Malaysia's India trade review must tackle structural barriers: Economists

KUALA LUMPUR: Malaysia's review of its trade framework with India should focus on removing structural barriers and helping Malaysian companies gain greater access to its market, economists said.

The review should broaden the framework's scope beyond goods to address non-tariff barriers and emerging sectors, they added.

Universiti Teknologi Mara senior lecturer Dr Mohamad Idham Md Razak said the review was timely given the existing trade imbalance and the need to ensure bilateral trade delivered broader benefits for both economies.

"The focus, however, should not simply be on narrowing the deficit as trade balances can also reflect differences in production structures, investment and supply chains," he told Business Times.

Idham said the review should identify why Malaysian companies may not be fully capturing opportunities in the Indian market and address the structural barriers that limit their participation.

"A more diversified export base, stronger business-to-business linkages and greater integration into India's expanding value chains would help make bilateral trade more balanced and sustainable over the longer term," he said.

His comments followed Investment, Trade and Industry Minister Datuk Seri Johari Abdul Ghani's statement that Malaysia and India were set to review their trade framework over the next three to six months.

Johari said India had stressed the importance of a more balanced trading relationship, noting that Malaysia currently recorded a sizeable trade surplus with India.

In 2025, Malaysia recorded a trade surplus of RM25.37 billion with India, with total bilateral trade reaching RM79.33 billion, down five per cent from RM83.5 billion in 2024.

Malaysia's exports to India rose 0.4 per cent to RM52.35 billion last year, while imports fell 14 per cent to RM26.98 billion.

Universiti Kuala Lumpur Business School economic analyst Associate Professor Dr Aimi Zulhazmi Abdul Rashid said the review of the Malaysia-India Comprehensive Economic Cooperation Agreement (MICECA) was apt given changes in the countries' trade and investment landscape since the deal was signed in 2011.

Aimi said the agreement needed to evolve beyond its traditional focus on goods to address non-tariff barriers, rules of origin and emerging areas such as digital trade, semiconductors, fintech and renewable energy.

"The 2011 agreement is goods-heavy. A 2026 review must be services and value-chain heavy," he added.

Idham said the review should look closely at tariff lines where Malaysian products still faced relatively high duties. This is alongside rules of origin, customs procedures and non-tariff measures such as product standards, certification and licensing requirements.

He also said there was scope to strengthen provisions covering services, digital trade and investment, while improving trade facilitation through greater use of digital customs and regulatory cooperation.

"The objective should be to make the agreement more responsive to today's business environment and reduce the practical cost of entering the Indian market," he said.

Aimi similarly highlighted rules of origin and non-tariff barriers as key areas for review, particularly for Malaysia's electrical and electronics and semiconductor industries.

"Current AITIGA uses uniform 35 per cent local value addition. This hurts electronics and semiconductors where value addition is low but supply chains are global.

"India and Malaysia are already discussing Product Specific Rules (PSR) to give flexibility. This is critical for Malaysia's E&E exports," he said.

On sectors with potential for greater Malaysian participation in India, Idham said Malaysia already possessed established industrial and technological capabilities in certain sectors.

They include electrical and electronics, semiconductors and related components, chemicals, palm oil and downstream palm-based products, processed food and halal products.

"There is also potential in healthcare, digital services, renewable energy and other green technologies as India's economy continues to expand," he said.

He said Malaysian companies should pursue higher-value segments and strengthen their distribution networks, partnerships and joint ventures in India rather than focusing solely on increasing export volumes.

"This would allow Malaysian companies to build a more durable presence in one of the world's largest consumer and industrial markets," he said.

Meanwhile, Aimi said Malaysia should likewise use India's vast consumer market to expand trade in both directions.

"Given India's 1.4 billion consumer market, Malaysia should not compete on low-cost mass manufacturing, but on 3 layers," he said.

Aimi identified palm oil and oleochemicals, E&E and machinery as areas where Malaysia could strengthen existing trade, while also expanding into halal products, chemicals, green energy, medical devices and high-value agri-food.

He also pointed to services including healthcare, education, fintech, Islamic finance, construction and engineering as areas where Malaysia was under-exported.