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India strengthens economic ties with Indonesia through a new trade agreement plan, tackling imbalances and opening bilateral trade opportunities.

31 May 2025 2 min

India is officially advocating the formation of a special trade agreement with Indonesia. This move is seen as highly strategic in increasing the value of bilateral trade between the two countries, while also addressing the long-standing imbalance. The initiative has intensified after India’s Ambassador to Indonesia, Sandeep Chakravorty, highlighted the importance of more concrete collaboration during a media briefing in Jakarta on May 30, 2025.

Economic cooperation between Indonesia and India has been established within the ASEAN-India Trade in Goods Agreement (AITIGA) framework. However, implementation on the ground remains suboptimal. In recent years, the total value of bilateral trade has continued to decline, even reaching around USD 30 billion in 2024, far from the ambitious USD 50 billion target set by both countries for 2025.

India regards Indonesia as one of its most important trading partners in Southeast Asia. India’s main imports from Indonesia include palm oil, coal, rubber, and other agricultural products. Meanwhile, India’s exports to Indonesia are dominated by pharmaceuticals, machinery, and textiles. This has resulted in a significant imbalance: India’s trade deficit with Indonesia in 2024 reached USD 17 billion.

According to Sandeep Chakravorty, Indonesia and India need to initiate new dialogue to broaden trade and investment opportunities. He emphasized that a bilateral trade agreement could help resolve barriers, especially for Indian exporters who often face non-tariff obstacles in Indonesia.

Mohan Kumar, former Indian Ambassador to France, highlighted various non-tariff barriers hindering Indian products from entering the Indonesian and other ASEAN markets. For example, the export of Indian buffalo meat, fruits, and vegetables often faces Sanitary and Phytosanitary (SPS) Standards and lengthy licensing processes. Indian pharmaceutical products also have to undergo lengthy approvals, which often delay distribution.

The proposed solution is to establish mutual recognition agreements and speed up goods inspection processes, enabling trade to become more efficient and fair. This would allow businesses in both countries to compete globally on equal terms.

In early 2025, Indonesian President Prabowo Subianto made an official visit to India. This visit marked a series of strategic agreements in defense, health, maritime, and digital technology sectors (see also). However, as of April 2025, bilateral trade value only reached around USD 26.69 billion (source). This highlights the need for renewed efforts to boost economic cooperation.

The Indian Ambassador stated that, without extra effort, the ambitious bilateral trade target of USD 50 billion will be difficult to achieve. Strategies moving forward include promoting export diversification, lowering non-tariff barriers, and encouraging cross-sector investments.

India and Indonesia have agreed to enhance dialogue and coordination. Their main focus going forward is to strengthen mutual product standards recognition, expedite licensing processes, and open new market access in promising sectors such as technology, agriculture, and pharmaceuticals. In addition, collaboration in defense and digital technology is expected to drive more sustainable and innovative economic growth.

This step has been positively received by industry players in both countries. Indonesian entrepreneurs believe a bilateral agreement will increase the competitiveness of domestic products in the vast Indian market. Conversely, India hopes to expand exports of high-value goods and open new investments in infrastructure and technology sectors.

With both countries committed, it is hoped that a special trade agreement can soon be realized. Increasing trade volume and investment between Indonesia and India is believed to be able to create more inclusive economic growth. Concrete measures such as improving export-import processes, reducing non-tariff barriers, and diversifying export products are key to the success of this bilateral cooperation.