A friend in disguise stands exposed

Dr B K Mukhopadhyay

(The author, a noted management economist and an international commentator on ongoing business and economic affairs, can be contacted at m.bibhas@gmail.com)

Malaysian connection: Tread very cautiously

A very good step indeed

India imposed restrictions on imports of refined palm oil and palmolein [palmolein is a liquid form of palm oil used in cooking] against top supplier Malaysia after its criticism of India’s actions in Kashmir and a new citizenship law. Mahathir said in October, 2019, that India ‘invaded and occupied’ Kashmir. Last month also he said India was stoking unrest with its new citizenship law, which undermines the country’s secular foundations.

Rightly, the Ministry of Commerce and Industries issued a very recent notification declaring that the import of refined palm oil “is amended from ‘Free’ to ‘Restricted’ - an effective ban on imports of refined palm oil, meaning India can now only import crude palm oil. It will hit Malaysia, the main supplier to India of refined palm oil and palmolein, but is likely to help Indonesia [world’s biggest producer of palm oil, followed by Malaysia being the biggest exporter of crude palm oil].

Indonesia traditionally corned around two-third of India’s palm oil imports, but a lower duty on refined palm oil helped Malaysia to overtake Indonesia as India’s biggest supplier in 2019. The decision to restrict all imports of refined palm oil is also likely to boost business for Indian refiners of the vegetable oil.

Indonesia is the ungrateful trade partner : A friend not in need is not a friend indeed

Whether further trade negotiations would be there or not is a separate matter, but the immediate need is there for India to seriously consider the matter of curbing imports of other products from Malaysia, including palm oil though Malaysia is reportedly considering raising imports of raw sugar and buffalo meat from India, potentially trying to ease trade tensions after reports New Delhi could restrict Malaysian palm oil imports.

As of now the fifteen largest trading partners of India represent around 60 per cent of total trade by India, inclusive of Malaysia as one of the largest tradingpartners. Imports from Malaysia to India decreased to 52.83 INR Billion in October, 2019, from 61.56 INR Billion in September, 2019. Imports from Malaysia in India averaged 53.43 INR Billion from 2013 until 2019, reaching an all-time high of 77.75 INR Billion in April of 2018 and a record low of 40.32 INR Billion in November of 2017.

Exports to Malaysia from India increased to 41.17 INR Billion in October, 2019, from 33 INR Billion in September of 2019. Exports to Malaysia in India averaged 10.72 INR Billion from 1991 until 2019, reaching an all-time high of 69.77 INR Billion in January of 2015 and a record low of 0.25 INR Billion in May of 1991.

Bilateral trade – Per cent Share

India - Malaysia

Exports 3.71

Imports 9.08

Total Trade 16.93

Trade Balance -5.30

Over the years India has

India has been extending enough of cooperation to Malaysia. The Malaysia-India Comprehensive Economic Cooperation Agreement (MICECA-comprehensive agreement that covers trade in goods, trade in services, investments and movement of natural persons) was signed on 18 February 2011 and came into force on 1 July 2011. Malaysian state energy firm Petronas secured its first term liquefied natural gas contract to India. Petronas LNG Ltd. (PLL) [Petronas, the world’s third largest LNG player, operates its main supply base in the Malaysian eastern state of Sarawak] signed a sale and purchase agreement with Indian Hiranandani Group’s [Dubai-based HEMD is a wholly-owned subsidiary of H-Energy Global Limited - a part of Hiranandani Group]. The focus of its business is to secure supply and trade LNG, crude oil, petroleum products and petrochemicals subsidiary H-Energy Mideast DMCC (HEMD) for the supply of LNG to India. The agreement marks a milestone for PLL as the first term LNG contract to India. It is also in line with Petronas’ growth strategy to expand its LNG supply and help meet rising demand for clean and reliable energy in the fourth-fastest-growing economy in the world.

It has been the fact that Malaysia has always been a trading nation with strategic advantages - located along the Straits of Malacca, plus it sits on a major shipping channel that connects the Indian Ocean to the West and the Pacific Ocean to the East. Malaysia’s reliance has been there on international trade and puts a high emphasis on regional and bilateral trade agreements. Malaysia joined the General Agreement on Trade and Tariff (GATT) in 1957, and was, therefore, a founding member of the World Trade Organization (WTO), which replaced the GATT. Currently, Malaysia has seven bilateral Free Trade Agreements (FTAs) with: Australia, Chile, India, Japan, New Zealand, Pakistan, and Turkey.

But India’s concerns are very much there regarding the trade imbalance between both countries unfavorable bilateral relations has been very much active between Malaysia and India in spite of the fact that both countries have enjoyed strong and comprehensive relations for more than six decades

Malaysia’s exports to India were worth $10.8 billion as on March 31, 2019, while imports totaled $6.4 billion. India’s imports from Malaysia include products like palm oil, crude petroleum, petroleum products, electronic goods, electrical products, wood and wood products, organic chemicals, man-made fabrics, spun yarn, non-ferrous metals and machinery.

Either they should change their stand or let them locate other buyers

Palm oil is crucial for the Malaysian economy as it accounts for 2.8 per cent of gross domestic product and 4.5 per cent of total exports. State-owned and private Malaysian refineries will likely have to scramble to find new buyers for their refined product. Palm oil accounts for nearly two-thirds of India’s total edible oil imports. The country buys more than 9 million tonnes of palm oil annually, mainly from Indonesia and Malaysia.

The edible oil contributed 2.8 per cent of Malaysia’s gross domestic product last year and 4.5 per cent to total exports. The palm oil industry is one of the biggest employers in the Southeast Asian country of 32 million people.

Also, the big question remains – is it that essential for India? Oil palms grow well in low-lying, tropical regions, which tend to house rainforests and peat lands - home to an array of endangered species including orangutans, rhinos and tigers. The fact remains: burning of forests to make way for palm pollutes the environment, and deforestation is a major contributor to greenhouse gas emission. In the recent past a number of non government organizations have persuaded many of the biggest companies to sign global commitments to drop “dirty” palm oil, but there is a lot of skepticism about how effective these measures have been. The reality: palm oil is so pervasive, it can be difficult to avoid!

Bilateral good relations are always welcome, but this India-bashing, Pakistan – supporting country cannot be trusted cent percent!! The way they are acting in international forums against India, it would be not wise to presume they would change their stand in the near future.

Malaysia should not forget the basics - betterment of trade relations would benefit them most because of business interest in India.