India and Malaysia have had long-standing commercial links dating to the pre-Christian era. In modern times, Indian industry has been associated for three decades with the transformation of Malaysia from an exporter of primary products into an industrialized and broad-based economy. The first Indian joint venture, Godrej commenced operations in 1968, and in the seventies and early eighties Malaysia hosted the largest number of Indian joint ventures in any country. Indian companies present involvement in Malaysia is in palm oil refining, power, railways, information technology, bio-technology, manufacturing industrial goods, higher education, civil construction, and training.
The spectacular progress of the Malaysian economy since the late eighties, the new self-confidence of Malaysian entrepreneurs, and the liberalization of the Indian economy since 1991 have triggered new dimensions in bilateral commercial and economic relations.
Malaysian Prime Minister Dato Seri Mohd Najib Tun Razak visited India from 19-23 January 2010. During the Round Table Meeting at Chennai with captains of Indian Industry, the visiting PM promoted Malaysia as the investment destination in South East Asia. A total of 34 key Indian corporate leaders participated in the discussion which focused on several sectors, namely pharmaceuticals, biotechnology, ICT, banking and finance, palm oil products, medical equipment and construction. Eighteen Memoranda of Understanding and Joint Venture Agreements worth RM1.6 billion were signed by the Malaysian and Indian business partners. As per a Joint Communique dated 22.1.2010, the Prime Ministers of India and Malaysia agreed that both the countries will pursue all round and comprehensive development of relations proceeding from a strategic perspective and with particular focus on strengthening economic ties. It was agreed to conclude the Malaysia-India Comprehensive Economic Cooperation Agreement (CECA) negotiations as soon as possible.
Legal Framework
The legal framework governing bilateral trade and economic cooperation includes a Trade Agreement, signed in October 2000, which, inter alia, envisages the establishment of a Joint Trade Committee to suggest means for facilitating, strengthening and diversifying trade;
Double Taxation Avoidance Agreement was signed in May 2001 and discussions are underway to amend it to make in consonance with the current realities;
The Air Services Agreement between India and Malaysia initially signed in May 1974. Regular meetings of civil aviation authorities between the two countries to review the respective traffic entitlements. The last round of bilateral talks was held in New Delhi in November 2008, which was preceded by talks in Putrajaya in July 2007.
Institutional Framework
Institutional arrangements between India and Malaysia for trade and economic cooperation include an India-Malaysia Joint Commission, chaired by the respective Foreign Ministers, which was established in 1992. The Joint Commission has so far held only four meetings (1992, 2000, 2002 and 2007).
India and Malaysia are currently discussing a Comprehensive Economic Cooperation Agreement (CECA) encompassing trade in goods, trade in services, investment and other areas of bilateral cooperation. The first meeting of the CECA Trade Negotiating Committee (TNC) was held on 4-5 February 2008 in Kuala Lumpur. The second meeting of the TNC was held in June/July, 2008 in New Delhi. Two inter-sessional meetings of the TNC Working Groups were held through video-conference in 2009. The Third Meeting of the TNC is expected to be held soon.
ASEAN-India FTA in Goods
ASEAN-India Free Trade Agreement in Goods was signed at Bangkok on 13 August 2009 following the meeting of the ASEAN-India Economic Ministers. As part of the Comprehensive Economic Cooperation Agreement, the Trade in Goods Agreement will integrate the two globally important economic blocks for mutually beneficial economic gains. ASEAN is a major trading partner for India and accounts for about 10% of its global trade. During 2008-09, bilateral trade between India and ASEAN was more than US $ 40 billion. India and ASEAN have set an ambitious target of achieving bilateral trade of US $ 50 billion by 2010. This Agreement, which came into force on 1st January 2010, would help achieve this target.
The Trade in Goods agreement focuses on tariff liberalization on mutually agreed tariff lines from both the sides and is targeted to eliminate tariffs on 80% of the tariff lines accounting for 75% of the trade in a gradual manner starting from 1st January, 2010. Under the Agreement, Malaysia will eliminate import duties on 6792 tariff lines or products in the normal track (1) beginning Jan 1, 2010, and ending on Dec 31, 2013, as well as 1266 tariff lines in the normal track (2) beginning Jan 1, 2010 and ending Dec 31, 2016.
The import duties on 1336 tariff lines placed in the sensitive track by Malaysia will be reduced to five percent by Dec 31, 2016. India, which is Malaysia's 12th largest trading partner, will eliminate duties on 7767 tariff lines or products in the normal track (1) by Dec 31, 2013 and 1260 tariff lines in the normal track (2) by Dec 31, 2016. The import duties on 1810 tariff lines placed in the sensitive track by India will be reduced to five percent by Dec 31, 2016.
The Agreement has provided flexibilities to India and ASEAN countries to exclude some of the products from the tariff concessions or eliminations to address their respective domestic sensitivity. India on its part has excluded 489 items from the list of tariff concessions and 590 items from the list of tariff elimination to address sensitivities in agriculture, textiles, auto, chemicals, crude and refined palm oil, coffee, tea, pepper etc. ASEAN countries have also maintained similar exclusion list from the proposed tariff concessions or eliminations.
Trade
During 2009, India was Malaysia’s 12th largest import source and 11th largest export destination. Due to global economic crisis, bilateral trade registered a decline of about 28% y-o-y during 2009 and stood at US $ 7.3 billion, with exports from India amounting to US $ 2.3 billion and imports from Malaysia standing at around US $ 5.00 billion.
Earlier, bilateral trade increased by 17 times from US $ 0.6 billion in 1992 to US $ 10.5 billion in 2008. Noticeably, in 2005, it crossed US$ 5 billion mark for the first time. Bilateral trade data since the last decade is shown below.
Year
India’s Exports (US$ mn)
Growth rate (%)
India’s Imports (US$ mn)
Growth rate (%)
Balance of Trade (US$ mn)
Total Trade (US$ mn)
Growth rate (%)
1998
481.30
1774.40
-1293.10
2255.70
1999
529.00
9.98
2038.00
14.86
-1509.00
2567.00
13.80
2000
725.00
37.05
1925.00
(-)5.54
-1200.00
2650.00
3.23
2001
772.42
6.54
1577.03
(-)18.08
-804.61
2349.45
(-)11.41
2002
643.37
(-)16.71
1760.96
11.66
-1117.59
2404.33
2.33
2003
672.53
4.51
2510.93
42.59
-1838.40
3183.46
32.41
2004
1288.79
91.63
3002.75
19.58
-1713.96
4291.54
34.80
2005
1104.46
(-)15.00
3971.31
31.21
-2866.85
5075.77
17.34
2006
1356.69
22.84
5217.56
31.38
-3860.87
6574.25
29.52
2007
2108.54
55.42
6031.13
15.59
-3922.59
8139.67
23.81
2008
3105.9
47.3
7421.60
23
-4315.70
10,518.50
29.2
2009
2300.90
-23
4970.23
-30
-2669.33
7271.13
-28
(Source: Department of Statistics, Malaysia)
Malaysia has traditionally enjoyed a surplus primarily because India is a large importer of palm oil and petroleum. However, India’s exports to Malaysia have increased steadily from US $ 672.5 million in 2003 to US $ 3.1 billion in 2008. However, due to global economic crisis, exports from India to Malaysia slipped to US $ 2.3 billion during 2009, registering a decline of 23%.
Major items of India’s export to Malaysia are frozen bovine meat and fish, machinery/appliances & parts, chemicals and chemical products, vegetables and oilseeds, spices, groundnut, cashew nuts etc.
Major items of India’s import from Malaysia are palm oil, copra palm kernel, animal & vegetable fats, petroleum products, machinery & transport equipment, cocoa powder/butter fat, electrical and electronic goods etc.
Product/commodity-wise break-up of Indian exports/imports to/from Malaysia during 2008 and 2009
Malaysia is currently the 24th largest investor in India with FDI inflows from April 2000 to Nov 2009 standing at US $ 243.41 million. If investments made through Mauritius route are also included, cumulative Malaysian investments in India till date stand in excess of US$ 5 billion. Malaysia is emerging as a major potential investor in India, with investments in the pipeline in power, oil refineries, telecommunication and electrical equipment industries, besides highway and other infrastructure development projects.
Malaysian Foreign Direct Investment in India is primarily focused on roads and highways, telecommunications, oil & gas, power plants, tourism and human resources. The highest investment proposals have been in the telecommunications, followed by Fuels (power and oil refinery) sector and Roads and Highways.
H E Mr. Kamal Nath, Hon’ble Minister for Road Transport and Highways, along with a 4 member delegation, visited Malaysia from 4-5 January 2010 at the invitation of Malaysia’s Minister of Works Datuk Shaziman and held a bilateral meeting with the Malaysian Minister to discuss about further cooperation in India’s national highway development program and also on possible investments from Malaysia in this sector. During the visit, official level talks were held on finalization of a MoU on Cooperation in Highway Development and Management between Ministry of Road Transport & Highways, Government of India and Ministry of Works, Government of Malaysia, which, inter alia, provides for Government to Government support in this sector.
Recently, there has been a surge in Malaysian private sector initiatives in the flow of project-related investments into India. Notable among these are the investments, include;
Malaysia’s national oil & gas company PETRONAS’ stake in Cairn India (Indian arm of UK based oil & gas major Cairn Energy Plc) went up to 14.94% after its recent acquisition of 2.3% share for US $ 240 million.
Astro All Asia Networks Plc has increased its stake in India-based South Asia FM Ltd. (SAFL) from 6.98% to 20% for RM 60.55 million, with an eye on radio-advertising growth in future.
Ranhill Bhd.’s USD 900 million contract for construction and commission of a 2x350 MW thermal power plant in Chhatisgarh;
Mudajaya Group Berhad’s USD 150 million E&P power project related contract in Chhatisgarh;
Asian Gateways Construction Sdn Bhd’s USD 1.4 billion mega thermal power project (1600 MW) in Andhra Pradesh, Power Purchase Agreement (PPA) for which was signed with PTC India Ltd. in July 2007;
9.95% stake acquired by Khazanah Nasional Berhad, the investment arm of the Malaysian Government, in Infrastructure Development Finance Company (IDFC) valued at approximately Rs. 8.2 billion (USD 180 million) over a six-month period between September 2006 and March 2007 making them the second largest share holder in IDFC after the Government of India, which holds a 23% stake;
Sunway Group, Malaysia and Hyderabad based Opus Developers & Builders are developing a 35-acre township, SunCity in Andhra Pradesh, with around 3,400 units of high quality condominiums & their another JV with MAK Projects Private Ltd to develop an RM 380 million (USD 113.43) condominium project in Hyderabad;
UMW Holdings Bhd’s acquiring 14.9% stake in BSE-listed Oil Country Tubular Ltd (OCTL) for RM 41.96 million (USD 12.16 million) through its Indian arm UMW India Ltd.;
IJM Corp. Bhd and IDFC’s joint venture to develop a southern road project at a cost of Rs. 6.75 billion;
India’s largest mobile phone service provider Bharti Airtel Ltd. and Malaysia’s Global Transit Limited are part of a six member consortium to build a high bandwidth undersea fibre-optic cable linking Asia and the USA at a total estimated cost of US$ 300 million.
UMW Corporation Sdn Bhd, a subsidiary of UMW Holdings Bhd has entered into two separate share sale agreements in 2008 for acquiring a 51% stake in MK Autocomponents Ltd for USD 22.52 million and 50% in MK Automotive Industries Ltd for USD 1 million approximately.
Malaysian construction firm, UEM Builders Bhd, have set up an equally owned joint venture company in partnership with India’s Ansal Group, called UEM Builders-Ansal API Contracts Pvt. Ltd., with the objective of working jointly on several upcoming construction projects in India, particularly those related to real estates and township development.
Sime Darby Plantation Sdn Bhd, a wholly owned subsidiary (WOS) of the Sime Darby Berhad, signed a Memorandum of Understanding (MoU) with the State Trading Corporation (STC) of India on 26 August 2008 to cooperate in the field of edible oils. Under the agreement, both sides would explore the possibility of setting up a joint venture to set up an edible oil refining facility and market the end products in India.
IJM Steel Products Private Ltd, an Indian subsidiary of IJM Group has commissioned an RM 16 million (US $ 4.9 million) welded wire mesh(WWM) manufacturing facility at Isnapur, near Hyderabad.
Malaysian Projects in India
According to the Construction Industry Development Board (CIDB) of Malaysia, Malaysian companies have so far completed 52 construction projects worth US$ 2.33 billion in India, while 22 projects valued at US$ 2.3 billion are currently under various stages of implementation. Some of the notable ongoing projects in construction as well as other industry sectors include:
Scomi Engineering Bhd is part of a consortium led by India’s Larsen & Toubro Ltd that has been awarded the RM 2 billion monorail project in Mumbai.
Merrybrown proposes to add 12 more outlets to the existing 30 restaurants in southern part of India.
Ranhill Utilities Bhd (RUB) will partner with India’s Jusco Group and Infrastructure Development Finance Co (IDFC) to lease and build water treatment plants in West Bengal.
IJM Corp. Bhd, through its special purpose vehicle Vijayawada Tollway Pvt Ltd, has embarked on a major highway project worth nearly RM 500 million (USD 156.7 million) in Andhra Pradesh.
Hyderabad-based Lanco Infratech Limited consortium, which has a tie-up with Malaysia’s Pembinaan Redzai Sdn Bhd (PRSB) has won the bid for development of the US $ 2 billion Vizhinjam International Container Port Project in Kerala. A Special Purpose Vehicle (SPV) would be formed for the project in which the Kerala Government would hold a 24% stake.
An MOU was concluded between the Government of Kerala and Construction Industries Development Board (CIDB) of Malaysia in September 2008 for development of an ‘Integrated Medical City’ at Kenalur, Kozhikode by a Malaysian consortium and is expected to cost US$ 120 million. It will consist of a medical university, hospital, nursing school, dental college and health services.
Maxis plans to invest in India between US $ 4 to 5 billion during 2010 and another company TMI US $ 1.8 billion.
Malaysian Aiports Holdings Bhd has a 10% stake in Rajiv Gandhi International Airport at Hyderabad.
II) Indian Investment in Malaysia
At present, there are more than 100 Indian companies including 61 Indian joint ventures operating in Malaysia. For the first half of 2009, total approved Indian investment in Malaysia was US$17.3 million, with 6 approved projects. Cumulative Indian investments in Malaysia from 1980 to 2009 are about US $ 2 billion. Indian companies have started making sizeable investments in Malaysia. Recron Malaysia Sdn Bhd (owned by the Reliance group) is the largest Indian company in Malaysia, which works in the field of textiles. Ballarpur Industries Limited of the Thapar Group-owned Sabah Forest Industries, and Larsen & Toubro Group’s Tamco Switchgear are other major Indian companies in Malaysia. Mahindra Satyam, the new brand identity of Satyam Computer Services, has moved to a new premises, located at a 15-acre site in Cyberajaya, offered by the Malaysian Government for its Global Solution Centre (GSC) operations. India’s Reliance Capital Ltd. set up a Malaysian unit to serve as a global hub for syariah-compliant financial products. Veeda Clinical Research Organization, Ahmedabad proposed to set up its advanced research unit at Ampang Hospital in Kuala Lumpur. The company entered into a quasi-commercial agreement with Malaysia’s Health Ministry. Indian public sector undertakings particularly IRCON, HMT, EIL, BHEL, and IOC have been engaged with the Malaysian industrial sector since the 1970s.
Some of the recent investments/JVs as well as Malaysian projects awarded to Indian companies include:
Veeda Clinical Research Organisation, Ahmedabad proposes to set up its advanced research unit at Ampang Hospital in Kuala Lumpur. The company has entered into a quasi-commercial agreement with Malaysia’s Health Ministry.
Hextar Chemicals Sdn Bhd, Kuala Lumpur and Unitop Chemicals Pvt. Ltd, Mumbai entered into a joint venture in January 2008 to make specialty chemicals for the agriculture, oil and gas, textile and personal care products industries. The Plant, known as Hextar Unitop Chemicals Sdn Bhd, will be built in two years’ time at a cost of RM 10 million (USD 2.99 million).
Mahindra Satyam, software service company from India, proposes to expand its operations in Malaysia.
Wipro has expanded its Malaysian operations by launching a Global Service Management Centre (GSMC) in Cyberjaya.
Hyderabad-based Vivo Bio Tech Ltd is to invest RM 450 million (USD 140.6 million) in the setting up of an integrated biotechnology facility in Malacca to commercialize bio-therapeutics in Malaysia.
Malladi Group is in the process of investing US $300 million by 2012-13 to create a global one-stop shop encompassing entire value chain in contract manufacturing facility in bio-technology in Malaysia;
Malaysia’s MNC Wireless Berhad and India’s Cellebrum.Com Ltd, a subsidiary of Spice Corp Ltd, established a strategic partnership that entails marketing Cellebrum.Com’s mobile platforms, distribution rights, marketing in collaborative areas and co-development in the areas of research & development.
Hyderabad-based Goldstone Technologies Ltd. Launched its Internet Protocol Television (IPTV) service in Malaysia to take advantage of the growing audience market. Partnering with MOL Access Portal Bhd., Goldstone’s focus will be on South Indian content, particularly movies.
Reliance Anil Dhirubhai Ambani Group’s Adlabs Films Ltd have expanded into Malaysia with the acquisition of a majority stake in the Lotus Five Star Cinemas. With the Adlabs acquisition, Lotus has emerged as the third largest chain in Malaysia, operating 51 cinema halls spread all over Malaysia.
India’s Punj Lloyd Ltd is part of a consortium awarded the job of building a 512 km natural gas pipeline from the proposed Sabah Oil and Gas Terminal in Kimanis to Petronas’ liquefied natural gas complex in Bintulu (East Malaysia).
Aban Offshore Ltd, Mumbai has been awarded two contracts worth USD 55 million in all to drill nine oil wells in Malaysia.
The Embassy Group of India in partnership with the Emkay Group of Companies of Malaysia have officially opened the Block A of their MKN Embassy TechZone project worth RM 350 million (USD 109.7 million) in Malaysia.
Indian public sector undertakings have an impressive track record in Malaysia, with HMT, EIL, BHEL, IRCON and IOC having been actively engaged with the Malaysian industrial sector since the 1970s. A few highlights are as follows:
IRCON International Ltd. (a company under the Ministry of Railways, GOI) has been actively engaged in the development of railways in Malaysia since 1988. It has successfully undertaken track rehabilitation, track and bridge work, refurbishment of KTMB’s 22 class locomotives. It has successfully completed and commissioned 11 major railway projects valued about RM 694.7 millions. IRCON has successfully completed 31.5 km. rail link costing US$ 121 millions between Senai Station and the Port at Pelabuhan Tanjung Pelapas (PTP) in January, 2002. IRCON is supplying locomotives on hire and maintenance basis to KTM Berhad (Malaysian Railway) since July 1993. IRCON was recently awarded the Seremban – Gemas Railway Double Tracking Project worth over US $ 1 billion.
BEML Limited, Bangalore set up its International Warehouse-cum-Branch Office in Malaysia in October 2007.
Trade/Business Exhibitions
Twenty four Indian exhibitors, under the auspices of Confederation of Indian Industry, took part in the Expo Cintai Malaysia (ECM) 2009, the 8th Malaysia International Trade & Consumer Fair, held at Malaysia International Exhibition and Convention Centre (MIECC) from 2 to 6 December 2009. Indian products displayed at the Expo included garments, textiles, handicrafts, fashion jewellery, pearls, etc. The event was organized by the Kuala Lumpur and Selangor Chinese Chamber of Commerce & Industry (KLSCCCI). The High Commission of India also set up a separate booth during the Expo.
M/s Afairs Exhibitions and Media Pvt. Ltd., Kolkata organized “The Great Indian Education Fair” at the Mid Valley Exhibition Centre, Kuala Lumpur from 23-24 January 2010. The event was supported by the High Commission of India, Kuala Lumpur, the Consortium of Indian Industries in Malaysia (CIIM) and the Malaysia India Business Council (MIBC). A total of 33 educational institutions, comprising 15 boarding schools and 18 higher education institutions from India showcased their facilities to Malaysian visitors. Prominent among them were IIT Kharagpur; School of Planning & Architecture, New Delhi; Jain International School, Bangalore; Acharys Institutes, Bangalore etc.
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