Despite significant trade with China, Malaysia is reciprocating India’s moves to enhance cooperation.
Malaysia, formed in 1963, has a wealth of natural resources, including rubber, tin, palm oil, timber, crude oil and natural gas. The abundance of minerals and hydrocarbons has facilitated a development pattern encompassing both rural and industrial sectors. Its southern neighbour, Singapore, which became a separate entity two years later, with few natural resources other than a harbour, focused on growing its industrial base and has become a robust commercial and financial hub. Both peninsular countries have been successful with their vastly varied approaches. Upon becoming independent, the two quickly shed the tag of being underdeveloped. Singapore moved into the category of developed nations, while Malaysia, a high-middle-income nation, is knocking at the doors of the club of the rich nations.
HISTORICAL BACKGROUND
While both nations have had a long and eventful history, Western influences only touched the fringe of the Malay Peninsula. Throughout history, Malaysia was influenced more by India and China. In early periods, the Indian influence manifested through its culture and religions. Being en-route from India to China, and the narrowness of the Malaysian Peninsula in the north, made it a hub for goods transhipment from China to the Indian Ocean. The meeting of the southwest monsoon, blowing across the Indian Ocean from May to August, and the northeast monsoon, across the China coast and the China Sea from November to April, near the Peninsula, accorded a distinct advantage to ships plying between China and India, facilitating cargo transhipment and trade exchanges.
The Peninsula’s openness to waterways brought its residents into contact with different civilizations, religions, and political systems. In the 19th century, technologies and applied sciences stemming from the UK’s Industrial Revolution, quickly reached its shores. The accompanying phase of exploiting Malay’s minerals and agriculture, brought significant settlers from Southern India and China. The Malay Peninsula and Brunei prospered when east-west trade was routed through the Straits of Malacca. The Malayan port of Malacca became the entrepôt for trade until Dutch colonizers redirected trade routes to the Sunda Straits and Batavia (Jakarta). Upon the British renewing their interest and the establishment of settlements in Penang and Singapore, trade returned to the Straits of Malacca, spurring the development of modern Malaysia’s mineral wealth. The introduction of Islam established sultanates, and the British enactment of the Straits Settlements led to British protection over the Malay states.
Though Malaysia became independent in 1957, its Army continued under a British general until 1960 when the emergency to quell communist guerrillas was lifted. Prime Minister Tunku Abdul Rahman (1957-1970), a pro-West and anti-communist Anglophile, worked to remedy the imbalance of British rule, during which ethnic Malays lagged behind the Chinese community in education, economy, and civil service. While the policy of containing communist guerrillas succeeded, the integration of the ethnic Chinese community into the national mainstream remained incomplete. Affirmative actions favouring Malay Bumiputras (sons of the soil), who formed 54% of the population and largely pursued rural livelihoods like agriculture and fishing, had limited success.
The Chinese community (35% of the population), descended from tin mining labourers and residing in urban areas, on the other hand, advanced in commerce, education, and civil service. Indians, mostly in rubber plantations and constituting 11% of the population, occupied the middle rung of the economic ladder. Conscious government decisions like excluding about 40% of the Chinese population from citizenship laws, quotas for Malayans in civil service, scholarships, and licenses did not go down well with the Chinese. The Malaysian government’s decision in August 1965 to exclude Singapore from the Federation of Malaysia was aimed at preventing the Chinese from becoming a majority in the new union. Subsequent riots in 1969 led to a suspension of Malaysia’s parliamentary government for 21 months. When reinstated, the government passed the Constitutional Amendments and Sedition Act, forbidding public discussion of racial issues, muting Chinese and Indian resentment while favoring the ruling class of Bumiputras.
THE MODERN TIMES: POLITICAL & ECONOMIC
The death of the pro-West Tunku Abdul Rahman in 1976 marked a turnaround in the nation’s domestic and foreign policies. The Anglo-Malayan Defence Agreement (AMDA), which permitted Great Britain to assist Malaysia in dealing with external aggression, was rescinded. British troops had earlier been used to neutralize the domestic communist insurgency as well as the 1966 confrontation with Indonesia. The agreement had helped Malaysia resist joining the US-mooted Southeast Asia Treaty Organization (SEATO). Over the years, however, Tunku had become somewhat disillusioned with the English and sought to reduce the British role, aiming instead to move towards becoming a non-aligned and neutral nation. In the interim, to deter potential aggressors, he agreed to a new arrangement with Britain, Australia, New Zealand, and Singapore, which allowed for the stationing of forces in Malaysia and Singapore. This arrangement ended in 1988 when Australia removed its Mirage fighter aircraft from Malaysia, and New Zealand recalled its infantry battalion from Singapore.
Well before, Britain had announced the pulling out of all of its forces east of Suez. In response, Malaysian leaders began working on agreements with Southeast Asian nations to disallow foreign troops on their soil and to respect each other’s borders. In late 1971, ASEAN endorsed this stance. Simultaneously, Malaysia recognized that there was little contradiction between maintaining friendships with communist countries and opposing internal communism. It went on to establish diplomatic ties with the Soviet Union and China, settle territorial disputes with Thailand and Indonesia, and significantly improve relations with all in the ASEAN.
A similar accommodation in approach was applied to the ethnic issue. No doubt, before the elections on 1974, an 11-party front, including rural-based groups like the United Malay National Organization (UMNO), was formed under the banner of Barisan Nasional (National Front). This coalition aimed to counter the partisan attitudes of the old Alliance, which consisted of the Malay Chinese Association and the Malay Indian Congress. However, to secure parliamentary support from moderate left-wing Chinese factions committed to multiracialism, Barisan was compelled to soften its Bumiputra policies. UMNO, which remained prominent in national politics and led successive governments, over time became more authoritarian, increasingly pro-Malay, and allowed Islamic fundamentalism to strengthen. After the 2023 elections, unity governments led by the Democratic Action Party (DAP), previously an opposition grouping that includes the Malaysian Chinese Association and the Malaysian Indian Congress, now control seven of the thirteen provincial governments and the federal administration.
The 1980s saw the Malaysian governments revisit the open-door policy for attracting foreign capital and reducing foreign holdings in rubber and other plantations. The Mahathir-led, strongly pro-Bumiputra government, which came to power in 1980 and dominated domestic politics until recently, downgraded relationships with the UK and the “white” Commonwealth nations, adopting instead a “Look East” policy. Strengthening trade and economic ties with Japan, South Korea, Taiwan, and ASEAN became a priority. Criticism from the West and persistent needling of Malaysian government policies by the USA and other Western nations led Mahathir to blame them for the world’s ecological depredation, a view he strongly expressed at the 1992 Earth Summit in Rio de Janeiro. However, since then, Malaysia has moderated its position and has been diligently working on attracting both Western and Gulf money.
Since the 1970s, Malaysia has done well in creating an industrial base. It manufactures a variety of electronics, particularly integrated circuits, electrical and digital goods, and petroleum products for both domestic consumption and exports. It is no longer an agriculture-driven economy, with agriculture’s share of GDP reduced to below 10%. Instead, the industrial sector particularly the manufactured goods—electronics, electrical machinery and appliances, chemicals, textiles, steel making and automobiles—form a bulk of the GDP. In finance-banking and insurance too it has become an important player. Currently, foreign trade rather than domestic consumption is the backbone of the economy. Several free trade zones dot the landscape of Kuala Lumpur, its capital and western Malaysia. It has become a major exporting country (ranked 7th globally) of manufactured products and last year the exports exceeded $353 billion. This is complimented by exports of natural gas, LNG and petroleum products. China, Japan, followed by Thailand, Taiwan and South Korea are its main trading partners.
INDIA’S TIES
Though fairly well-organised, unlike the Chinese, Indian workers have not been as aggressive and strident in asserting their demands for a level playing field in the political and economic arenas vis-à-vis the Bumiputras. This, combined with emerging complementarities of interest, has enabled mutual cooperation to progress. Neither nation is wedded to a global or regional power, and both are unaffiliated with military alliances, making cooperation more feasible. Additionally, there is a degree of similarity in their developmental challenges, although Malaysia, with a population of 35 million, is not a labour-surplus society, and its per capita income of over $13,000, is more than four times that of India.
Both nations share apprehensions about China’s territorial designs. Malaysia is committed to protecting its sovereignty, maritime rights, and interests in the South China Sea. Its extensive offshore oil and gas extraction, including in waters overlapping with China’s claims, has exacerbated the regional tensions. Malaysia’s outright rejection of China’s “nine-dash line” and its cooling enthusiasm for China’s Belt & Road Initiative (BRI)—as it has not helped resolve South China Sea disputes—further reflect these concerns. India, too, remains sceptical about China’s hegemonic ambitions in the Indo-Pacific, despite slight recent reductions in tensions along its borders with China.
Over the years, bilateral trade between Malaysia and India has been fairly robust, alongside significant investments by Indian entrepreneurs in various ventures. India imports sizeable quantities of rubber, palm oil, and timber, along with manufactured goods like integrated circuits and electrical goods and exports mineral fuels, meat, organic chemicals, aluminum, iron, and steel. Malaysia is now prioritizing technology-driven activities such as AI-supported innovations and digital information tools, establishing large data hubs for global giants like Microsoft and Google.
Industry experts estimate that by 2028, Malaysia will account for over half the data processing power centres across the top five Southeast Asian markets: Singapore, Malaysia, Thailand, Indonesia, and Vietnam. Together, these nations are emerging as the world’s largest hubs for servers, data storage systems, and networking equipment, supporting better internet and telecommunications services. The lower costs of establishing and operating such facilities also attract developed countries seeking to reduce their carbon footprints. India’s well-established civil construction companies can hope to secure contracts for building these structures and their associated infrastructure. Indian IT professionals, across the entire skill spectrum, can contribute to Malaysia’s expanding data centres and IT facilities and help it overcome the shortage of such manpower.
The new high-tech industries are energy-intensive and demand significant augmentation of electricity generation and transmission capacities. India’s proven and relatively inexpensive services in power engineering—offered at costs lower than those of Southeast Asian nations—can support the installation and maintenance of these facilities. Another relevant area is the establishment and operation of advanced tertiary medical facilities in major Malaysian cities, as well as Johor Baru near the Singapore border, where a modern industrial township with a huge data center is planned.
With the relevant experience in setting up high-quality industrial estates, towns, and high-rise developments for commercial, hospitality, and residential use, Indian investors and construction companies could find lucrative opportunities in Malaysia. India can also offer a variety of defence and technology products, including BrahMos missiles, aircraft, and space equipment. Helping Malaysia set up satellite launch facilities is another opportunity worth exploring.
India’s 10-year-old Act East Policy is gradually gaining momentum. By taking Indian states into confidence, the Union Government can now explicitly prioritize Southeast Asian nations, with none of whom it has any bone of contention. In the revamped exercise, historical connections can be leveraged, and Indian soft power utilized liberally across cultural, educational, and economic fronts. Stronger people-to-people contacts, cultural and educational exchanges, and diversified trade can lay the groundwork for closer strategic and defence cooperation and eventual market integration, even with China being the elephant in the room. India need not overly concern itself with the trade deficit resulting from its ASEAN trade pact. Instead, it should focus on strengthening ties and joining major global supply chains where Southeast Asian nations are prominent members. Malaysia, with its several comparative advantages, is a strong candidate for India to initiate such moves swiftly.
Dr Ajay Dua, a development economist, is a former Union Secretary Commerce & Industry.
His write-ups on Singapore, Brunei-Darussalam and Philippines will follow.