India-Malaysia Relations- Significance and Challenges- Explained Pointwise

Recently, PM Modi visited Malaysia as a part of India-Malaysia Bilateral Summit where leaders deepened their Comprehensive Strategic Partnership across economic, strategic and people-to-people fronts. It was noted during the visit that India and Malaysia have close similarities as both are ‘multicultural, multi-ethnic and multi-religious countries‘. 11 key agreements were signed during the visit, providing impetus for the deepening of India-Malaysia relations.

However, there are also serious challenges between India and Malaysia. In this article, we will look at the history of India-Malaysia Relations, significance of the relations and the way forward.

Key Takeaways from the recent India-Malaysia Bilateral Summit: Semiconductor Cooperation: Enhancing collaboration in semiconductor research, manufacturing, testing and global supply chain integration. Disaster Management Cooperation: Joint efforts in disaster preparedness, training and exchange of best practices. Anti-Corruption Cooperation: Framework for cooperation on transparency and anti-corruption measures. Local Currency Settlement: Both nations reaffirmed their commitment to settle trade in Indian Rupee (INR) and Malaysian Ringgit (MYR). UPI-PayNet Linkage: India and Malaysia have agreed to work on connecting India’s Unified Payments Interface (UPI) with Malaysia’s PayNet for digital transactions. Intelligence Sharing: New agreements were signed between the National Security Councils of both countries to enhance intelligence sharing and maritime security in the Indo-Pacific.  Terrorism: The leaders of the both the countries unequivocally & strongly condemned terrorism in all its forms & manifestations, including cross-border terrorism. They called for zero-tolerance of terrorism & for concerted international efforts to combat terrorism in a comprehensive & sustained manner. They also recognised the linkages between terrorism & transnational organised crime. Social Security Agreement: A new pact between India’s ESIC and Malaysia’s PERKESO ensures better social security protections for Indian workers in Malaysia. Thiruvalluvar Scholarships: To deepen cultural ties, new scholarships were announced for Malaysian students to study in India, emphasizing shared Tamil heritage.  AITIGA Review: Both sides agreed to fast-track the review of the ASEAN-India Trade in Goods Agreement to address India’s trade deficit and improve market access. UNSC & BRICS: Malaysia explicitly reaffirmed its support for India’s permanent membership in a reformed UN Security Council. In return, India welcomed Malaysia’s aspirations to join BRICS, with India serving as the 2026 BRICS Chair.

Table of Content

What is the History of India-Malaysia Relations? What are the areas of cooperation between India and Malaysia? What is the significance of India-Malaysia Relations?  What are the Challenges in India-Malaysia Relations? What Should be the Way Forward?

What is the History of India-Malaysia Relations?

Historical Ties:

1. Establishment of Relations: The historical ties between India and Malaysia trace back over a millennium. The relation was significantly influenced by the Chola Empire (9th-13th centuries). The Cholas established extensive maritime trade routes that connected South India with the Malay Peninsula. It fostered close cultural and economic exchanges.
2. Rule over the Malaysian Territory: Under the reign of emperors like Rajaraja Chola I and Rajendra Chola I, the Cholas established control over parts of Southeast Asia, including present-day Malaysia.

Post Independence Ties:
India and Malaysia share close cooperation since the independence of both nations. The major phases of relations are mentioned below:

Establishment of Relations	India established diplomatic relations with the Federation of Malaya (predecessor state of Malaysia) in 1957.
Phase of Strong Relations	India-Malaysia enjoyed a strong relationship in the 1960s as a result of the personal friendship between Prime Ministers Nehru and Tunku Abdul Rahman Putra. India and Malaysia have developed close political, economic and socio-cultural relations.
Strategic Partnership	India-Malaysia relations were elevated to Enhanced Strategic Partnership during the visit of PM Narendra Modi in 2015. The Enhanced Strategic Partnership was upgraded to a Comprehensive Strategic Partnership during the visit of Malaysian PM Anwar Ibrahim in 2024.

What are the areas of cooperation between India and Malaysia?

1. Geopolitical Cooperation: India and Malaysia are members of key global forums like the Commonwealth of Nations, NAM, G-15, and G-77. This forms a strong foundation for close geo-political mutual cooperation. Further, India and Malaysia closely cooperate through ASEAN plus and East Asia Summits.
2. Geo-strategic Cooperation:
   1. India and Malaysia have steadily expanded their defence ties since signing a defence cooperation memorandum in 1993.
   2. India and Malaysia engage in regular defence cooperation meetings, and joint military exercises. For ex- Exercise Harimau Shakti (Military), Exercise Samudra Lakshmana (Navy), and Exercise Udara Shakti (Air Force). 
3. Geo-economic Cooperation:
   1. Bilateral trade between India and Malaysia has reached a record high of ~USD 19 billion. Malaysia is among India’s 10 largest trading partners. India is among the top partners for Malaysia too.
   2. As per official figures (DPIIT), Malaysia ranks as the 26th largest investor in India with FDI inflow of US$1.16 billion during the period April 2000 to September 2022.
   3. India is a significant investor in Malaysia, particularly in sectors like technology, manufacturing, and services. More than 150 Indian companies, including 61 Indian joint ventures and 3 Indian Public Sector Undertakings, operate in Malaysia.
   4. Exports from India: It Includes mineral fuels, aluminum, meat, iron and steel, copper, organic chemicals, and machinery.
   5. Imports to India: It Includes palm oil, mineral fuels, electrical machinery, animal or vegetable fats, and wood.
   6. ASEAN-India Business Summit 2023 celebrated 30 years of ASEAN-India Engagement, with significant participation from Indian and Malaysian stakeholders.
4. Diaspora Cooperation: Malaysia is home to over 2.95 million large Indian diaspora and the second-largest Persons of Indian Origin (PIO) community in the world after the US.
5. Cultural Cooperation: India and Malaysia share close cultural Cooperation, which are explained below:
   1. Institutional Cooperation: The Indian Cultural Centre Kuala Lumpur, established in 2010 and Netaji Subhash Chandra Bose Indian Cultural Center (NSCBICC) offers classes in Carnatic vocal music, Kathak dance, Yoga, and Hindi, with teachers from both India and Malaysia.
   2. Literary Cooperation: Hikayat Seri Rama (Malay literary adaptation of the Hindu Ramayana epic) reflects local adaptations, and close literary cooperation. Ramayana’s themes are reflected in local stories, arts, and performances of Malaysia.
   3. Shared Cultural Architecture & Craft: The Sri Veera Hanuman Temple in Malaysia shows the shared cultural heritage, with its architecture and tales deeply rooted in Indian traditions.

What is the significance of India-Malaysia Relations? 

1. Geopolitical Significance: Close India-Malaysia relations aligns with India’s Act East Policy. Close cooperation with Malaysia, provides India the strategic pivot towards the ASEAN region, and enhance its influence and connectivity in South East Asia. Deepened India-Malaysia relations also forms an important pillar of India’s effort of outreach to countries of the Global South.
2. Geostrategic Significance:
   1. Close cooperative mechanism between India and Malaysia on the Straits of Malacca and Singapore (SOMS), is key for the establishment of rule based order in Indo-Pacific.
   2. Close India-Malaysia relations will enhance interoperability and address regional security challenges like counter-terrorism and extremism in South East Asia.
3. Geo-economic Significance:
   1. Comprehensive Economic Cooperation Agreement (CECA) between India and Malaysia will provide a boost to India’s effort for achievement of its foreign trade target of $2 trillion in merchandise exports by 2030.
   2. The exploration of option of Local Currency Trade between the Indian Rupee (INR) and Malaysian Ringgit (MYR), will help in reducing reliance on the US dollar and enhancing economic resilience.
4. Cultural Significance: The close people to people connect and the presence of large Indian diaspora in Malaysia can be leveraged for increasing the cross-border investment and trade.

What are the Challenges in India-Malaysia Relations?

1. Extradition of Zakir Naik: Malaysia’s rejection of repeated India’s request for extradition of Zakir Naik, who is wanted in India on hate-speech and money laundering charges, is one of the prominent challenges in India-Malaysia relations.
2. Malaysia’s criticism of India’s internal Policies: Malaysia’s strong criticism of Indian Government’s Policies like the Citizenship Amendment Act, and the re-organisation of Jammu and Kashmir, has created further wedge between India and Malaysia.
3. Economic Challenges:
   • The economic relationship between India and Malaysia faces challenges such as higher import tariffs and trade restrictions. This has impeded the growth of bilateral trade between India and Malaysia.
   • India consistently runs a significant trade deficit with Malaysia (driven largely by palm oil and petroleum imports).
   • Both nations are currently pushing for an early conclusion to the review of the ASEAN-India Trade in Goods Agreement (AITIGA) to address high tariffs and market access issues.
4. Diaspora Challenges: There are concerns of illegal immigration, exploitation of workers, and human trafficking surrounding the Indian diaspora. The detention of hundreds of Malaysians during the COVID-19 pandemic also created tensions between India and Malaysia.
5. The China Factor: Malaysia maintains a delicate balancing act with China, its largest trading partner. Unlike India, Malaysia is more cautious about joining security frameworks that could be perceived as “anti-China”.

What Should be the Way Forward?

1. Comprehensive Economic Cooperation Agreement (CECA): India and Malaysia must accelerate the review and amendment of the CECA, to include emerging sectors such as fintech, semiconductors, and defense. This will help achieve the target of increasing bilateral trade to $25 billion.
2. Closer Economic Cooperation: Efforts like avoiding double taxation, mutual customs assistance, improving air connectivity, and collaborations among airlines can boost trade and tourism between India and Malaysia.
3. Defense Technology Collaboration: Fostering partnerships in defence technology and research, can enhance both nation’s defence capabilities and will contribute to regional stability in Indo-Pacific.
4. Focus on ASEAN Integration: India must leverage Malaysia’s position in ASEAN to enhance it’s engagement with the region. This will help in aligning the relations with India’s Act East Policy and supporting the ASEAN centrality.
5. AITIGA Review: Expediting the review of the ASEAN-India Trade in Goods Agreement is a priority to ensure Indian exporters (especially in services and pharmaceuticals) get the same market access that Malaysian palm oil and petroleum enjoy in India. 

Read More: The Indian Express UPSC Syllabus- GS 2- India and its Neighbourhood relations