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INDIA MALAYSIA TRADE RELATIONS

3rd April, 2023

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Context

  • Malaysia is one of 18 countries allowed by the RBI to open Special Rupee Vostro Accounts ( to settle payments in the rupee.

Details

  • The Union Bank of India said that it has become the first bank in India to operationalise this option by opening a Special Rupee Vostro Account through its “corresponding bank” in Malaysia — India International Bank of Malaysia.

Reason

  • India is willing to take concrete steps towards de-dollarisation of its international trade.
  • The announcement is seen as a decisive step towards de-dollarisation and an effort to safeguard Indian trade from the impact of Russia’s war in Ukraine and its subsequent fallout and sanctions.

About India Malaysia Trade

Background

  • India established diplomatic relations with the Federation of Malaya (predecessor state of Malaysia) in the year 1957.
  • India and Malaysia have developed close political, economic, and sociocultural relations presently.
  • Malaysia hosts the third largest PIO community in the world after the US and UAE.
  • The year 2022, marked 65 years of diplomatic ties between Malaysia and India and presents an opportunity to further strengthen and diversify the existing ties, especially in the economic sphere.
  • Surrounded by busy sea lines of communication such as the Strait of Malacca and the South China Sea, Malaysia is also a key pillar of India’s Act East policy and critical to India’s maritime connectivity strategies.
  • The relations between India and Malaysia had grown from Strategic Partnership to an Enhanced Strategic Partnership in the last 10 years, with new cooperation in cultural diplomacy, digital economy, and agriculture commodity forthcoming.

Numbers

  • The India-Malaysia bilateral trade touched $19.4 billion during 2021-22.
  • Malaysia is the third largest trading partner of India in the ASEAN region, after Singapore and Indonesia that account for $30.1 billion and $26.1 billion bilateral trade with India respectively.
  • Malaysia is the 13th largest trading partner for India while India stands amongst the 10 largest trading partners globally.
  • This includes exports worth approx. US$ 12 billion and imports worth approx. US$ 7 billion.
  • Malaysia ranks as the 27th largest investor in India with an FDI inflow of US$ 1,161 million from April 2000-September 2022.

Major Exported Items

  • Major exported items from India to Malaysia include minerals fuels, mineral oils & products, bituminous substances, and mineral waxes (US$ 2,237.57 million); followed by organic chemicals (US$ 510.27 million) in FY 2021-22.

Major Imported Items

  • Major items imported by India from Malaysia include animal or vegetable fats & oils & their cleavage products; animal vegetable waxes (US$ 4,429.71 million); followed by minerals fuels, mineral oils & products, bituminous substances, mineral waxes (US$ 1,344.66 million) in FY 2021-22.

Economic Relations and Investments

  • Considering the Mauritius route, Malaysia's investments in India are expected to be to the tune of US$ 7 billion.
  • The highest investment proposals are in the telecom sector, followed by fuels, roads, and highways.
  • The largest presence of Malaysian construction companies outside Malaysia is in India.
  • In terms of tourism, India remains one of the top market sources for Malaysia.

Must Read Articles:

Rupee settlement for international trade: https://www.iasgyan.in/daily-current-affairs/rupee-settlement-system-for-international-trade

Vostro Account: https://www.iasgyan.in/daily-current-affairs/vostro-account-4

PRACTICE QUESTION

Q) India is taking concrete steps towards the de-dollarisation of its international trade. Analyse this statement. (250 words)

https://epaper.thehindu.com/ccidist-ws/th/th_delhi/issues/30911/OPS/GTKB2GR0F.1+GU6B2HKJB.1.html