India-Malaysia Trade Settlement in Indian Rupee

Trade between India and Malaysia can now be settled in Indian Rupee. This comes after the Reserve Bank of India's (RBI) decision to allow the settlement of foreign trade in Indian Rupees in July 2022. This action aims to support the interests of the international trading community in the Indian Rupee and facilitate the expansion of global trade.

The announcement coincided with ongoing government initiatives to protect Indian trade from the effects of the Ukraine conflict. The move away from the U.S. dollar, which up until now has been the main reserve currency for international commerce, has additional significance since ithows that India is ready to make a real effort to de-dollarize its foreign trade.

The traders in India and Malaysia would be able to invoice the trade in Indian Rupee thanks to this method, which will result in better pricing for the goods and services traded. Due to the ability to directly trade in Indian Rupee and so avoid currency conversion spreads, this method is anticipated to be advantageous to traders on both sides as well.

Malaysia has become of the 18 nations allowed by the RBI to have Special Rupee Vostro Accounts (to settle payments in the Rupee). The Union Bank of India (UBI) became the first Indian bank to facilitate trade between India and Malaysia in Rupee by opening a Special Rupee Vostro Account through its “corresponding bank” in Malaysia — India International Bank of Malaysia.

India and Malaysia Economic Relationship in Numbers

In 2021–2022, bilateral trade between India and Malaysia reached $19.4 billion. This comprises approximately $12 billion in exports and $7 billion in imports. In the ASEAN area, Malaysia ranks third in terms of bilateral trade with India, behind only Singapore and Indonesia, which do business with India for $30.1 billion and $26.1 billion, respectively.

Malaysia is India's thirteenth-largest trading partner, while India is one of the world's top ten trading nations. With an FDI infusion of US$ 1.6 billion between April 2000 and September 2022, Malaysia ranks as the 27th largest investor in India.

Principal Exports

Mineral fuels, mineral oils & products, bituminous materials, and mineral waxes account for most India's exports to Malaysia ($2,237.57 million), with organic chemicals coming in second place ($510.27 million) in the fiscal year 2021–22.

Principal Imports

Animal or vegetable fats, oils, and products derived from them, as well as animal and vegetable waxes, account for most India's imports from Malaysia ($4,429.71 million), with mineral fuels, mineral oils & products, bituminous substances, and mineral waxes coming in second ($1.344.66 million) in fiscal year 2021–22.

India-Malaysia Diplomatic Relationship

In 1957, India formally re-established diplomatic ties with Malaysia's precursor state, the Federation of Malaya. After the US and the UAE, Malaysia has the third-largest Persons of Indian Origin (PIO) population worldwide.

There is a chance to further develop and widen the current relationships, particularly in the economic domain, as 2023 will celebrate 66 years of diplomatic relations between Malaysia and India. Malaysia is also an important pillar of India's Act East policy and essential to India's maritime connectivity goals given that it is encircled by active sea lanes of communication like the Strait of Malacca and the South China Sea.