Adani Group’s Cases Alert on Economic Disparities in Indonesia
President Joko Widodo (Jokowi) warned of the danger of falling Adani shares which would impact the Indian economy. Jokowi warned of the risk of this case if it happened in Indonesia because it would create distrust in the stock market.
The question then is why did President Joko Widodo again remind the case of frying shares?
Hasn’t this happened before, like the Jiwasraya Insurance case, which fried several claims to increase the value of the owner’s assets in equity?
Will the government learn about this?
However, the fundamental problem in the Adani case may not just be the act of frying shares but because of the high social inequality in India. Adani Group’s market capitalization is 4.22 percent of India’s Gross Domestic Product (GDP).
India is one of the countries with high inequality, with a Gini coefficient ratio of 35.91 percent (Statista data). The Gini coefficient is a way for a country to measure one country’s inequality. The poverty ratio in India is 7.6 percent of the population.
Indonesian conglomerate capitalization
Adani’s case may not have much impact on the stock market because no Indonesian conglomerate has a market capitalization as significant as Adani’s.
As an illustration, the Bakrie Group’s market capitalization is IDR 46.3 trillion or 0.23 percent of Indonesia’s GDP of IDR 19,588 trillion. Then the Lippo Group has a market capitalization of IDR 28 trillion with a ratio of 0.14 percent of GDP. The MNC Group’s market cap is IDR 82 trillion, with a balance of 0.41 percent of Indonesia’s GDP.
In short, Indonesian companies have no dominance in the capital market as big as Adani’s. Indonesia’s Gini coefficient is also still far away at 38.33 percent. Poverty in Indonesia reaches 10.1 percent of the total population.
However, data from the National Team for the Acceleration of Poverty Reduction (TNP2K) states that one percent of the rich in Indonesia control 50 percent of national assets. Imagine if the rich man invested in the stock market like the Adani Group did.
How risky would the capital market be if the shares fell?
Problems in the Indonesian economy are indeed common in developing countries. Inequality in developing countries usually occurs due to the lack of effectiveness of social protection funds and fair competition in the business climate. When that happens, the state’s task of changing the economic structure to be more open becomes the main task.
Reducing the poverty rate
Senior economist Emil Salim explained that reducing poverty requires the involvement of all members of society. He emphasized the importance of Indonesia’s development program based on equal economic, social, and environmental aspects.
However, another problem with efforts to eradicate poverty comes from the Investment Coordinating Board (BKPM), which states that the absorption of workers from the investment has been getting smaller in the last ten years.
In 2022 alone, an investment of IDR 1,207 trillion will only absorb 1,305,001 workers. This figure has even shrunk from the investment realization of IDR 692.8 trillion, which managed to absorb 1,176,323 workers in 2017. The decline in investment absorption is due to investment in the labor-intensive sector which is on a downward trend.
Meanwhile, Indonesia’s population has increased by as much as in the last ten years, from 253 million people to 275 million people in 2022, an increase of 8.6 percent. The increase in per capita Gross Domestic Product (GDP), which in the last ten years has grown by 94 percent from IDR 36.5 million in 2013 to IDR 71 million in 2022, could not be of good quality if inequality is still high.
The problem of inequality is not an easy task because Indonesia must create economic growth of at least 5.7 percent by 2045 in the National Medium-Term Development Plan (RPJMN) to prevent the middle-income trap.
The target is even more difficult because changing GDP increases requires a lot of investment, export competitiveness, financial literacy, and increased Human Resources (HR) productivity.
The industrial formula that previously relied on commodities to support exports can be changed. Then public investment is haunted by bulging assets with low general literacy.
The productivity of new Indonesian workers is USD 13.1 per hour or only ranks 107 out of 185 countries, according to data from the International Labor Organization (ILO) in January 2022.
The next challenge is how Indonesia can achieve the vision of a golden Indonesia in 2045 amidst the still high potential for social inequality ?
