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India and Indonesia Sign Trade Deals, Realign Mutual Interests

February 2, 2011

Indonesian President Susilo Bambang Yudhoyono’s attendance as chief guest at India’s 62nd Republic Day on January 26 harkened back to an earlier time. At the same occasion in 1950 when India first commemorated the adoption of its new constitution, Prime Minister Jawaharlal Nehru invited his close ally in the Non-Aligned Movement, Indonesian President Sukarno, to attend the festivities.

Indonesian President attends Republic Day in India

Indonesian President Yudhoyono (center) meets with Indian Prime Minister Singh during India's 62nd Republic Day parade. Photo: AFP/Getty Images.

The scene here has changed little over the years, with dignitaries presiding over a grand military and cultural parade that remains one of the world’s great national spectacles. This year’s parade took place on a sunny, cool morning with only a light winter haze blurring the view along the early parade route from the presidential palace on Raisina Hill to the India Gate three kilometers away.

While India and Indonesia were very close in the years following independence, they grew apart as the Non-Aligned Movement lost relevance. Each year India has invited a new chief guest to Republic Day, selected based on India’s strategic economic and political interests at the time. The return of an Indonesian president 61 years after Sukarno’s first visit marks a realignment of the two countries’ interests. India and Indonesia, along with the U.S., are the world’s largest democracies. Both countries are acutely conscious of their growing role on the world stage and anxious to increase their influence.

From an Indian perspective, there were two objectives underlying President Yudhoyono’s selection as chief guest for this year’s Republic Day celebrations. First, closer alignment with Indonesia is expected to strengthen India’s hand in the East Asian Summit, an ASEAN-led grouping of 17 countries that also includes Russia, China, Japan, Australia, and the U.S. Trade is an important component of the summit process, along with strategic issues ranging from energy security to climate change. India has been a part of the summit since its first meeting in Kuala Lumpur in 2005. Among other advantages, strengthening India’s relationship with Indonesia, which currently chairs ASEAN, is seen as a way of counterbalancing Chinese influence in the summit.

Second, the trip was about business, pure and simple. Like British Prime Minister David Cameron last July, U.S. President Barack Obama in November, and Chinese Premier Wen Jiabao in December, President Yudhoyono arrived in New Delhi accompanied by a planeload of business leaders. Economic engagement between India and Indonesia is growing fast, bolstered by the signing of the India-ASEAN Free Trade Agreement last year under which India committed to reduce import tariffs on goods from ASEAN countries. Bilateral trade between India and Indonesia topped $12 billion in 2010. Among other goods, India sells military hardware to Indonesia under a defense cooperation agreement signed in 2001.

President Yudhoyono and his delegation met with around 500 business leaders at a forum hosted by national business associations where they signed billions of dollars worth of cooperative agreements for ventures ranging from infrastructure to mining and manufacturing. The Steel Authority of India (SAIL) signed an agreement to set up a $3.3 billion steal plant in Indonesia’s Central Kalimantan. Hyderabad-based GVK Power and Infrastructure Ltd. signed memoranda to build airports in North Bali and Yogyakarta. In addition to trade agreements, the two countries signed an extradition treaty and a “mutual legal assistance” treaty.

President Yudhoyono’s visit has been viewed within Delhi’s policy and business communities as having been very successful. The visit highlighted the importance that India attaches to its “Look East” policy of increased engagement and economic integration with Southeast Asia. It also showcased India and Indonesia’s growing profile on the world stage as part of a strong and resurgent Asia.

Nick Langton is The Asia Foundation’s country representative in India. He can be reached at nlangton@asiafound.org.

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