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					India-Malaysia: Areas of Convergence and Divergence Dr.Pankaj Jha Associate Fellow Institute for Defence Studies and Analyses(IDSA) Email:pankajidsa@gmail.com
In the new strategic scenario which has evolved in the post Cold war and 9/11 phase led to increased threat perception of both traditional and non-traditional security threats, there has been the need to reframe the multidimensional aspects of cooperation in bilateral and multilateral domains. The subsequent strategic policy formulation involves taking into account all the variables rather than taking cognisance of the situation in a ceteris paribus1 mode. The new question arises that whether the multi dimensional aspect of bilateral relations would impinge on multilateral institutional interests. The possible solution is to search for answers in the general equilibrium where all factors and variables are juxtaposed to arrive at some what futuristic scenarios. India –Malaysia relations need to be analysed within the same framework so as to arrive at conclusions which have impact on India’s strategic calculations. With Malaysia, India have many areas of convergence pertaining to defence, strategic, economic and technology issues but there are also emerging areas of divergence owing to the strengthening of radical Islam, contradictions on tariff reduction, labour rights etc. The micro analysis would provide the vision for the futuristic policy with regard to India’s stance in view of myriad dimensions of bilateral relationship with Malaysia in Southeast Asia. Malaysia is a developing nation with its own set of internal and external vulnerabilities. In the aftermath of the colonial era Malaysia has been involved in the issues of conflict with its neighbours namely Konfrontasi with Indonesia and the eviction of Singapore from the Malay federation in 19652.The effect of the Cold War power scenario has been profound in Malaysia which non aligned but the evolution of a new strategic scenario with the rise of China and the disintegration of USSR forced the country to reframe its policy objectives. The modernisation of the defence forces in the wake of militarily strong Singapore and the highly populated Indonesia have in a way reframed the notion of collective security with each nation trying to hide its vulnerabilities through greater cooperative efforts as well as economic integration with the region. In fact Malaysia has been facing challenges with regard to the ethnic Chinese and Indian diaspora. The riots in 1969 highlighted the simmering tension between Malays and Chinese on the economic dominance perspective. The Indians though comprise about seven per cent of Malaysian population; they have also gone through the indigenous debate in Malaysia. The question arises that whether Malaysia which is a relatively prosperous state and has abundant natural resources would be able to contain the ethnic strife in the country and would tone down the contentious issues pertaining to radical Islam in the larger interest of the nation. Malaysia has emerged as a self sustaining economy in the aftermath of the financial crisis in 1997/98 and has engaged itself actively in the regional and global organisations

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Ceteris paribus is a Latin phrase, literally translated as "with other things [being] the same," and usually rendered in English as "all other things being equal." A prediction, or a statement about causal or logical connections between two states of affairs, is qualified by ceteris paribus in order to acknowledge, and to rule out, the possibility of other factors which could override the relationship between the antecedent and the consequent. In terms of economics , it is often loosely translated as "holding all else constant." 2 Cheah Boon Kheng, Malaysia: The Making of a Nation, Institute of Southeast Asian Studies,Singapore,2002,p.53

namely ASEAN, ASEAN Regional Forum (ARF), World Trade Organisation (WTO)3 etc. There appears to be convergence of foreign policy objectives vis-à-vis India as both countries have been members of NAM, the Commonwealth, G-15, G-77 , the United Nations and have cooperated on a wide range of international and economic issues under the umbrella of South –South cooperation and in WTO. Apart from that, Malaysia as an advocate of any intervention of external powers in Southeast Asia, also to an extent works to the benefit of India though it has used this bargaining position to gain economic benefits from both China and USA. The paper would examine the intricacies of the Malaysia’s stance in the changed security scenario and whether it could have any fall-out of its alignment with any of the external powers namely US and China in the scheme of things in Southeast Asia. In such a milieu India-Malaysia relations need to be analysed. India–Malaysia relations have undergone a tremendous change owing to the restructuring of the balance of power and the emergence of the multi-polar world .The apprehensions and the policy orientation have been influenced by the incidents and issues which impinged on the bilateral relations between the two countries .Malaysian support to India on the issue of Kashmir and India’s support to Malaysia during the Konfrontasi with Indonesia have been the landmark occasions in the bilateral relations between the two countries .Malaysia’s involvement in the India’s highway projects as well as in the development of infrastructure in the country are the issues of engagement or one can say that there are areas of convergence but then there has been issues which have soured the relations in the past including the wrongful confinement of the Indian IT professionals as well as the increasing atrocities on the Indian expatriates by their Malaysian employers have been the areas of divergence and so the paper is an attempt to evaluate the relations between the two countries on an objective pedestal and showcase the issues of concern and cooperation between India and Malaysia. Malaysia’s Notion of Security In the Cold War period, the conflict in Vietnam and Cambodia fuelled Malaysia’s anxiety with regard to the domino theory that was cast in the context of international communism4. In particular, Malaysia regarded China as a major source of instability within the region. This was further strengthened owing to China’s attack on India, tensions across the Taiwan straits and so, Malaysia had to rely on the outside power and arrangements for its security and had joined Anglo-Malaysian Defence Agreement5 and later supported the formation of Five Power Defence Arrangement (FPDA). The end of the Cold War removed the Cambodian crisis from the strategic agenda of the great powers in the Asia-pacific and thus facilitated its resolution in 19916.The need to restructure the regional balance of power
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WTO is a successor to GATT which works in the process of uniform tariffs and general rules on Trade with regard to its member countries. Malaysia and India has been cooperating under the Doha round as the developing countries are vying for more market access to services and industrial products in developed countries and have demanded that rich nations cut their farm tariffs which should be at parity with the cuts demanded from the developing nations. See Http://www.bruneitimes.com.bn/details.php?shape_ID=4278 and http://www.wto.org/english/thewto_e/minist_e/min01_e/min01_e.htm (Accessed 29.9.2006) 4 Singh,Hari, “Malaysia‟s National Security:Rhetoric and Substance, Contemporary Southeast Asia,No.1,2004,p.4 5 Its members included Malaysia, Singapore and the ANZUK contingent comprising Britain, Australia and New Zealand. Refer to Chin Kin Wah,The Defence of Malaysia and Singapore :The Transformation of a Security System,1957-1971,Cambdirge University Press,Cambridge,1983 6 Singh,Hari, “Understanding Conflict Resolution in Cambodia: A Neo-Realist Perspective”, Asian Journal of Political Science,vol. 7(1),June 1999,pp.41-59

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to Malaysia’s advantage partly explains the enlargement of ASEAN that began with Malaysia’s support for Vietnam’s membership. Malaysia regarded Vietnam as an important component in the stability of Southeast Asia’s balance of power7. The national defence policy of Malaysia outlines the strategic interest in the immediate areas, regional and global. The regional areas considered important by Malaysia covers Southeast Asia including the Andaman Islands and also the South China Sea8. So in this way India and China become important strategically for Malaysia. Apart from this one important internal factor which has dominated Malaysia’s policy has been the Islam and its effect on its foreign policy. Islam in Internal Politics and its Effect on Foreign Policy For scholars and practitioners alike, the economic, political and cultural ramifications of the develop mentalist transformation of Malaysia over the past three decades has been subject of much study and debate. Most salient of these changes is the rise of “exclusionary populism and clientelist patronage made manifest in a stream of state positions, licenses, contracts, generous lending and in the 1990s, a skewed privatisation of state assets, followed by re-nationalisation amounting to bailouts”. Malaysia had taken steps to curb the spread of terrorism in Malaysia through the Internal Security Act (ISA) in 1960 legislated during the disturbances of the Communist Insurgency (1948-60) to allow for detention without trial for up to two years, and renewable for an indefinite period of time. In the post 9/11 milieu, the ISA has been invoked to detain dissident Malay –Muslim individuals deemed to be members of “militant” or deviant’ Islamic groups9.For the purpose of maintaining multi-racial peace in Malaysia ,”actions that seem undemocratic towards the individual or the minority need to be taken to protect real democracy”10.With regard to the advancement in Islam, in sharp juxtaposition to the theocratic Islamic state project advocated by its political opponents, PAS,UMNO publicises a “moderate” Sunni Islam that is supposedly more accommodating to the religious pluralism of Malaysia11 but there has been a intense administrative drive to Islamise the society and that was announced by Mahathir in 1984 as his agenda to “Islamise Government machinery”12.Even the New Economic Policy which was announced in 1970 in the aftermath of the ethnic riots in 1969 were meant to appease the Malayan populace. Islam’s influence in the domestic politics in Southeast Asia has been rather limited but certain issues have influenced the domestic politics. While the Malaysian Islamic community is not monolithic, it does enjoy a much higher level of cohesion than is the case with Indonesia. The central purpose of the dominant party United Malays National Organisation (UMNO) is to promote Malay interests and Islam. UMNO leads the governing
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Singh,Hari “Vietnam and ASEAN :The Politics of Accomodation”,Australian Journal of International Affairs,vol.51(2),July 1997,pp.215-29 8 “National Defence Policy” at Ministry of Defence ,Malaysia at http://www.mod.gov.my/mdcp_eng.php?maincode=mind-resc010 (Accessed 29.9.2006) 9 Suaram Human Rights Report 2003,Suaram Kommunikasi, Petaling Jaya,2003,p.21 10 ibid 11 Theologically this is the most evident in the Kafir-mengafir controversy launched bypass in the early 1980s.UMNO is accused of practicing infidelity because it allows non-Muslims coalition partners (in Barisan Nasional) to govern Muslims. For a classic study of Malay politics as played out by UMNO and PAS ,see Funston,J,Malaya Politics in Malaysia study of the United Malay National Organisation and Party Islam,Heinemann,Kuala Lumpur,1980 12 Interview with Mahathir cited in Husin Mutalib, Islam in Malaysia: From Revivalism to Islamic State, Singapore University Press,Singapore,1993

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National Front (BN) coalition, in which its main partners are Chinese and Indian parties. It has usually possessed a strong commitment to maintaining an inter-communal alliance in government. In the seven elections between 1974 and 1999, the BN vote ranged from 53 per cent to 65 per cent. The main Islamic rival to UMNO is Party Islam Se-Malaysia (PAS), which has a more Islamist outlook. Its highest vote share at the general election is just 15 per cent but it controls the two northern peninsular states of Kelantan and Trengganu and continues to attack UMNO’s Islamic credentials13. Upon assuming the leadership of the party and government, Abdullah Badawi proved to be UMNO’s most effective weapon against the opposition PAS since Anwar Ibrahim’s arrival on the political scene in 1982.Abdullah moved immediately and firmly to counter the challenge of PAS leaders who attempted to engage the UMNO leadership in a debate over the Islamisation of the country. First, he dismissed the Islamic party’s blue print for the establishment of an Islamic state; second ,he demonstrated that Islamic features of governance were already being observed by the current Malaysian government; third, he leveraged on his so called “Islamic credentials” by conducting prayers for a range of public events, from opening government meetings to the breaking of fast during Ramadan14.This contrast markedly to previous occasions when UMNO was reluctant to engage in such debates with PAS15.But it enhanced the position of UMNO that PAS no longer holds a monopoly over religious credentials in the sphere of Islamist politics. In fact during the 9/11 terrorist attacks in US, the PAS have been harping on the Malaysia become an Islamic state16 but has been refuted by UMNO. PAS’s subsequent calls for a Jihad (Holy War) against the US served also to alienate non–Muslims and help UMNO leaders attempts to cast the ruling coalition as one of Islamic moderation. The strengthening of the ruling alliance also led to the depictions of PAS as the Taliban of Malaysia. In the context of Global War on terrorism Mahathir was a pronounced ally of US and was considered a force of moderation. This cooperation did not mean an end to periodic verbal attacks on the US by Mahathir, especially following the Iraq war17, nor did it rule out the occasional expressions of disquiet from the US State department of State about abuses of human rights and press freedom in Malaysia18.Prime Minister Mahathir had used the antimilitant Muslim campaign to crack down on the opposition PAS.19 Though the Malaysian stance on the war against terrorism was a bit ambivalent (which was because of the reservations of the Muslim majority countries in Southeast Asia to link terrorism to radical Islam) but Mahathir ordered local banks to freeze the assets of
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Mark Beeson ed. Contemporary Southeast Asia: Regional Dynamics National Differences ,Palgrave Macmillan, New York,2004 14 Liow,Joseph, “The Politics behind Malaysia‟s Eleventh General Election”, Asian Survey,vol.45(6) November/December 2005,p.911 15 Ibid 16 This issue caused such consternation that PAS President ,S Abdul Hadi Awang, announced in July 2003 that if PAS were to win the general election it would not take drastic measures to turn Malaysia into an Islamic state. He told reporters that the focus would be on those states which PAS might govern after the election. See Straits Times Weekly Edition, “No Islamic State even if we win, says leader of PAS”, July 12, 2003. 17 Lau ,Leslie, „Malaysia is west‟s next target”, Straits Times Intercative,May15,2003 at http://straitstimes.asia1.com.sg/ (Accessed May19,2005) 18 US State Department, East Asia and the Pacific. Supporting Human Rights and Democracy: The US Record 2002-2003,Bureau of Democracy, Human Rights and Labour, Washington D.C,2003 available at http://www.stategov/g/drl/rls/shrd/2002/ (Accessed June 20,2004) 19 Simon, Sheldon,”Mixed Reactions in Southeast Asia to the US War on Terrorism,” Comparative Connections, 4th Quarter, 2001.To prevent the unintended consequence of its support to the war on terrorism; Mahathir carefully supported the war on terrorism with no anti-Islamic undertone.

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organisations found to be sponsoring or connected with terrorism and arrested more than sixty suspected terrorists since 9/11 because of their alleged membership in Malaysian Militant/Mujaheedin Movement(KMM) which has established links with Al Qaida.20 This has improved the bilateral relations between US and Malaysia as well as Malaysia has impinged on the fact that the religion and the root cause of terrorism can be kept separate. The Islamic banking has come into being owing to the financial crisis and so it has stared gaining momentum in Malaysia an alternative form of banking has slowly taking roots in Malaysia. The various incentives announced in the current Budget in Malayisa impinge on this fact that to promote the Malaysia Islamic Financial Centre21 initiative 10 year tax holidays are granted to the Islamic banking institutions are further evidence of the Government's commitment to establish an international Islamic financial hub in Malaysia22. This could be attributed to the desire on the part of Malaysia to mobilize resources without incurring any additional costs in case of launching new projects. Also During the economic crisis Malaysia was critical of the reforms suggested by IMF and has also accused the western nations for bringing the crisis with the help of IMF. The rise of China both militarily and economically has also given options for Malaysia to look in a new perspective. China Factor and Malaysian Response China as a security concern has been a major issue in Malaysia’s security policy in the aftermath of the cold war. From the Malaysian perspective China has been seen as an emerging economic opportunity as well as a potential security threat. With regard to Malaysia the China factor has been looming large in its strategic calculations and thus it has involved itself with major powers so as to check mate China in case of any adverse situation. The growing Chinese Naval capabilities and the claim of Malaysia on Spratlys islands, could be a major flare –up point between China and Malaysia as well as other claimants for the island .The other claimants of Spratlys are Taiwan, the Philippines, Vietnam and Brunei. As far as Malaysia is concerned it has avoided the open hostilities with China, generally preferring a policy of engagement to a posture of containment. China’s reluctance to devalue its currency during the financial crisis in 1997/98 has created a positive image of China in Southeast especially in Malaysia. In dealing with China, Malaysia clearly favours a strategy of engagement. As Abdullah Badawi, then Malaysia’s foreign minister, put it in 1997, “The most important thing is engagement, not containment.”23 In 2004, Malaysian Prime Minister Abdullah Badawi stated, “China is today
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Banlaoi ,Rommel C. “Security Cooperation and Conflict in Southeast Asia after 9/11:Constructivism,the ASEAN Way and the War on Terrorism”, Indian Ocean Survey, Vol 1(1),January-June 2005,p.65 21 Malaysia is competing with Singapore and Dubai to become a global centre for Islamic Finance. Global Islamic Banking assets are estimated at more than US$ 400 billion. See “Malaysia issues rules on Islamic Finance Business” at http://in.today.reuters.com/misc/PrinterFriendlyPopup.aspx?type=businessnews&storyID (Accessed 15.9.2006) 22 As at the year end of 2001, the Islamic Financial system in Malaysia was represented by 2 Islamic Banks,14 commercial banks,10 finance companies,5 merchant banks and 7 discount houses participating in the Islamic Banking Scheme, which comprise only 8.5 per cent of Banking institutions but are growing at the arte of more than 45 per cent. In the Financial Sector Master plan of the Nation, Islamic banking is projected to capture 20 per cent of the market by 2010. “Malaysia's ratings stay, says S&P”, at http://www.btimes.com.my/Current_News/BT/Wednesday/Nation/BT584908.txt/Article/ (Accessed 9.6.2006). 23 “Engaging China: The view from Kuala Lumpur,”Asiaweek,August1,1998 at http://ftasia.ft.com/infoapi/sh,p.1 (Accessed on 21.6.2004)

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creator of prosperity of the highest order. Political and social linkages are bound to eventually follow suit. It is therefore important to use every opportunity to establish ties.”24 To realise the peaceful rise, China is using a unique blend of trade and confidence building measures and even development assistance to establish itself as an important leader. Though China is making its presence felt in the region through trade but in some sectors, China’s expansion is not welcome namely in electronics, furniture, motorcycles and fruits and those traditionally produced in Southeast Asia and in both Indonesia and Malaysia, people complain that jobs are being lost to China. A growing Chinese economic presence could also fuel latent resentment against the sizeable population of Chinese economic elites in the region. The fallout of any such friction would be surely felt in the Malaysian civil society. In security terms, it is plausible that over time, China’s message of non-interference, co-operative security and the diminution of the role of the US that is implied by China’s approach would gain popularity, although United States may yet again broaden its approach to security and regain territory it has lost25. In fact, ASEAN as an institution has been playing as moderator between US and China. Malaysia on the other hand wants neither China nor US to dominate the region. Chinese dominance would threaten Malaysia’s security, while Malaysia is apprehensive of the US dominance because of its tendency to raise human rights and political freedom. Also Mahathir had warned that US has been involved in undermining the Asian competitiveness through these issues. Though Malaysia has time and again dismissed the threat of China but has been harping on the fact that it has few contentious issues vis-a –vis China while with US it was adverse to the idea of propagating war on terror as the war on Islam. The constraints are there it is to be seen that which way Malaysia goes while dealing with its security objectives. While China is in no position to displace either the United States or Japan but China’s greater presence and activism suggest at the very least that the US and Japan cannot remain complacent about the status quo that has governed political, economic and security relations for the past few decades. In such a milieu the role of India becomes important as it is forging good relations with all the three nations. Also Malaysia being one of the prominent nations in the Southeast Asia having a sizeable Indian Diaspora, the Indian engagement with Malaysia has to be analysed in this context. Even if Malaysia wants to counter any hegemony in Southeast Asia, it would serve the long term interest of India, in both economic and strategic terms. Also China’s increasing foreign reserves which have now reached to the tune of US$ one trillion has given a new dimension of soft loan diplomacy which China can initiate with regard to the countries in Southeast Asia. As already known during the time of financial crisis in Southeast Asia, Malaysia has been agitated by the recommendations of International Monetary Fund and even participated in the idea of Asian Monetary Fund which somehow subsided under US pressure and also Japan’s reluctance to go ahead with the idea. Any development in this regard would jeopardize the India’s economic interests in the region and it is very much possible that China might use this reserve to win over IndoChina countries and even Malaysia, in case of any economic crisis in those countries. The economic dominance of China in the region would impinge on India’s long term interests as ASEAN countries comprise about 10 per cent of its total trade.

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Gray, Denis D, “Anxiety and Opportunities mount as Chinese exerts influence on Southeast Asia”, Associated Press, March 30, 2004 25 Economy, Elizabeth, “China‟s Rise in Southeast Asia:Implications for United States, Journal of Contemporary China,Vol.14(44),August 2005,pp.420

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India –Malaysia Relations India –Malaysia relations have age old links in commercial links and the rubber plantations of Malaysia have seen the influx of Indian indentured labour that were transported to the country by the British. The imperial occupation of the British and the friendly relations with former Soviet Union has juxtaposed the two countries as natural ally. The sizeable enough minority from India has kept Kuala Lumpur sensitive to the currents of Indian Foreign policy. Indian experience of non-alignment, even before the outbreak of hostilities with China, made a deep impact on Malayan decision-makers. After the outbreak of the Indo-China war, Malaysia apart from supporting the Indian cause launched “Save Democracy Fund”26. During the Konfrontasi with Indonesia, India lobbied on Malaysia’s behalf. During the Afro –Asian Ministerial meeting in 1964, Indian Foreign Minister Swaran Singh remarked that India was one of the countries that had recognised Malaysia and felt that that country was fully entitled to be invited to the second Afro-Asian conference.27 In 1965-66 India offered training facilities to the Royal Malaysian Air Force and extra places in her Military colleges28. The relations in the 1970s and 1980 s were congenial but not very intense. In the changed geo-political situation in the post cold war era, the areas of convergence in strategic terms were more pronounced because of the disintegration of Soviet Union and the rise of China and this was remarked by the foreign minister of Malaysia Syed Hamid Albar, “The end of cold war provides an opportunity for ASEAN and India to focus on promoting a strategic environment in Asia that is free of those thorny issues that have complicated relations between the two sides. India has long standing political, economic and cultural linkages with several countries of Southeast Asia. It is thus timely that we work on developing a convergence of Interest within the concept of cooperative security than meets the interests within the concept of cooperative security that meets the interests of both sides. Such concept should be underpinned by a firm commitment to the principle of mutual and equal security.”29 This shows that a reorientation was on the cards and so when Prime Minister Abdullah Badawi came to India in 2004 the need was expressed to engage India in defence cooperation even though the Defence agreement was signed way back in 1993.The primary areas of cooperation so far have been in the field training exchanges, visits by armed forces officers and visits of naval ships to each other ports. India has been a regular participant in the Langkawi International Maritime and Aerospace (LIMA) exhibition held in Malaysia and Malaysia has also participated in the Defexpo in New Delhi. The Indian defense production network, which has become highly sophisticated in recent times, can be geared up to play a greater role in Malaysia's requirements for its defense modernisation programs.30.In fact, Malaysia military modernisation31 has stated in the year 2005, as its arms
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Save Democracy Fund was started by Tunku Abdul Rahman, though one suspects that most of the voluntary subscriptions came from Indian immigrants themselves. 27 Proceedings: Meeting of Ministers in preparation of the second African-Asian Conference, Djakarta, April 10-15,1964 cited in Peter Boyce, Malaysia and Singapore in International Diplomacy: Documents and Commentaries, Sydney University Press,Sydney,1968,p.194 28 Ibid 29 Syed Hamid Albar, “ ASEAN-India Partnership :Opportunities and Challenges”, in India-ASEAN Partnership in an Era of Globalization: Reflections by Eminent Persons, edited by Research and Information Systems for the Non-Aligned and Other developing Countries, RIS, New Delhi,2002,p.108 30 “Malaysian deputy PM arrives in India”, at http://www.irna.ir/en/news/view/line17/0606067768175436.htm (Accessed 25.9.2006)

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imports which increased from a meagre US $ 23 million in 2001 to US $ 467 million in 200532 which increased its international ranking from 46 to 28 in the span of five years for conventional arms imports. Apart from that Malaysian defence industry does not figure into the top 100 arms exporting countries. Also with regard to the source of Malaysian arms imports the major suppliers namely US and Russia contribute only US$67 million and 45 million while countries like Germany and UK contributed about US$ 312million and US $147million in the last five years33out of the aggregate US $ 828 million. As part of modernisation was sought from Malaysian side with regard to the training of the Sukhoi pilots in India34 as well as industrial cooperation with Hindustan Aeronautics Limited (HAL)35.Apart from the defence sector, India-Malaysia are also engaging in economic sectors. The first Indian joint venture to commence its operations in Malaysia was Godrej and as of date there are 57 Indian joint ventures in the fields ranging from palm oil refining, power, railways, civil construction, and training and information technology. There are 19 Indian companies and 44 Indian IT companies with Multimedia Super Corridor status in Malaysia36. India is Malaysia’s largest trading partner among countries of the South, excluding ASEAN and China. The balance of trade is heavily in favour of Malaysia. During 2004, trade between India and Malaysia was the highest ever at US$ 4.29 billion registering a significant growth of 35% over 2003. While exports registered a phenomenal growth of 92%, imports increased only by 20% during the same period37. Bulk of Malaysia’s exports to India is crude palm oil, constituting almost 30 per cent of Malaysia’s total exports38.If the oil component is kept out then the rise in trade is a meager 5-7 per cent as shown in Appendix 1.2 While Malaysia is the 18th largest investor in India with investment of US$ 133 39, India is the 13th largest in Malaysia with an investment of US$ 420 million40. While million Malaysian investment in India is mainly in fuels (power and oil refineries) and telecommunications sectors, Indian investment in Malaysia is primarily in palm oil refining, drugs and pharmaceuticals, textiles and yarn, services in information technology sectors. Many Malaysian companies have been actively participating in Indian infrastructure projects like road, airport and seaport constructions, housing and urban development and power. Indian companies are involved in railway line construction, satellite building, palm oil refining, etc. In comparison to the other countries of Southeast Asia the growth in trade has been minimal with regard to Malaysia as is apparent in Appendix 1.3 and 1.4. In order

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One of the aspects of military modernisation comprises of developing the defence industry and the stress is geared toward installation, production of basic equipment, supervision ,maintenance and overhaul.See,http://www.btimes.com.my/Current_News/BT/Tuesday/Latest/20060718020753/Artilce (Accessed on 18.7.2006) 32 Data Taken from SIPRI yearbook 2006, p.477.The Ranking is accorded according to the 2001-2005 aggregate imports at constant 1990 US $ prices. 33 Data taken from SIPRI Yearbook 2006,p.452 34 “Malaysia to ask India to Train pilots for Sukhoi Jets”, The Hindu, June 11,2006 35 “Malaysia Keen on tie-up with HAL”,The Hindu,June11,2006 36 http;//www.meaindia.gov.in (Accessed on 21.7.2006) 37 ibid 38 Rahman,Zulkifly “Malaysia‟s Foreign Policy” Journal of the United Service Institution of India,Vol.136(563),January-March 2006,p.74 39 Details available at http://www.dipp.nic.in/fdi_statistics/india_fdi_june2006.pdf (Accessed on 28.9.2006).The FDI is in cumulative terms from August 1991 to September 2005. 40 http://www.ficci.com/media-room/speeches-presentations/2004/dec/dec20-yk.htm (Accessed on 4.9.2006)

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to enhance trade and investment both the countries have agreed to negotiate a Comprehensive Economic and Cooperation Agreement (CECA). During the last visit in December 2004, both Prime Minister Dr. Man Mohan Singh and Malaysian Prime Minister Abdullah Badawi agreed to conclude a bilateral Comprehensive Economic Cooperation Agreement (CECA). 12 Agreements/MoUs were also signed during the visit covering wide-ranging cooperation in satellite technology, biotechnology, information technology, infrastructure, education and research. The CECA, which was expected to be signed in 2006 would fast track the bilateral economic and commercial cooperation envisaging “smart partnerships” in areas such as IT, biotechnology, pharmaceuticals, health care, education and tourism41. According to the Joint Study Group (JSG) report, there is ample potential for bilateral trade expansion in a mutually beneficial manner for which adequate institutional mechanism needs to be put in place. India-Malaysia trade has been characterised by wide fluctuations in imports and exports over the years and in both cases the imports are limited to a narrow range of products.In services, the JSG is of the view that trade can be expanded though strengthening cooperation and collaboration activities in medicine, healthcare & diagnostic, advertising, audio-visual, financial, tourism & travel, transport and accounting & taxation services. In the area of investment, the JSG proposed CECA should cover three main areas: investment liberalisation, promotion and facilitation. For liberalisation of investment, the general principle of non-discrimination should apply and the standard of treatment should cover national treatment and most-favoured-nation treatment42. In the economic cooperation sphere there are few contentious issues which are cropping up and these are mainly with regard to the lowering of import duty on palm oil imports from Malaysia, Malaysian reluctance for the free trade in services and the continuous rhetoric used by Malaysia to set-up efforts to counter the economic growth of China and India in southeast Asia. Also, the treatment of the Indian labour in Malaysia has been a bone of contention and this has been discussed in high level meetings. In fact Malaysia has shown keenness to sign labour agreement with India. But the more important issue is the urge of Malaysia to reduce the foreign labour in its economy from the present 1.84 million to 1.5 million by the year 2010.This would effect India’s interests as Indian labour comprise third largest group of 0.13 million foreign workers in Malaysia. So it is yet to be seen that how the Malaysian concern could converge with India’s long term economic interests. Areas of Convergence Biofuels and biodiesel in particular have become a “hot topic” within the Asian energy sector. The research efforts in the biodiesel process, includes the various feed stocks – vegetable oils (both edible and non-edible), animal fats and waste cooking oil. In Asia, the feed stocks that have created the greatest enthusiasm are palm oil, coconut oil and jatropha (physic nut). The biodiesel commercial value chain is complex and relies on various government initiatives, and countries of Southeast Asia namely Malaysia and Indonesia are grouping together to market the concept in a big way. On the other hand India has taken only few steps in this direction with the setting up of the research plant in Andhra Pradesh worth rupees 47 crores set up by British Petroleum. The need of the hour is to look for
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http;//www.meaindia.gov.in (Accessed on 21.7.2006) „Trade Pacts :New Pillars In India‟s Economic Diplomacy”, at http://mais.wordpress.com/2006/01/11/new-pillars-in-india%E2%80%99s-economic-diplomacy/ (Accessed 25.9.2006)

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alternatives in the field of fuel especially in the wake of volatile oil prices in the world market and Malaysia being the largest producer of palm oil is emerging as a hub in the biodiesel research and India could benefit from that. . On the issue of the development of the defence industry India could be a potential player in the region as it has well developed defence capabilities ,including arms equipment production and training facilities at competitive costs. In the recent past, India has shown keenness to sale Brahmos missiles to the friendly countries43 and Malaysia was listed as one of them. One major problem with regard to the lack of cooperation in the field of defence within Malaysia has been the inadequate information about the available weapon systems in India, incompatibility owing to the different weapon systems, differences in financial terms and servicing and spare parts facilities. Malaysia has been engaged in force modernisation programme and would like to have assistance in weapons up gradation and systems integration. India could be a potential ally in this field. In the area of the terrorism, though Malaysia has few radical Islamic groups which are known to have been supporting the cause of Jihad, but it would be better for the growth prospects of both countries to keep such emerging groups in check and should rather engage in the effective anti-terrorism stance taken under the ambit of ASEAN. The area of concern could be the spread of Jemaah Islamiyah (JI) which has operations in five southeast Asian countries-Indonesia ,Malaysia, Singapore, Thailand and the Philippines .In few cases the network of the terrorist organisations namely Abu Sayyaf and Moro Islamic Liberation Front(MILF) with JI is increasing. Malaysia has acted as the mediator for the resolution of conflict between Philippines and MILF .So it could be as potential moderator between the western world and the Islamic countries in case of contentious issues pertaining to terrorism. The issue of the terrorism in Southern Thailand, empowerment of the Rohingya Muslims and the spread of JI might be a matter of concern for India because then it would form an arch of terrorism spanning from Indonesia to Myanmar. India has also faced scare with regard to the Severe Acute Respiratory Syndrome (SARS) and Bird flu virus which was detected in the East Asia and has also faced apprehensions with regard to the containment and eradication of the virus. In this regard the countries of Southeast Asia have been pooling their resources and information to detect such pandemics at the early stage. So, the need is there for greater research in this area and India could take lead to institute a biological research institute in Malaysia for detection of disease and the production of a counter drug which could be cheap. On the issue of Cyber security, Malaysia has been involved actively in setting up a regional centre and so, it would be imperative for India to monitor developments in this field .In the areas of space technology, India through had set up telemetry and tracking systems in Malaysia and so with regard to space also there is possibility of cooperation .This is specially so when Malaysia is planning to send its astronaut to space and India is keen to commercialise its launch capability through Antrix corporation. Areas of Divergence India and Malaysia has seen few areas where there are likely chances of divergence and few of them relate to the more hard-line stance taken by Malaysia with regard to the rights of the India Diaspora on religious matters and also projection of the expatriates in the bad light by the Malaysian media which has projected India expatriates as rowdy people always ready to take on fight and raise issues against the administrative set-up.
43

http://www.defenseindustrydaily.com/2006/08/india-gears-up-to-begin-exporting-missiles (Accessed on 22.8.2006)

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Also Malaysia has not been very forthcoming with regard to the membership of India in East Asia Summit (EAS) and was the only country barring China to have raised objections to the induction of India into EAS. On the issue of the reduction of import tariffs, Malaysia has been taking a rather hard-line stance and has been asking for the reduction of tariffs without any firm commitments on its part. Even the incident with regard to the Indian IT professionals in Malaysia way back in 2003 has left a scare in the bilateral relations and has been projected time and again by the IT professionals through web-sites. Malaysia also has to see that the strengthening of hard-line elements in Malaysia should not impinge on the economic prospects of the two countries .As has been shown already, India has been giving preference to Indonesia within regard to Palm oil imports because of its lower costs and also Malaysia’s stance on the issue of involvement of India in Malacca Straits Security Initiative, this at the time when Malaysia has been harping on levying of passage tax on the Straits of Malacca. The issues of atrocities on the Indian labour have been raised time and again with the Malaysian authorities and there is a need for an institutional mechanism to see that the incidents of low wages and confiscation of passports do not become a regular affair. India has credentials for becoming a good reliable partner but there has been issue of divergence which might eclipse the areas of cooperation between the two countries. Conclusion The study of India-Malaysia relations has gained wider significance because of the power relations defining the regime has translated in to different strengths and vulnerabilities in the face of the specific pressures in domestic politics as well as the international events that have an affect on the politics of the country. Fundamentally, at the theoretical level, it challenges both functionalist understandings of the relationship between economic and political institutions and technological determinist conceptions of how to balance the effects. The changed geo strategic environment and the growth of regional powers like Malaysia have impinged on the fact that in case of having good diplomatic and defence relations it would be imperative to have structured bilateral relations so that the effect of bilateral relations does not fall on the multilateral engagement of India in the region. India on the other hand would have to engage Malaysia more than what has been existent all these years so as to reap the dividends of steady economic growth. On the other hand, Malaysia because of it being an export oriented economy would not like to antagonize a growing market like India. The role of foreign direct investment and joint ventures would be more pronounced in this regard. Malaysia would rather have to give assurance to Indian investors for protection of investments and also engage itself more economically in the Indian economy. The two countries are erstwhile allies but things have not been so rosy for now and the major indicator has been the slow progress in the signing of CECA with Malaysia. The CECA should aim at instituting intra-modal and intra sectoral cooperation and synergies, extensive use of ICT to effectively leverage existing complementarities in the two economies particularly in manufacturing and construction, harmonisation of standards and mutual recognition of qualifications of professional service providers. From strategic point of view the growing unrest within Malaysian economic with regard to the influx of low cost Chinese products has created job cuts in Malaysia and this might very well metamorph into a look towards India or a greater engagement with Japan. China on the other hand would like to have leverage in Southeast Asia by giving easy loans to consolidate its constituency in Southeast Asia. But issues of Chinese treatment in Malaysia and Indonesian has been taking center stage in the south east Asian politics for

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long and so any escalation of conflict between Singapore, Malaysia and Indonesia to a certain extent would have cascading effect on the economy of the region and this would hamper India’s interests. So the need of the hour for India is to treat each country in Southeast Asia in different terms so as to maximize its interests in both strategic and economic terms. Malaysia though has been balancing the issues of radical Islam and terrorism to a large extent because of the fact that it is an export oriented economy with interests in retaining the status quo but the problem would start in case Malaysia starts abiding by the sharia laws in economic sphere. So India has to tread cautiously and should work towards strengthening the institutional framework in Malaysia and also contribute to the growth of Malaysia.

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Annexure-1.1: Basic Economic Indicators-Malaysia Economic Indicators-Malaysia Exports of goods and services (% of GDP) Foreign direct investment, net inflows (BoP, current US$billion) GDP (current US$ billion) GDP growth (annual %) High-technology exports (% of manufactured exports) Imports of goods and services (% of GDP) Long-term debt (DOD, current US$ billion) Merchandise trade (% of GDP) Military expenditure (% of GDP) Source: World Bank Economic Indicators 2000 124.41 3.79 90.3 8.86 59.53 104.46 37.3 199.5 1.7 2001 116.4 0.554 88.0 0.32 58.09 98.01 38.3 183.94 2.2 2002 114.65 3.20 95.3 4.35 58.17 96.38 39.9 182.57 2.35 2003 113.37 2.47 104 5.42 58.89 92.5 39.9 180.86 2.77 2004 121.21 .. 4.62 .. 118 7.14 55.36 .. 2005

130 5.25

99.92 .. 40.7 .. 195.91 196.36 2.32 1.9

Annexure 1.2: Trade between India and Malaysia in US $ million S.No 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 2001-2002 773.69 43,826.73 1.77 1,133.54 51,413.29 2.2 1,907.23 95,240.01 2 -7,586.56 47.6919 2002-2003 749.37 -3.14 52,719.43 20.29 1.42 1,465.42 29.28 61,412.13 19.45 2.39 2,214.79 16.13 114,131.56 19.84 1.94 -8,692.70 48.3953 2003-2004 2004-2005 2005-2006 892.77 1,084.06 1,161.86 19.14 21.43 7.18 63,842.97 83,535.94 103,090.54 21.1 30.85 23.41 1.4 1.3 1.13 2,046.56 2,299.01 2,415.61 39.66 12.34 5.07 78,149.61 111,517.44 149,165.73 27.25 42.7 33.76 2.62 2.06 1.62 2,939.33 3,383.07 3,577.47 32.71 15.1 5.75 141,992.58 195,053.38 252,256.27 24.41 37.37 29.33 2.07 1.73 1.42 -14,306.65 45.9513 -27,981.49 44.9315 -46,075.19 44.2735

EXPORT %Growth India's Total Export %Growth %Share IMPORT %Growth India's Total Import %Growth %Share TOTAL TRADE %Growth India's Total Trade %Growth %Share TRADE BALANCE India's Trade Balance Exchange rate: (1US$ = Rs.)

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Note: The country's total imports since 2000-2001 does not include import of Petroleum Products (27100093) and Crude Oil (27090000) Source: Directorate General for Foreign Trade, New Delhi at www.dgft.delhi.nic.in

Annexure 1.3: India and ASEAN Countries Import Data (US$million) Country 2004-05 2005-06 % Growth Brunei 1. 0.54 0.88 63.10 Cambodia 2. 0.24 0.78 222.07 Indonesia 3. 2,617.74 3,008.11 14.91 Laos 4. 0.05 0.10 102.33 Malaysia 5. 2,299.01 2,415.61 5.07 Myanmar 6. 405.91 525.96 29.58 Philippines 7. 187.39 235.49 25.67 Singapore 8. 2,651.40 3,353.77 26.49 Thailand 9. 865.88 1,211.58 39.93 Vietnam 10. 86.50 131.39 51.89 Total 9,114.66 10,883.68 19.41 Source: Directorate General for Foreign Trade, New Delhi at www.dgft.delhi.nic.in S.No.

Annexure1.4: India- ASEAN Exports Data (US $ million) S.No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Country 2004-05 2005-06 % Growth Brunei 5.06 42.94 747.88 Cambodia 18.13 24.19 33.40 Indonesia 1,332.60 1,380.20 3.57 Laos 2.65 5.47 106.55 Malaysia 1,084.06 1,161.86 7.18 Myanmar 113.19 110.70 -2.21 Philippines 412.23 494.66 20.00 Singapore 4,000.61 5,425.29 35.61 Thailand 901.39 1,075.31 19.29 Vietnam 555.96 690.68 24.23 Total 8,425.89 10,411.30 23.56 Source: Directorate General for Foreign Trade, New Delhi at www.dgft.delhi.nic.in

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