Indian govt, after some mulling over, banned import of refined palm oil. The source country for the product being Malaysia, will see impact on indo-malaysian relationship.
India imported around 2.5 mn tonnes of palm oil from Malaysia. In 2014, the dollar value of palm oil import from malaysia, for India, was around 2 bn USD, which has gone down in recent years.
As such expectation was that the volume of import will go north, but geo-political scenario came into play
India flexing trade muscle
India has been one of the close trading partners of malaysia and a big marker. Indian market is all set to grow further and if the GDP growth rate gets back to normal (7-8%), it would not take long for India to be third biggest economy in the world even in nominal terms (its already there in PPP terms).
Most of the big economies have used their trade power politically too. Till date, India hd hardly ever done so.
But as other policies, in India, this is set to change under the present government. India is aware of its trade power and is ready to flex the muscle.
Malaysian govt sat on the wrong side of Infian policy makers, be it abrogation of article 370 (relating to the state of Jammu and Kashmir), Citizenship Amendment Act (CAA) or giving asylum to Zakir Naik -wanted in India for spreading views supporting terrorism and islamic radicalization. Malaysian effort to de-escalate the tension by improved import from India etc seems to have fallen flat.
Indonesia set to gain
to start with, in my view, whats malaysian loss may be indonesian gain. Palm oil import from indonesia to India has decreased around 6.5% (2018 vs 2014). This may change. Indonesia may be asked to fill the gap. This may be a win win situation for both the countries. Recent years have seen upswing in relationship between the two countries
India has built port in Indonesia and there has been enhanced maritime collaboration between the two countries.
We have been importing refine oil from Malaysia whereas crude oils from Indonesia. Indian refineries will be happy to import more crude oil and that may open up opportunities in manufacturing/refinery section. So, in effect, not only will India have flexed its muscle but also given better opportunities to the people in this sector.
Chances are there that Malaysia may try to make amends. However, its relationship with Pakistan may also impact the amount of overture it can make towards India. Also, having taken stand on J&K and CAA on supposed moral high ground, it may not be easy for Mahathir led govt to scale down.
There are chances that Malaysia may hit back, cutting down its import from India. However, the retaliation may have subsequent effect too. India runs a trade deficit with Malaysia. It means if Malaysia decides to cut down import from India and subsequently if India decides to reciprocate, Malaysia has more to lose than India.
It is said that everyone is wise in retrospect. Dice has been cast, first move has been made. It is only the time, which will tell what the future beholds.
But for now, I am happy that Indian govt has learnt to flex its muscle and made it part of its diplomatic outreach.