What does the return of palm oil trade mean for India-Malaysia ties?

Palm oil plantation at Sepang, Malaysia flickr photo by Marufish shared under a Creative Commons (BY-SA) license

India-Malaysia relations are improving as India resumes imports of palm oil from the Southeast Asian state, with Malaysia positioned to see further economic benefits and India standing to benefit politically.

By Niranjan Marjani

Malaysia is expecting to see improved relations with India after resuming exports of palm oil to the South Asian power. India has signed contracts to purchase up to 200,000 tonnes of palm oil from Malaysia in June and July, resuming purchases after a four-month pause.

There were indications that India-Malaysia ties would soon improve after former prime minister Mahathir Mohamed resigned and Muhyiddin Yassin assumed office. Resumption of trade ties between the countries could lead to further improvements in diplomatic ties as well.

India stopped importing palm oil from Malaysia in January, after Mahathir and others raised objections at the United Nations about India ending the special status of the state of Jammu and Kashmir. In December 2019, Mahathir also criticized India’s new religion-based citizenship law. The resumption of palm oil exports to India is significant as India is the largest buyer of Malaysia’s palm oil. At the same time, the normalization of ties with Malaysia is politically important for India because it could deter Malaysia from interfering in India’s internal matters.

India matters economically for Malaysia

Cordial ties with India are important for Malaysia economically. Malaysia is the second-largest exporter of palm oil in the world behind Indonesia, accounting for 36% of the world’s palm oil exports in 2019, and India is the largest importer of palm oil in the world. But normalization of trade ties between the two matters more for Malaysia than for India.

Despite stopping purchases of palm oil from Malaysia, India’s supply was not affected, as Indonesia stepped in to increase exports to India. But India’s decision affected Malaysia significantly. From January to April 2020, Malaysian palm oil exports to India fell to 96,145 tonnes, 94% less than the same period last year.

India’s move to resume imports from Malaysia will also likely lead to a rise in prices of crude palm oil. The prices of crude palm oil decreased by 30% following India’s move to halt imports from Malaysia in January and a drop in demand due to COVID-19.

Malaysia is politically significant for India

Improving relations with Malaysia could result in significant gains for India at the regional and global levels. Recent strains in India-Malaysia relations started when then-prime minister Mahathir raised the issue of Kashmir at the United Nations General Assembly in September 2019. Mohamed criticized India’s decision to abrogate Article 370, which gave special status to Jammu and Kashmir.

Indian soldiers in Kashmir flickr photo by flowcomm shared under a Creative Commons (BY) license

The state of Jammu and Kashmir had limited autonomy, controlling many aspects of governance but leaving defence, foreign affairs and communication to the central government in New Delhi. Any law passed by the central government applied to all Indian states other than Jammu and Kashmir. The special status also prevented people from outside Jammu and Kashmir from buying land in the state.

While Muslim countries such as Saudi Arabia, the UAE and the Maldives had supported India’s decision to end Kashmir’s autonomy, countries like Malaysia and Turkey criticized the move.

India’s decision on Article 370 led Pakistan to look for international support on Kashmir, but it didn’t receive the expected support from most countries in the world, including Muslim countries in the Middle East.

Better ties with Malaysia could deter its government from raising issues facing Indian Muslims. While criticizing the amendments to India’s citizenship law, Malaysia had commented on the status of Indian Muslims. The amendment to India’s citizenship law gives fast-track citizenship to persecuted minorities from Pakistan, Bangladesh and Afghanistan. Mahathir interpreted India’s law as a move to persecute its own Muslim population.

If normalization of relations with Malaysia means the Southeast Asian state doesn’t concern itself with India’s internal matters, it would be a major diplomatic gain for India. It would also mean another step for India towards isolating Pakistan at the international level.

Besides the Muslim factor, Malaysia is important for India as one of the countries of ASEAN. In 2019, Malaysia was India’s third-largest trade partner in ASEAN, behind Singapore and Indonesia. As India is increasing its engagements in the region, discord with one ASEAN country could affect India’s overall outreach. Cordial relations with all members could help India collectively engage with ASEAN in a better manner.

About the Author

Niranjan Marjani
Niranjan Marjani is an Independent journalist and researcher based in Vadodara, India. His areas of specialisation are international relations and geopolitics.