India-Indonesia Free Trade Agreement: Prospects and Challenges
India and Indonesia are two crucial players in the Southeast Asian region and have been exploring various avenues to enhance their economic cooperation over the years. One significant step towards this was the India-Indonesia Comprehensive Economic Cooperation Agreement (CECA), which was signed in 2010. This agreement aimed to boost bilateral trade by eliminating tariff and non-tariff barriers and promoting investments between the two countries. However, the agreement failed to deliver the desired results mainly due to non-tariff barriers and concerns over the trade balance.
To address these issues, both countries have been negotiating a Free Trade Agreement (FTA) since 2011, which is expected to be concluded soon. The FTA is expected to cover trade in goods, services, and investments, and promote greater economic integration between the two countries. Let`s take a closer look at the prospects and challenges of the FTA:
Prospects:
1. Trade in goods: The FTA is expected to provide significant benefits to both countries in terms of trade in goods. Indonesia is the second-largest trading partner of India in the ASEAN region. The FTA would provide Indian exporters with duty-free access to the Indonesian market, which would enhance their competitiveness. Similarly, Indonesian exporters would benefit from greater market access to India, which is the world`s fastest-growing major economy.
2. Trade in services: The FTA is expected to provide a boost to trade in services, which has been an area of concern in the CECA. The FTA would provide greater market access to both countries, enable investments in services sectors, and facilitate the movement of professionals.
3. Investment opportunities: The FTA is expected to enhance investment flows between the two countries by providing a predictable and transparent investment environment. Indonesia has been one of the most attractive investment destinations for Indian investors in the ASEAN region. The FTA would further encourage Indian investments in Indonesia and vice versa.
Challenges:
1. Non-tariff barriers: Non-tariff barriers have been a significant hindrance to trade between the two countries. The FTA would need to address issues related to standards, technical regulations, and certifications that hinder market access for both countries.
2. Trade balance: India has been running a large trade deficit with Indonesia, which has been a concern for Indian policymakers. The FTA would need to address this issue by promoting a more balanced trade relationship between the two countries.
3. Domestic sensitivities: The FTA negotiations have faced domestic sensitivities, particularly in Indonesia. There have been concerns about the impact of the FTA on the domestic industry, particularly in sectors such as textiles and automobiles. Both countries need to address these concerns through deeper consultations and negotiations.
Conclusion:
The India-Indonesia FTA has the potential to unlock significant economic benefits for both countries. The negotiations have been going on for a long time, and both countries need to work towards resolving the outstanding issues and concluding the FTA soon. A successful FTA would provide greater momentum to the economic cooperation between India and Indonesia and serve as a model for further deepening of the economic integration in the Southeast Asian region.