India recently resumed its purchases of Malaysian palm oil after a four-month hiatus following a diplomatic dispute between the two nations. This rekindling of trade relations came after the establishment of a new government in Malaysia, suggesting a possible thaw in the strained ties. This article delves into the background of this development, the significant points around India’s Palm oil import, and an overview of the India-Malaysia relationship.
Background of the Diplomatic Dispute
The disagreement originated when the former Prime Minister of Malaysia criticized India’s Citizenship Amendment Act (CAA), which India viewed as undue interference in its internal affairs. In response to this perceived slight, a diplomatic row erupted, culminating in India placing a ban on Malaysian palm oil imports. Over the first four months of 2020, India’s total palm oil imports from Malaysia plummeted by more than 50% compared to the same period in 2019 – indicating the impact of the dispute.
India’s Palm Oil Import Dynamics
India stands out as the world’s most significant buyer of edible oils, with over two-thirds of its total edible oil imports being palm oil. Given its massive consumption, any shifts in India’s import practices have reverberating effects on the global edible oils market.
Malaysia versus Indonesia in Palm Oil Production
Malaysia ranks second globally in palm oil production, right after Indonesia. Recent events, including increased palm oil inventories in Malaysia due to a surge in production and decreased demand due to COVID-19 lockdowns, have made Malaysian palm oil available at discounted prices compared to supplies from Indonesia. This affordability, coupled with Indonesia’s decision to raise its palm oil export levy, makes Malaysian palm oil an attractive option for buyers, India included. Concurrently, Malaysia has sealed a deal to purchase 100,000 tonnes of rice from India, further showcasing the rejuvenation of trade ties.
The Broader India-Malaysia Relationship
India first established diplomatic relations with Malaysia in 1957, and the relationship has since evolved to encompass various spheres including economics, defence, and traditional medicine.
Economic Relations: India and Malaysia share a Comprehensive Economic Cooperation Agreement (CECA), akin to a Free Trade Agreement (FTA). Additionally, India has inked an FTA in services and investments with the Association of Southeast Asian Nations (ASEAN), where Malaysia is the third-largest trading partner. Nevertheless, the bilateral trade balance leans heavily in Malaysia’s favour.
Defence & Security Cooperation: The two nations collaborate in joint military exercises named “Harimau Shakti” conducted annually, signifying their close defence ties.
Traditional Medicine: In October 2010, India and Malaysia signed a Memorandum of Understanding (MoU) on cooperation in traditional medicine. The Malaysian Government has been propagating AYUSH (Ayurveda, Yoga and Naturopathy, Unani, Siddha and Homoeopathy) systems in Malaysia, which are being practiced increasingly.
This recent resumption of palm oil trade, thus, can be seen as part of a broader context of deepening and diversifying Indo-Malaysian relations.