Malaysia should focus on 2nd, 3rd tier Indian cities, explore emerging sectoral priorities
By Datuk Umang Sharma
INDIA and Malaysia’s commercial links have helped the latter to transform itself from being an exporter of primary products to an industrialised and broad-based economy.
The first Indian joint venture, Godrej, commenced operations in 1968, and in the 1970s and early 1980s, Malaysia hosted the largest number of Indian joint ventures in any country. Indian companies’ present involvement in Malaysia is in palm oil refining, power, railways, information technology, biotechnology, manufacturing industrial goods, higher education, civil construction and training.
While the bilateral trade between India and Malaysia improved significantly after the signing of the Malaysia-India Comprehensive Economic Cooperation Agreement (MICECA) in 2011, the volume of trade could be much bigger.
MICECA covers goods, services, investments and other areas of cooperation. The framework provided significant new opportunities for economic collaboration and was expected to lead to stronger commercial and economic ties at the governmental and business-to-business levels. It is reported that more than 150 Indian companies have invested more than US$3 billion (RM13.5 billion) in Malaysia, creating more than 30,000 direct and 100,000 indirect jobs. On the other side, there is now a significant presence of Malaysian companies in India that have invested US$7 billion directly and through third countries.
Despite the Covid-19 pandemic, bilateral trade between the two countries expanded by 26% in 2021 and overall trade exceeded US$17 billion. In 2022, the bilateral trade saw a 35% increase, reaching US$20 billion. This shows that MICECA has had a positive impact and continues to play a significant part fostering India-Malaysia bilateral relations. One thing to note about MICECA, while it has benefited both nations, the present balance of benefit tilts greatly in favour of Malaysia.
The legal framework governing bilateral trade and economic cooperation also includes a bilateral investment protection agreement signed in 1997 and a revised double-taxation avoidance agreement signed in May 2012. In fact, the Consortium of Indian Industries in Malaysia (CIIM) provided feedback to the Indian government on the issues faced by its members, which were incorporated in the double-taxation agreement. It is perhaps time to re-evaluate and enhance MICECA , considering the focus of both the countries on digital, renewables and other new sectors.
Targeting SMEs
An important area of liberalisation that the MICECA was designed to transform was the temporary movement of natural persons in commercial sectors, including accounting and auditing, architecture, urban planning, engineering services and medical, dental, nursing and pharmacy.
Malaysia had removed the conditions for professionals from India wishing to enter and work in the country to fulfil economic needs or satisfy labour supply and demand provisions. Having said that, issues remain getting timely approvals from the Malaysian side. Till today, there are challenges in the movement of skilled professionals.
While CIIM was the first organisation to highlight the business opportunities arising out of the CECA agreement through a full day seminar in Kuala Lumpur in May 2011, more could have been done to disseminate the information to all industry sectors. CIIM brought out a handbook, “Doing Business in Malaysia”, in partnership with the High Commission of India and the Consortium of Indian Industries (CII).
While some of the larger Malaysian infrastructure companies have done a great job building highways and airports in India, there is lesser engagement at the small and medium enterprise (SME) level. SMEs are the engine of growth of both the countries. More than 90% of the businesses in both the countries are run by SMEs. To have a real meaningful business engagement and to grow both trade and investments, it is important to reach out to these SMEs.
For example, Singapore has more than 4,000 Indian companies while Malaysia has fewer than 200. Most SMEs are in second- and third-tier cities in India. So, if Malaysia is keen to engage with Indian SMEs, it is important to penetrate deeper into the states to really connect with them. While there is a Malaysia India CEOs forum, but they are mainly comprised of large corporations and little SME representation and engagement is there from both the countries. Perhaps a separate SME forum could be established in that regard.
The Malaysian success story remains unsold in India. Few Indian businessmen are aware of the opportunities available in several sectors and the ease of doing business in Malaysia. India has 28 states with their own state industry and sector chambers of commerce and government investment agencies like State Industrial Development Corporation (SIDC). One needs to be in touch with them and apprise them of the opportunities and incentives that the Malaysian government provides.
Agencies like Invest India and Malaysian Investment Development Authority (MIDA) can do more to promote trade and investments between the two countries. Now that the markets have re-opened and travel much easier, Invest India must engage with Malaysian industries and highlight to the various stakeholders, not only about opportunities but also focus areas and extra incentives for investors. They should give presentations to these chambers of commerce, highlighting opportunities and incentives. Malaysia has identified several economic corridors which could be of interest to Indians. States like Penang, Johor, Melaka, Sabah, Sarawak and Selangor are progressive and Invest India should actively engage with them.
Tourism route to trade
Similarly, MIDA needs to penetrate and engage with the states and their state governments and chambers of commerce. Dedicated sector-wise delegations and trade missions to states could be valuable and decisions could be even faster as some states can take their own decisions without consulting the central government.
In terms of next generation trade and investment links, tourism is the number one factor that could kick start trade and investments. For tourism to happen, there must be better connectivity with more flights, ease of getting visas and promoting tourism in both countries.
It may also be a good idea to have an India desk under the Prime Minister’s Office or MITI, headed by a senior person who has experience working in India and Malaysia. While there is a politically appointed desk, it is mainly focused on government-to-government relations and might be limited focus on business, especially SMEs. This person heading the India desk, having knowledge of working in India and how businesses operate in India, can leapfrog the trade and investment timeline and shorten the process immensely. Similarly, India can have a Malaysia desk.
There are several sectors where Malaysia and India businesses can cooperate, keeping in mind each party’s competencies and needs. It is noteworthy that Malaysia is looking to enhance its digital economy. For it to succeed, Malaysia will need talent, trained workforce and technology, which India specialises in. So, it’s a win-win situation for both the countries to cooperate in this field.
India is looking to build 25,000km of roads and 100 cargo terminals. Malaysian companies already have inroads in India in this sector and are poised to exploit these opportunities.
India is working towards being a net zero economy by 2070 and plans to instal 280GW solar capacity by 2030. Malaysia is one of the biggest manufacturers of solar panels and this offers a great opportunity for local manufacturers to capitalise on this opportunity.
Similarly, India is moving into manufacturing of semiconductors in a big way and again, Malaysian companies have great expertise in this field and should seize this opportunity to offer their expertise and equipment.
India has made great strides in pharma, biotech, drone technology, aerospace, fintech, innovation incubators, which Malaysian companies can tap into their expertise either for joint ventures or trade. India has leapfrogged in the start-up field with 24 unicorns in 2022. India would be willing to help set up start-up incubators and guide the younger generation in Malaysia.
The way ahead should be greater engagements at the SME level, re-evaluating and reviewing MICECA with focus on emerging sectoral priorities like digital, renewable and frontier sectors and streamlining the approval process for easy movement of skilled and semi-skilled professionals.
Datuk Umang Sharma is founder chairman of the Consortium of Indian Industries in Malaysia
