Indonesian Companies in India: Manufacturing, Mining & FDI Guide

The Indonesia-India Economic Corridor: An Underutilised Opportunity

Indonesia and India share more economic complementarity than most bilateral relationships in Asia. Indonesia is the world's largest producer of palm oil, a top-five nickel producer, and Southeast Asia's largest economy at $1.4 trillion GDP. India is the world's largest importer of palm oil and vegetable oils, a rapidly growing consumer of critical minerals for its EV battery push, and the world's fastest-growing major economy at 6.5-7% growth.

Bilateral trade reached $28.16 billion in FY2025, with Indonesia exporting $22.78 billion to India (predominantly palm oil, coal, and minerals) and India exporting $5.38 billion to Indonesia (engineering goods, petroleum products, chemicals). Both governments have set a target of $50 billion bilateral trade. Yet Indonesian foreign direct investment into India remains a fraction of what flows from Singapore ($14.94 billion in FY2025) or Japan ($3.2 billion). This gap represents a strategic opportunity for Indonesian companies willing to move beyond commodity exports into direct investment.

Why Indonesian Companies Should Consider India

Downstream Processing and Value Addition

Indonesia's 2020 ban on raw nickel ore exports forced downstream processing into the country. Indian manufacturers, particularly in stainless steel and EV batteries, now need reliable nickel supply chains. Indonesian nickel companies can establish processing partnerships or joint ventures in India, securing long-term off-take agreements while moving up the value chain. India's PLI scheme for Advanced Chemistry Cell (ACC) batteries offers 4-6% incentive on sales, creating a pull factor for nickel-to-battery supply chain integration.

Palm Oil Downstream Operations

India imports approximately 8-9 million tonnes of palm oil annually, making it the world's largest importer. Indonesian palm oil majors currently export crude palm oil (CPO) and refined products. Establishing oleochemical plants or specialty fat manufacturing units in India allows Indonesian companies to capture higher margins, avoid India's import duties on refined palm oil (which are deliberately higher than CPO duties to encourage domestic processing), and serve the massive Indian FMCG and food processing market directly.

Coal and Energy Transition

Indonesia supplies approximately 24% of India's thermal coal imports. As both countries navigate the energy transition, Indonesian energy companies with diversification strategies can leverage India's renewable energy sector. India permits 100% FDI under the automatic route in renewable energy, and the solar and wind sectors offer attractive returns with government-backed power purchase agreements.

Textiles and Garment Manufacturing

Indonesia's garment export industry faces increasing competition from Bangladesh and Vietnam on price. India's PLI scheme for textiles (with incentives of 3-11% on incremental sales) and access to a domestic market of 1.4 billion consumers makes India an attractive second manufacturing base. Indonesian textile groups can establish Indian operations to diversify their production footprint, access India's growing demand for formal and athletic wear, and leverage India's cotton supply chain, the world's second-largest cotton producer. Key textile clusters include Tiruppur (Tamil Nadu) for knitwear, Surat (Gujarat) for synthetic fabrics, and Ludhiana (Punjab) for woollen textiles.

Infrastructure and Construction

Indonesia's large construction conglomerates, including Waskita Karya and Wijaya Karya, have international experience in infrastructure development. India's infrastructure pipeline exceeds $1.5 trillion over the next five years, covering national highways, metro rail, port modernisation, and industrial corridors. 100% FDI under the automatic route is permitted in construction of townships, housing, built-up infrastructure, and real estate broking services. Indonesian firms can participate in public-private partnership (PPP) projects, particularly in areas where they have proven expertise such as toll roads, bridges, and port infrastructure.

FDI Framework for Indonesian Companies

100% FDI Under Automatic Route

Indonesian companies can invest up to 100% in most Indian sectors without prior government approval. Key sectors relevant to Indonesian businesses include:

Government Approval Sectors

Some sectors require government approval, including multi-brand retail (51% cap), defence manufacturing beyond 74%, print media (26% cap), and broadcasting. Indonesian companies in these sectors must apply through the Foreign Investment Facilitation Portal (FIFP) and obtain ministry-level approval, typically taking 8-12 weeks.

Entity Structure Recommendations

For Indonesian companies, the Private Limited Company (Pvt Ltd) is the recommended structure. It provides limited liability, full operational flexibility, ability to raise equity capital, and straightforward dividend repatriation under FEMA. Alternatives include an LLP for consulting and services (lower compliance burden) or a Branch Office for testing the market before full commitment. See our branch office vs subsidiary comparison for a detailed analysis of the trade-offs.

Manufacturing Setup: Practical Guide

Location Selection

India's manufacturing geography is diverse, with different states offering distinct advantages:

• Gujarat (Ahmedabad, Vadodara): Chemicals, petrochemicals, oleochemicals. Strong port connectivity via Mundra and Kandla ports. Gujarat Industrial Development Corporation (GIDC) offers ready-built industrial plots with subsidised land and power.
• Tamil Nadu (Chennai, Coimbatore): Auto components, electronics, textiles. India's largest auto manufacturing cluster with established supply chains.
• Maharashtra (Pune, Nagpur): General manufacturing, food processing. India's largest state economy with well-developed logistics infrastructure.
• Karnataka (Bengaluru, Hubballi): Aerospace, precision engineering, IT-driven manufacturing. Access to India's deepest engineering talent pool.

For detailed state-level incentives, see our guide on Indian states competing for foreign investment.

Special Economic Zones and Industrial Parks

India has over 270 operational SEZs offering tax incentives for export-oriented units. Companies in SEZs enjoy 100% income tax exemption on export profits for the first 5 years, 50% for the next 5 years, and customs duty exemption on imported inputs. For Indonesian companies planning export-oriented manufacturing, SEZs provide a compelling proposition. Additionally, National Investment and Manufacturing Zones (NIMZs) and state-level industrial corridors (Delhi-Mumbai Industrial Corridor, Chennai-Bengaluru Industrial Corridor) offer plug-and-play infrastructure.

PLI Scheme Benefits

Indonesian manufacturers can access PLI incentives across 14 sectors. The most relevant for Indonesian companies include:

Mining Sector: Regulatory Framework for Foreign Investors

Mining Licence Types

India permits 100% FDI in mining under the automatic route. The key licence types under the Mines and Minerals (Development and Regulation) Act, 2015 (MMDR Act) include:

• Reconnaissance Permit (RP): For preliminary surveying. Valid for 3 years.
• Prospecting Licence (PL): For detailed exploration. Valid for 3 years, extendable by 2 years.
• Mining Lease (ML): For extraction. Granted for 30 years for major minerals (extendable by 20 years) and up to 10 years for minor minerals.
• Composite Licence (CL): Combined prospecting and mining licence. Granted through auction.

Auction-Based Allocation

Since 2015, mining leases for major minerals in India are allocated through a transparent auction process. Companies bid on the basis of the percentage of ore value they will share with the state government (revenue share). Indonesian mining companies with experience in competitive bidding for mining concessions (IUP system in Indonesia) will find India's auction system conceptually familiar.

Environmental Clearances

Mining operations require Environmental Clearance (EC) under the Environmental Impact Assessment (EIA) Notification 2006. The process involves:

1. Submission of Form-1 and pre-feasibility report to the Ministry of Environment, Forest and Climate Change (MoEFCC) or State Environment Impact Assessment Authority (SEIAA)
2. Terms of Reference (ToR) approval (30-60 days)
3. Environmental Impact Assessment study (6-12 months)
4. Public hearing
5. Expert Appraisal Committee review
6. EC grant (total timeline: 12-18 months)

Indonesian companies are well-versed in AMDAL (Environmental Impact Assessment) requirements under Indonesian law, and the conceptual framework is similar, though Indian timelines tend to be longer.

India-Indonesia DTAA: Tax Optimisation

The India-Indonesia DTAA provides reduced withholding tax rates on cross-border payments:

Indonesian companies must obtain a Tax Residency Certificate (TRC) from the Indonesian tax authorities and provide it to the Indian payer to claim DTAA benefits. The Indian payer must deduct withholding tax at the DTAA rate (not the domestic rate) upon presentation of a valid TRC and Form 10F. Companies should file Form 15CA/15CB for all outward remittances to ensure compliance.

Transfer Pricing Considerations

Intercompany transactions between Indonesian parent companies and Indian subsidiaries must be at arm's length. India's transfer pricing rules are among the world's most strictly enforced, with penalty exposure of 100-300% of tax shortfall on adjustments. Indonesian companies should prepare contemporaneous transfer pricing documentation covering:

• Functional analysis of both entities
• Benchmarking study using Indian comparables
• Intercompany agreements for all transactions (goods, services, royalties, management fees)
• Documentation of the economic rationale for pricing decisions

Step-by-Step: Indonesian Company Entering India

Phase 1: Pre-Entry (4-6 weeks)

1. Conduct market feasibility study for target sector and location
2. Obtain Director Identification Numbers (DINs) for proposed directors
3. Secure Digital Signature Certificates (DSCs) for all directors
4. Identify and appoint an Indian resident director
5. Prepare MoA and AoA tailored to the business activity

Phase 2: Incorporation (2-4 weeks)

1. File SPICe+ form with MCA portal
2. Obtain Certificate of Incorporation with PAN, TAN, and provisional GSTIN
3. Register with Registrar of Companies in the selected state

Phase 3: Capital and Banking (2-3 weeks)

1. Open corporate bank account with an authorised dealer (AD) bank
2. Remit initial capital from Indonesia (wire transfer through banking channels)
3. File FC-GPR with RBI within 30 days of share allotment
4. Obtain Foreign Investment Reporting (FIR) confirmation

Phase 4: Regulatory Approvals (4-12 weeks)

1. Apply for GST registration
2. Obtain Import Export Code from DGFT
3. Sector-specific: Factory licence, FSSAI licence (food), PESO licence (chemicals), mining lease application
4. State-level: Shops & Establishments Act registration, professional tax registration

Phase 5: Operations Launch (ongoing)

1. Hire employees and register with EPF, ESI, and labour welfare boards
2. Set up accounting systems compliant with Indian Accounting Standards (Ind AS)
3. Establish transfer pricing documentation framework
4. File FLA return with RBI by July 15 of each year

Ongoing Compliance for Indonesian-Owned Indian Subsidiaries

Annual Filing Calendar

Indonesian companies operating through Indian subsidiaries must manage a dense compliance calendar. The critical filings and deadlines include:

Missing any of these deadlines triggers automatic penalties. The 12 compliance deadlines foreign companies commonly miss provides a comprehensive guide to avoiding penalty exposure.

Repatriation of Profits

Dividends from the Indian subsidiary to the Indonesian parent are freely repatriable after deducting withholding tax at the DTAA rate (10% where the Indonesian parent is a company holding at least 25% of the shares, otherwise 15% under Article 10). The Indian subsidiary must ensure it has sufficient distributable profits under the Companies Act, pass a board resolution for dividend declaration, and deduct TDS before remitting. The AD bank will require Form 15CA/15CB certification from a Chartered Accountant confirming the applicable DTAA rate and tax compliance. For day-to-day intercompany payments, the Section 195 withholding obligation applies to all payments that constitute income in the hands of the Indonesian parent.

Corporate Governance Requirements

Indian Companies Act 2013 imposes governance requirements that may differ from Indonesian Company Law (UU PT). Key differences Indonesian directors should be aware of include:

• At least one director must be an Indian resident (182+ days physical presence in India)
• Board meetings require minimum 7-day notice (Indonesian PT requires 14 days)
• Related party transactions above threshold require shareholder approval
• CSR expenditure of 2% of average net profit is mandatory if the company crosses INR 5 crore net profit threshold
• Annual statutory audit is mandatory regardless of company size

Sector Deep Dive: Indonesian Nickel Companies and India's EV Push

India's FAME II scheme and the PLI scheme for Advanced Chemistry Cell (ACC) batteries are creating significant demand for processed nickel. India currently imports nearly all its nickel requirements, with Indonesia being a key source. Indonesian nickel companies like Harita Group and Vale Indonesia that have downstream processing capabilities can explore several entry models:

• Joint ventures with Indian battery manufacturers: Companies like Exide Energy Solutions and Amara Raja are scaling up battery production and need reliable nickel sulphate supply.
• Toll processing agreements: Sending nickel matte to India for further processing without a full subsidiary setup, testing the market while maintaining asset-light exposure.
• 100% owned processing units: Setting up nickel sulphate or nickel hydroxide plants in India to serve multiple battery manufacturers, with PLI incentives of 4-6% on sales reducing the payback period.

India's critical minerals policy now offers concessional customs duty on imports of raw minerals for domestic processing, which benefits Indonesian nickel suppliers establishing Indian operations. Combined with the FDI advisory support available for structuring such investments, Indonesian nickel companies have a window of opportunity before other ASEAN and Chinese competitors establish first-mover advantage in the Indian battery supply chain.

Key Takeaways

• Indonesia-India bilateral trade of $28.16 billion in FY2025 is dominated by commodity exports; Indonesian FDI into India remains underdeveloped compared to Singapore or Japan, representing a strategic gap.
• 100% FDI under the automatic route covers manufacturing, mining, food processing, and renewable energy, making all major sectors relevant to Indonesian companies fully accessible without government approval.
• The India-Indonesia DTAA caps withholding tax on dividends at 10% (where the recipient company holds at least 25% of the shares; otherwise 15%), interest at 10%, and royalties at 15%; there is no separate fees-for-technical-services cap, so India's domestic rate applies to FTS.
• PLI incentives of 4-12% of sales across 14 sectors can substantially improve the ROI for Indonesian manufacturers setting up Indian operations.
• Mining in India follows an auction-based allocation model since 2015; Indonesian companies experienced with the IUP system will find the process conceptually similar.
• Ongoing compliance requires 30-40 annual filings, and missing deadlines triggers automatic penalties. Partnering with a competent compliance services provider is essential for first-time entrants.