deeper collaboration in various sectors, promoting mutual growth and development.

Investment Challenges Indian Firms Must Know

The India-Indonesia economic partnership is one of the most solid relationships based on cultural, historical, and trade ties. Key challenges must be addressed to strengthen this relationship further, and both countries must pursue new opportunities.

Limited Diversification in Trade

Both countries depend vastly on the petroleum, palm oil, and coal industries. Still, more can be done by expanding into the technology, pharmaceutical, and manufacturing industries. IT, health care, and education also provide ample opportunities, and that sector needs much attention.

Trade Imbalances

The continuing dialogue will be instrumental in reducing trade imbalance and offering equal opportunities to grow. Foreign direct investment in infrastructure, digital technology, and green energy should be increased to develop relations further.

Enhancing trade agreements and refining economic policies will deepen collaboration between India and Indonesia. Initiatives like the Economic and Financial Dialogue offer a valuable platform for exploring emerging sectors, addressing trade imbalances, and overcoming challenges.

Guide to Doing Business in Jakarta

Mailchimp Free eBook Indonesia Business Insight

Start Your Business Journey in Indonesia with InCorp

The economies of India and Indonesia are strong, based on cultural and historical ties. With the increase in trade and investment opportunities, the partnership between the two countries can be further developed by diversifying and leveraging each other’s strengths in technology, healthcare, and infrastructure.

InCorp Indonesia provides specialized services to smooth your business setup in Indonesia’s growing economy.

  • Company Registration: Expert assistance to simplify establishing your business in Indonesia.
  • Investor KITAS: Comprehensive support to obtain the necessary permits for investment and residency.

Begin your journey in Indonesia confidently and set your business up for success by filling out the form below.

Daris Salam

COO Indonesia at InCorp Indonesia

With more than 10 years of expertise in accounting and finance, Daris Salam dedicates his knowledge to consistently improving the performance of InCorp Indonesia and maintaining clients and partnerships.

Get in touch with us.

Lead Form

Frequent Asked Questions

As an investor, you are required to have a minimum investment of IDR 1 billion in invested shares to be eligible for an investor KITAS.

An Index 313 Investor KITAS will allow its holder to stay in Indonesia for a year, while an Index 314 Investor KITAS allows for a 2 year stay.

There are three things business owners need to consider before setting up a business in Indonesia: the type of business entity, capital requirements, and regulations.

Indonesian regulations separate local companies from foreign companies. Generally, foreign-owned companies (PT PMA) have more limitations than their local counterparts (Local PT). However, to pursue more foreign direct investment in the country, the government has taken several bold initiatives to increase the ease of doing business and provide numerous attractive incentives for foreign investors.