This article first appeared in The Edge Malaysia Weekly on May 2, 2022 - May 8, 2022

INDIA, which has been importing an average of just over three million tonnes of palm oil from Malaysia over the past five years, is keen to raise its annual imports from Malaysia by two million tonnes or about 67% over that five-year average, and is in talks with the Malaysian government to secure the additional supply via countertrade.

This was revealed by the Indian High Commissioner to Malaysia, B N Reddy, during an interview with The Edge in Kuala Lumpur last Wednesday.

Talks started about three months back and a specific time has yet to be set on when things have to be finalised though India — Malaysia’s largest customer for its palm oil based on 2021 data — hopes to secure the deal soon, according to Reddy.

“Right now, the devil’s in the details as they say,” he says, adding that India — the world’s number one importer of vegetable oils — sees Malaysia, its largest supplier of palm oil, as a reliable supplier of the edible oil.

The meeting with Reddy took place just a day after Indonesia clarified that its April 22 announcement on stopping palm oil exports would only be confined to refined bleached and deodorised (RBD) palm olein, which is commonly used as a cooking oil, to combat shortage in domestic markets.

However, that same evening, Indonesia made a shocking U-turn and widened the scope of the ban to include crude and refined palm oil, which sent edible oil prices soaring, with President Joko Widodo saying the people’s need for affordable food trumped Indonesia’s revenue concerns for now.

This will put more pressure on India to expedite the deal as the South Asia country relies heavily on the imports of vegetable oils and has already felt the impact of recent shortages, as CNN Business reported last Tuesday, citing the executive director of the Solvent Extractors’ Association of India, B V Mehta.

Mehta said people were turning to other ingredients, such as rapeseed oil and peanut oil, in response to the surge in prices of sunflower and palm oils.

“High prices have already taught us in the last two years to raise our own products and productivity, and with the Ukraine matter and now Indonesia … [it] has taught us a good lesson,” Mehta, who is lobbying the Indian government to increase its own production of such commodities because of the “crisis” in food security, was quoted as saying.

India imports about 60% of its edible oil consumption, and palm oils make up about 60% of that. It typically buys about half its palm oil imports from Indonesia, with Malaysia making up for the rest. It also gets soybean oil from Argentina and Brazil, and most of its sunflower oil from Russia and Ukraine — mostly Ukraine — though supplies have been disrupted following the Russia-Ukraine war.

India has proposed to pay Malaysia for the additional palm oil it wants to buy with commodities like rice and sugar, as well as military equipment.

“Our companies, including HAL (Hindustan Aeronautics Ltd), are ready to offer customised packages for the Malaysian defence sector, be it technology, manufacturing and services,” says Reddy.

“Purchase of military equipment, including Tejas from India by Malaysia against countertrade in palm oil (sic), in my view, is a win-win proposition for both countries,” he adds.

He is referring to HAL’s bid to sell 18 Tejas fighter jets to the Royal Malaysian Air Force (RMAF) in a deal reportedly valued at about RM4 billion, in a tender RMAF opened in mid-2021 to procure 18 fighter lead-in trainer/light combat aircraft (FLIT/LCA).

The RMAF tender itself has a countertrade component with palm oil or related products, Reddy says, while indicating that India’s demand for more Malaysian palm oil would enable the HAL to easily meet this bid requirement.

“We learnt that there are six bids submitted … I am confident that HAL’s Tejas would be among the top contenders for the same, due to its unique advantages. We understand that the Malaysian government is carrying out evaluation of the bids received by them,” says Reddy.

According to Malaysia Palm Oil Board data, India’s palm oil imports from Malaysia rose to 3.6 million tonnes in 2021 from 2.7 million tonnes in 2020. In 2019, it imported 4.5 million tonnes, up from 2.6 million tonnes in 2018 and two million tonnes in 2017.

Besides the inevitable impact of the pandemic, the sharp drop in 2020’s import volumes have also been attributed to abrupt hikes in import duties imposed by India and calls from traders to boycott Malaysia’s palm oil as tensions spiked between the two countries during Tun Dr Mahathir Mohamad’s premiership.

The former premier himself described the strained situation between the two countries as a “trade war” after he criticised the Indian federal government’s move to revoke constitutional provisions that conferred special status on Jammu and Kashmir, the country’s only Muslim-majority state until India passed a new law containing provisions that dissolved the state and reorganised it into two union territories in end-October 2019.

“For smooth conduct of bilateral relations, it is important for both countries to remain sensitive to each other’s sensibilities. If this does not happen, it is bound to have an impact on the relationship. The Covid-19 pandemic also had an impact on physical dialogue and bilateral visits.

“The two subsequent governments since February 2020 have made it clear that they wish to foster closer ties. They have assured that the basic norms of conduct in our bilateral relationship will be respected,” Reddy says when asked for an update on the countries’ ties, referring to the changes in the Malaysian administration, from that led by Mahathir to Tan Sri Muhyiddin Yassin, and later Datuk Seri Ismail Sabri Yaakob.

He highlights that historical linkages between India and Malaysia, by virtue of proximity and people-to-people contacts for millennia, have helped lay a strong foundation for the countries’ bilateral trade partnership that has “immense” potential for further expansion, one which the two sides are committed to realise, as demonstrated by recent ministerial and senior official level visits between India and Malaysia.

He further points to recent projections by Standard Chartered Bank in its Future of Trade 2030, which indicate that India would become the most important trade corridor for Malaysia by 2030.

“We are committed to strengthening our trade and business engagement and take it to newer heights as we celebrate 65 years of India-Malaysia diplomatic relations this year. There are a number of products/sectors — electronic goods, pharmaceuticals, organic produce etc — where mutually beneficial trade relationships can be forged.

“It is also time that we review the bilateral Malaysia-India Comprehensive Economic Partnership Agreement (MI-CECA) that came into force in 2011 to reflect the contemporary priorities of the two countries, and to expand and diversify trade prospects,” he says.

MI-CECA, signed in February 2011 and enforced from July 1 that same year, covers trade in goods, services, investments and movement of people. It is touted as a value-add to the benefits shared from the Asean-India Trade in Goods Agreement or AITIG to further facilitate and enhance two-way trade and relations between India and Malaysia.

Reddy also highlights that despite pandemic-induced challenges, trade between India and Malaysia was robust last year. “In fact, bilateral trade touched US$17.5 billion last financial year (April 2021 to March 2022), growing by over 21% from the previous year. India continues to remain among the top 10 trading partners of Malaysia, and Malaysia is the third largest trading partner of India in the Asean region,” he notes.

While some Malaysian companies doing business in India have made the headlines again recently after encountering business issues or run-ins with the authorities there, Reddy says there are numerous examples of successful engagements over the last three decades.

“Malaysian companies have been pioneers in India’s roads, highway and construction projects. Construction and infrastructure is a sector that holds promise for Malaysian companies. India has an ambition to build over 25,000km of highways in the current financial year 2022-23. This opens up many avenues for possible collaboration between Malaysian and Indian companies,” says Reddy, adding that the renewable energy (RE) space is also a potential area for collaboration, what with Petroliam Nasional Bhd (Petronas) recently expanding into that space in India.

Petronas operates in the RE sector in India through Amplus Solar, a leading rooftop and commercial and industrial player that it acquired in 2019. Petronas was then in talks with India’s Tata group over an investment of almost US$2 billion in a proposed RE infrastructure trust, but reports in April 2021 indicate that this has fallen through.

“Just last week, SMH Rail Sdn Bhd won a contract to supply 40 monorail cars to Mumbai in a project worth US$85 million (RM367 million). I am sure many more opportunities continue to open up for Malaysian companies taking keen interest in India,” Reddy adds.

“The IMF (International Monetary Fund), in its latest report, projected that India will grow at 8.2% in the coming year driven by strong domestic and external demand. I invite Malaysian companies to explore the vast opportunities offered by India, and join us in India’s growth story.”

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