India’s companies have yet to make serious inroads into Indonesia but Southeast Asia’s biggest economy has potential to capture more outbound M&A, as rising incomes and more skilled workers boost growth in sectors like food, manufacturing and resources while improvements to the regulatory environment slowly open up a huge potential infrastructure market, Indian government and industry officials say.

Indonesia captured only $78.5 million in Indian investment in the whole of 2012 from 58 companies, primarily in the mining sector, Invest India managing director Anupam Srivastava told The Insider Stories at the India-Indonesia Investment Round Table in Jakarta. According to the India Brand Equity Federation, India Inc.’s outbound M&A was $3.3 billion in January alone.

“It means Indonesia has lot of work,”  Srivastava said, however there’s “scope to capture [more] money from India,” noting that as an example of the potential for trade, India last year sourced almost three quarters of its massive palm oil imports from Indonesia.

In the five years started 2012 India is targeting overseas investment of $1 trillion, 46% from private companies, he said.

Gujrit Singh, India’s ambassador to Indonesia, Timor Leste & Asean, said at the forum that Indian corporate players like Indonesia’s palm oil, food and infrastructure sectors and are keen to seek local partners via business-to-business and public-private partnership deals, with three Indian infrastructure companies currently keen on Indonesia and three or four looking to invest in Indonesia’s food sector.

Another potentially attractive sector for Indian investors is in manufacturing goods like textiles and power plant equipment in Indonesia for export to Asean neighbours, he said.

Below are some views from other officials at the round table on Indonesia’s economy.

INDIA INC. ON INDONESIA’S AUTO SECTOR

Strong domestic demand for autos is seeing more locally produced and assembled models and components as manufacturers tap rising numbers of skilled workers and a relatively conducive regulatory environment in Indonesia. Cars make up 2.5 million of the 15 million vehicles on the roads of Jakarta alone, while some analysts expect national car sales to grow in the double digits this year following record sales of 1.1 million last year. Sales of motorcycles, many of them small-bore models similar to those favoured in India, this year likely will extend 2012’s moderate fall but are still expected to be somewhere around 6 million.

Amit Mukherjee, deputy executive director of the Automotive Component Manufactures Association of India, said at the forum that the industry is looking at creating more partnerships and joint ventures with Indonesian companies to work together new technologies.

“The industry will be about $43 billion by 2020. There are export opportunities and there is a huge domestic market also,” while more Indian auto-component-makers could join the three companies with existing investments in Indonesia, he said.

PT Pricol Surya president director Anil Kumar says the speedometer maker’s Indonesian arm, which has been operating in the country since 2007, is looking to step up investment to meet demand, including expanding its plant in Karawang in West Java province outside Jakarta.

Planned investment of $10 million this year is set to increase the number of speedometers Pricol Surya makes for two-wheeled vehicles above 2.5 million currently, while its output of the gauges for four-wheeled vehicles will grow gradually to 150,000-200,000 by next year.

That compares to $15 million in total over the eight years the company has been operating in Indonesia, Kumar says.

INFRASTRUCTURE

Infrastructure has traditionally been a tricky patch of ground for investors in Indonesia, both foreign and local. However, several regulatory improvements have been made in recent years and some observers think next year’s presidential and parliamentary elections could speed the process. Although difficulties remain, a new Jakarta monorail development to replace an existing project that was abandoned in 2004 due to funding problems appears to be on track for development, while several other major initiatives by the new Jakarta administration of highly regarded governor Joko Widodo, including a sea wall and flood channel, will also be bellwethers for infrastructure investors.
“We always are open to opportunities here in Indonesia,” says Sreedhars Pothukuchi , vice president at GMR Urban Infrastructure, which with a market cap of 78 billion rupees ($1.4 billion) is among India’s biggest infrastructure players and has investment experience in Southeast Asia. “We have evaluat[ed] opportunities in energy, highways, industrial [developments], airports and urban infrastructure.” Alongside GMR’s “significant” investment in Indonesian energy there are potentially opportunities working in such areas as land preparation and transport networks for mining operations, he said.

FOOD

As Indonesian food consumption increases and diets become more sophisticated amid strong growth in middle-class incomes, the country may need more efficient food production and delivery methods than its subsistence farmers and patchy transport infrastructure can provide.

“In Indonesia we would like to make joint ventures with Indonesian companies, to produce [goods] from Indonesia [to] sell in India and in a similar way we bring our services here and sell them,” says Raj Gaddam, Managing Director of the integrated, end-to-end Srini Food Park Pvt. Ltd. in Andhra Pradesh state.

“We expect we will implement this year or next year” with an initial investment of $50 million to be increased later, he tells The Insider Stories on a debut trip to Indonesia.