Malaysia should capitalise on India’s ability to provide skilled workers
By Muhammad Faliq Abd Razak & Andika Ab Wahab
INDIA and Malaysia established diplomatic relations in 1957 and 2022 marked the 65th anniversary of the bilateral relationship. Both have developed close political, economic and socio-cultural relations and there is growing engagement in all aspects of the relationship. Bilateral ties also have improved in recent years because of the convergence of mutual interests in a globalised world.
Rapid globalisation has made it impossible to isolate the Malaysian economy from India, which is a vibrant marketplace and a source of both skilled and non-skilled labour. India-Malaysia cooperation also has its regional and international dimensions. Several agreements and memoranda of understanding cover commerce, avoidance of double taxation, customs, higher education, extradition, mutual legal assistance, tourism, traditional medicine, IT and services, cultural exchanges, public administration and governance, air service and employment. The presence of the Indian diaspora is a crucial and deciding factor in India’s relations with the host nation. Every Southeast Asian country has either persons of Indian origin (PIOs) or non-resident Indians (NRIs), but Malaysia occupies an important position as it houses the largest number of Indian expatriates in Southeast Asia of 6.6% counted for 2.0 million of its population.
Nearly 80% of Indians are engaged in manual work, both as unskilled and semi-skilled labourers. Only 6% are in the administrative, professional or managerial categories. There are about 150,000 Indian expats legally employed in Malaysia in the skilled and semi-skilled category. Malaysia and India also signed an MoU on employment and welfare of workers in January 2009, which establishes an institutional framework to deal with issues, such as illegal immigration and human trafficking from India into Malaysia.
Another significant effort that ties both governments is the Malaysia-India comprehensive economic cooperation agreement (MICECA), signed on 18 February 2011 and in force on 1 July 2011. MICECA covers trade in goods, trade in services, investments and movement of natural persons. It adds to the benefits from the Asean-India trade in goods agreement (AITIG) and will facilitate and enhance two-way trade, services, investment and economic relations in general.
Through MICECA, India has committed to allow Malaysian foreign equity shareholding ranging from 49% to 100% in 84 services sub-sectors, including professional services, healthcare, telecommunications, retail and environmental services while Malaysia allows Indian foreign equity shareholding in 91 services sub-sectors.
Malaysia has been one of India’s three largest trading partners from Asean in terms of value and volume. There are about 60 Indian joint ventures operating from Malaysia. There are also about 90-100 Indian-owned companies in Malaysia, including 68 in the information and technology sector.
This shows that the position of Malaysia is vital in fulfilling India’s ambition to become a US$5 trillion (RM22.5 trillion) economy by 2024 as part of its Act East policy. This dovetails with India giving more weight to bilateral engagement with individual Southeast Asian countries after their withdrawal from the multilateral mega free-trade agreement, the Regional Comprehensive Economic Partnership (RCEP) in 2020. To strengthen India’s economy, policymakers should focus on economic engagement, trade liberalisation, military and defence cooperation, and courting the diaspora.
Malaysia began importing foreign labour in the wake of labour shortages in various critical sectors, such as plantation, construction, manufacturing and services. Foreign skilled, unskilled and semi-skilled labourers were allowed in the country to sustain economic growth. Since the demand for foreign labour in Malaysia is structural, it will continue to depend on migrant workers in the foreseeable future and India has been one of the main source countries among 15 senders.
Malaysia has always been the centre of attraction for Indian skilled and unskilled labourers from the colonial era to the present, given its geographical proximity, economic opportunities and cultural similarities. Malaysia should recognise that the bilateral relationship with India could be a tool to greater cooperation to fill the gaps in skilled labour and gradually reducing dependency on low-skilled labour.
With MICECA, Malaysia and India would need to identify any possibility of having bilateral mutual recognition arrangements (MRAs) to facilitate mobility of professional skilled labour. Enhancing the mobility of skilled labour under the services sector would help Malaysia meet its crucial need for workers in high value-added activities.
Call for further liberalisation
According to the World Bank in 2021, the inflow of foreign workers in Malaysia did not impact negatively on the employment rates or wages across the board nor did it lead to technological downgrading. However, the new norms on the future of work arising from the pandemic reiterated the importance of being resilient and continuing to adapt. To fulfil the need for skilled labour, Malaysia must further liberalise key services sectors.
The government should prioritise measures to build strong domestic services sectors and enhance access to foreign services, as these will play a key role in improving competitiveness mainly in the manufacturing sector.
For example, Malaysia could learn from India’s efforts since the 1990s to liberalise heavily state-led financial, telecommunication and transport service sectors and open them up to domestic and foreign competition. Although these efforts have been uneven and incomplete, there is empirical evidence showing that they have resulted in a stronger services sector, which, in turn, has benefited manufacturing firms.
In addition, creating enough well-paying, high-quality jobs is becoming more complex as Malaysia moves towards high-income status and as the nature of work changes. Gaps have emerged in the skills framework, with some activities being subject to automation. Reforms are needed to improve basic health and nutrition, strengthen learning outcomes, facilitate lifelong learning and digital literacy, and attract and retain talent.
Meantime, upskilling and reskilling the workforce by making the academic as well as technical and vocational education and training streams more cohesive, more adaptable and more responsive to market demands is crucial. Immigration and emigration policies should be systematic and clear to foster the retention of domestic talent and attract foreign talent.
Malaysia’s foreign worker management system has several weaknesses that need to be addressed. The most crucial part is that the current system is not responsive to economic and labour market needs. Ceilings and levies do not ensure the admittance of either the right number of foreign workers or those with the right skills. Redundancy of mandates and a lack of coordination and integration among stakeholders have resulted in lengthy admission processes and limited clarity among key stakeholders. Hiring procedures and overreliance on recruitment agencies result in high labour mobility costs, burdening both workers and firms. Lastly, weak enforcement leads to an influx of illegals.
There has been continuity in labour migration practices from India to Malaysia in terms of origin, pattern of migration, methods of recruitment, status of migrants and unskilled labour work experience. Strengthening the Malaysia-India bilateral relationship will benefit both governments in terms of tapping new potential and possibilities for greater cooperation.
Dr Muhammad Faliq Abd Razak and Dr Andika Ab Wahab are fellows at Universiti Kebangsaan Malaysia (UKM)