India-Malaysia bilateral relations
Article by:Shafeeq Rahman
Malaysia and India have historical, political, economic, demographics, strategic and cultural relations between the countries with mutual respect and benefits. Malaysia has one of the largest communities of Persons of Indian Origin in the world, numbering close to two million (about eight per cent of the Malaysian population). The overwhelming numbers are Tamil-speaking, with significant people speaking Telugu, Malayalee, and Punjabi. Most of them who belong to the Indian Hindu community are now citizens of Malaysia and are well integrated into the Malaysian system. India – a Hindu dominated country – is a land of more than 160 million Muslims with 13 per cent share in total population, which constitutes more than 10 per cent of the world’s Muslim population. Both the countries are multi-cultural and multi-ethnic with due respect to each other’s faith and religion.
Indians have significant contribution in all sectors of the Malaysian economy. Majority of the Indian community is engaged in rubber and palm plantations, a small group is involved in service like police, railways and food business as well as in the legal and medical professions. The recent migration is of Indian IT (information technology) professionals, which increased in early 21st century. There are about 150,000 legally recruited Indian workers in Malaysia in both the skilled and semi-skilled category. Additionally, there are about 10,000 professional expatriates employed in IT, manufacturing, banking, and so on. After Middle Eastern countries, Malaysia is a favourable country to Indian labourers. Estimated remittance inflows to India from Malaysia were 147 millions of US$ in the year 2010. Trend of outflows of Indian labourers into Malaysia during the last decade is shown in Figure 1.
Figure 1: Indian labour outflows into Malaysia:
About 2,000 students are studying in Malaysia from India with 17th rank in all countries while an estimated 3,000 Malaysian students are studying in India.
Commercial relations between the countries have become closer in recent years. Malaysia is the second largest trading partner for India within ASEAN (the Association of Southeast Asian Nations), and India is the largest trading partner for Malaysia amongst countries of South Asia, excluding China. Amongst other OIC (Organization of the Islamic Conference) countries, Malaysia ranked seventh in total trade with India, and 19th amongst all countries in the world. India and Malaysia signed a Comprehensive Economic Cooperation Agreement (CECA) on 18 February 2011, which came into effect from 1 July 2011. CECA is a comprehensive and ambitious agreement that envisages liberal trade in goods and services, and a stable and competitive investment regime to promote foreign investment between the two countries. Bilateral trade between the countries has increased manifold during the last few years. Total volume of trade was USD3, 577.47 million during the year 2005-06, which has now reached to USD8, 012.19 million during the period 2009-10. It was merely 600 Million US$ during the year 1992. Trade between Malaysia and India during the last five years is as shown in Figure 2.
Figure 2: Bilateral trade between Malaysia and India (in USD million):
Both countries agreed to target a bilateral trade volume of USD15 billion by 2015. Major trading commodities are food items, mineral, fuels, iron steel, meat, cereals, shipping, boats, machineries and organic chemicals.
India exports 84 per cent share of total imported bovine meat in Malaysia, whereas other major commodities imported by Malaysia with higher share of India’s exports are cereals, spices and chicken meats. Potential areas of Halal trade between the countries are meat, confectionary products, processed food, chocolates, and cereals preparations etc.
Bilateral investment between the countries has increased in recent years especially in infrastructure and construction sectors. Malaysia ranks at 24th position amongst the investing countries in India with cumulative FDI (foreign direct investment) inflows valued at USD2 billion from 1991 to 2010. In addition, about USD6 billion in Malaysian investments are believed to be invested in India through the Mauritian route. Notable among these are Maxis Communications in Aircel, Axiata in IDEA Cellular Ltd, Khazanah in Infrastructure Development Finance Company Limited IDFC , Apollo Hospitals, Yes Bank, and so on.
Malaysian construction companies’ largest presence outside Malaysia is in India. They have completed 52 construction projects worth USD2.34 billion in India, while 35 projects of similar value are under various stages of implementation. Under a partnership with Malaysian Airports, Grandhi Mallikarjuna Rao (GMR) completed airport in Hyderabad in 2008, and the second one in Delhi in July 2010. Infrastructure is a favourite segment for investment by Malaysian companies, with investment breakdown within the last three years as shown in Figure 3.
Figure 3: Investment by Malaysian companies in Indian infrastructure (April 2007 to December 2010; in USD million):
Indian companies have invested about USD2 billion in Malaysia, making it the 7th largest investor in Malaysia. Indian companies that made major acquisitions include Reliance Industries Limited, Ballarpur Industries Limited, Larsen & Toubro and Western India Palm Refined Oils WIPRO. There are over 100 Indian companies including 60 Indian joint ventures operating in Malaysia. Additionally, there are 60 Indian IT companies operating from Malaysia. IRCON International Ltd. has been actively engaged in the development of railways in Malaysia since 1988, and it is currently executing a double tracking project (Seremban – Gemas) worth over USD1 billion.
However, India is still lacking the institutional recognition of Islamic finance that could expand the investment volume manifold between Malaysia and India. Pointing to the Shari’ah investment market opportunities in India, Salman Khurshid (Union Cabinet Minister of the Ministries of Law and Justice, and Minority Affairs of the Government of India), during his address at the 6th World Islamic Economic Forum (WIEF) which was held in Kuala Lumpur, Malaysia in May 2010 said that “about 261 companies are eligible for Shari’ah products in India and these represent 48 per cent of the market capitalisation. Among these companies, 25 are large cap, 102 are mid cap, 80 are small cap, and 54 are micro cap companies”. Khurshid compared the market capitalisation of the Shari’ah universe within India with that of the host Malaysia and Indonesia and informed the 6th WIEF that in the case of India, it is at USD640 billion as compared to USD210 billion (total Market capitalization) in Malaysia and USD108 billion in Indonesia. Hence, the opportunity for investing in India in a Shari’ah compliant manner is huge, especially for investors from Malaysia and Indonesia. Last year, Bombay Stock Exchange (BSE) listed Shari’ah index separately. Acknowledging the need of Islamic banking in India, Indian Prime Minister, Mr. Manmohan Singh, asked the Reserve Bank of India (RBI) to look into the Malaysian model of Islamic banking at the time of Malaysia visit in October 2010. Malaysian banks can start their operation as foreign banks with adherence to Shari’ah just as did Turkey’s Bank Asya in process to get the permission of RBI to offer Shari’ah-compliant lending in the country.
India could also be a major investing country for joint ventures of Halal endorsed products for Malaysian companies. For example, last year, leading Malaysian fast food outlet company, KFC Holdings (Malaysia) Berhad (KFCH), started its outlets in Pune & Mumbai serving products of Halal chicken. Before KFCH, there is completely untapped market of restaurants serving Halal certified meat products.
Travel and Tourism
Malaysia ranks ninth amongst countries with most travellers to India and is at the top position in the South East Asian region. In 2009, there were 134,340 Malaysians who visited India. Most of their purpose of visiting India was leisure, holiday and recreation (55.6 per cent); visiting friends and relatives (19.2 per cent), and business and professional visits (13.1 per cent). October-December is the peak period of Malaysian tourist arrivals in India, whereas April to June are lean months.
India is the sixth largest source country for inbound tourism to Malaysia with about 600,000 Indian tourists visiting Malaysia in 2009 – an increase of nine per cent from 2008. In terms of air passenger traffic to and from India, Malaysia is ranked at 10th place during 2009-10. During this period, 1,112,892 passengers travelled to and from India, with 558,903 travelled from Malaysia into India and 553,989 travelled from India into Malaysia. Meanwhile, total air freight traffic was 31,100 tonnes between the two countries. Direct flights are available from Kuala Lumpur to Chennai, New Delhi, Tiruchirapally, Mumbai, Bangalore, Hyderabad, Cochin, Kolkata and Trivendram cities of India. Freight and passenger traffic is as shown in Table 1.
Table 1: Scheduled international traffic (passengers and freight) to and from India between Kuala Lumpur and Indian airports (2009-2010):
At present, there are 114 flights between the two countries, of which 93 are operated by Malaysian airlines and 21 by Indian airlines.
Such large passenger and tourist traffic leads to a potential market of Halal travel and tourism in India. However, Air India and other Indian domestic and international airlines have yet to confirm their authenticity in serving Halal in-flight food; and starred hotels in Indian cities are not catering to the needs of Halal-conscious customers and do not have the recognition of Muslim-friendly services. Currently, customers (upon enquiring) are only given verbal assurance of the premises’ Halal authenticity. Halal tourism between the countries could be a great market as Indian Muslim prefers to visit Malaysia in place of Western countries whereas India is also a place to visit for Malaysian tourist specifically Muslim dominated states Kashmir and Lakshdweep. At the occasion of Jammu and Kashmir Tourism Department road show in July 2011, the Malaysian Association of Tour and Travel Agents (MATTA) president said “Malaysians, in general, will not find it a problem to visit Kashmir as it shares similarities with our country such as the presence of Halal food and a large Muslim community there,”
Hence, there is still much to do in terms of Muslim-friendly travel and tourism in India, creating a large opportunity for developments and investments.
Friendly diplomatic cooperation and cultural association with bilateral strong trade, business, investment, travel and tourism relations between India and Malaysia lead to a potential unprecedented market for Halal businesses too. Malaysia is known as the leading country in promotion and expansion of Halal brands, while India has the third largest demand market of Halal products with more than 160 million Muslim consumers, which could expand the market size of Halal products of Malaysian companies and surely boost the bilateral business and investment manifold. Global investors and MNCs have the lust to grab the maximum market size of India and of course Malaysian companies with the basket of Halal certified products would have the edge over Muslim loyal consumers. Further, Islamic finance is also an important area where India always looking to share the Malaysian successful experience of Islamic banking and finance. Facts and figures mentioned above across different sectors and industries lead to a potential and highly untapped lucrative Halal market of processed food, meat, Islamic finance, consultancy services and others.
(The article was published in the Halal Journal and is reproduced here with permission from the author).