India was among the first countries to establish diplomatic relations with the Malaysia soon after its independence in 1957. The bilateral ties between the two countries have been strengthening steadily ever since with the establishment of the strategic partnership in 2010 and the Joint Statement of Enhanced Strategic Partnership in 2016.
An important component of the India-Malaysia relationship is the trade partnership between the two countries. In 2011, a Malaysia-India Comprehensive Economic Cooperation Agreement (MICECA) was signed to enhance trade in goods, trade in services, investments and movement of natural persons. India is Malaysia’s 10th largest trade partner with the trade volume of $15 billion. According to the trade ministry, India’s imports from Malaysia stood at $10.8 billion in the 2018/19 fiscal, while exports to Malaysia totalled $6.4 billion — a $4.4 billion surplus in favour of Malaysia.
The major exports to Malaysia are petroleum products, manufactures of metal, chemicals and chemical products, machinery, equipment and parts, iron and steel products and other agricultures — live animals and meat. While the major imports from Malaysia were saw logs, chemicals and chemical products, manufactures of metal, crude petroleum, electrical and electronic products and most importantly palm oil and palm-based products. India imports about 4 million tonnes of the palm oil and is the world’s biggest importer of the edible oils.
However, of late the bilateral ties have come under stress. The main issue has been Malaysia acting as the safe haven of fugitives of the India law such as extremist preacher Zakir Naik, who is wanted for money laundering and promoting terrorism.
The issue of access to the Malaysian businessman T Ananda Krishnan for investigations into the Aircel-Maxis deal has also strained ties. Earlier too, Malaysia had refused to extradite the Bofors scandal famed Ottavio Quattrocchi. The nadir was hit during the recent UNGA summit where Malaysian Prime Minister Mahathir Mohamad openly sided with Pakistan. Mohamad denounced India for the full constitutional integration of the Jammu & Kashmir and Ladakh by abrogating the Article 370. He also falsely accused India of ‘invading and occupying’ Kashmir. He refused to back down from these open challenges to the India’s sovereignty and territorial integrity.
Needless to say that this was condemned by India and clear hints were dropped at imposing a cost on Malaysia for such hostile acts. The most obvious target was the Malaysian palm oil exports to India. The palm oil exports to India were valued at $1.65 billion at 2018, i.e. around 0.052 per cent of India’s GDP. However, they account for more than 15 per cent of total Malaysian exports to India.
New Delhi’s move to ban or restrict palm oil imports will have a severe impact on the farmers in Malaysia who have to increasingly rely upon the cash crop exports for their income. The mostly ethnic Malay, FELDA settlers will be most affected. FELDA settlers are government-run resettlement of rural poor into newly-developed areas to organise smallholder farms and cash crops. This is an important vote-bank of Mohamad’s party,
In fact, the effect is already visible. Indian businessmen are sharply cutting down their imports from Malaysia, both due to the possibility of New Delhi formally imposing higher traffic or due to restrictions against Malaysian imports. Even though Mohamad is putting a brave face in public, warning that a trade war will harm both the countries, his government is trying to assuage New Delhi’s anger by promising increased imports from India. Kuala Lumpur knows that it will be on the losing side of any such trade war or skirmish. This is because the total import of Indian products by Malaysia only constitutes around 0.2 per cent of India’s GDP, whereas India’s total import from Malaysia is around 2.7 per cent of Malaysia’s GDP. The results are visible with Mohamad coming under heavy domestic criticism for antagonising New Delhi.
This is also another indication of the rise of a new assertive India that is no longer defensive about its legitimate core-areas such as Kashmir. It is just learning to use its economic might to pursue its foreign policy goals.
Trade has always been used as an extension of the larger geopolitics. China restricting exports of rare-earth materials to Japan, Japan restricting exports of chemicals to South-Korea are recent examples of this strategy. The US and the western bloc has always used trade as a foreign policy tool to achieve definitive goals.
India would do well to finely calibrate its trade policy to have incentives and punishment inbuilt in it to complement its larger geopolitical game. It would do well to put pressure on Malaysia until it changes its anti-India position on Kashmir. In the meanwhile, to improve bilateral ties Malaysia can start extraditing Naik instead of offering to increase sugar and meat exports from India.
Abhinav Prakash Singh is assistant professor, Shri Ram College of Commerce, University of Delhi, Delhi. Views are personal.
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