Malaysian firms should capitalise on India’s infrastructure spending spree
By Tan Sri Kuna Sittampalam
INDIA and Malaysia enjoy a long history of trade, cultural ties and exchange of ideas. In the mid-1980s, the Indian Ministry of Surface Transport (MOST), which is now the Ministry of Road Transport and Highways (MORTH) had an MoU with Malaysia’s Economic Planning Unit (EPU) for capacity building and economic cooperation.
EPU advised that if MOST wanted to focus on national highways, it was important for India to create a national highway authority like the Malaysian Highway Authority (MHA). Subsequently, National Highways Authority of India (NHAI) was formed in the late 1980s following MHA’s modules.
By the 1980s-90s, India had become a substantial trading partner, especially in palm oil. In the 1980s, India had a big trade deficit with Malaysia, which decided to award the former some projects to offset this trade imbalance. These included the Sg Piah and Cameron Highlands hydro projects, awarded to Bharat Heavy Electricals Limited (BHEL).
In the mid-1990s, a series of railway projects were embarked upon. There was a bilateral agreement that formalised this strategic partnership where both sides agreed to capitalise on each other’s commercial strength. Tun S Samy Vellu, the then works minister, was instrumental for this strategic collaboration. Although this was crystallised when Tun Abdullah Ahmad Badawi became prime minister, the groundwork started in the 1990s. Both countries saw the benefits of collaborating on a G-to-G basis in infrastructure development, taking cognition of each county’s strength.
In December 2000, a memorandum of agreement was signed to upgrade and improve sections of the NH-5 and NH-9 roads in the state of Andhra Pradesh. In May 2001, Swarna Toll Private Limited was incorporated as a special-purpose vehicle with the view of undertaking the concession granted under an agreement dated 27 March 2001 through CIDB Inventures Sdn Bhd and NHAI.
Malaysia signed an MoU with India pertaining to this arrangement in 2010 – between the National Highway Authority and Construction Industry Development Board (CIDB). So as these relations started to emerge over the years, many Malaysian companies moved into India to take advantage of opportunities there.
There are more than 150 Indian companies operating in Malaysia, such as Indian Railway Construction Limited (IRCON), which started operations in 1988 and till date, has commissioned 15 projects involving 580km of track rehabilitation and about 298km of new lines. The largest presence of Malaysian construction companies outside the country is in India whereby 87 companies, including IJM Corporation Bhd, Sunway Construction Group Bhd and HSS Engineers Bhd, are active.
The number of construction works these players have secured over the years and during the pandemic is pretty staggering. It goes a long way to show that despite the challenges, these companies have managed to dominate the waves and persevere. Malaysian companies have completed around 95 projects in India worth more than RM18 billion until 2019, while three projects worth RM2 billion remain under construction.
Landmark FTA
In July 2011, India and Malaysia concluded negotiations that had stretched over 32 months on a landmark free-trade agreement called the Malaysia-India Comprehensive Economic Cooperation Agreement (MICECA). MIBC was also actively involved in this breakthrough. The Confederation of Indian Industry (CII) also played its role. The idea at that point was to boost our bilateral trade, which stood around US$10 billion in 2011 to US$15 billion by 2015.
MICECA sought to boost trade and investment by liberalising trade restrictions and installing a competitive investment regime to promote foreign investment. It was viewed as complementary to the Asean-India Trade in Goods Agreement (AITIGA) and took tariff liberalisation beyond the provisions in the Asean-India Free Trade Area (AIFTA).
MICECA was designed to transform the temporary movement of workers in commercial sectors, including accounting and auditing, architecture, urban planning, engineering services and medical, dental, nursing and pharmacy. In this regard, Malaysia removed the conditions of fulfilling economic need requirements or satisfying labour supply and demand provisions. The two governments are expected to review MICECA and how the flow of trade under it can be expanded and diversified to address the trade imbalance.
Infrastructure enabler
The innovative “Make in India” campaign, led by the Modi government, is aimed at attracting foreign investment, strengthening the private sector and increasing the country’s overall competitiveness.
Due to India’s strategic location in the Indian Ocean, proximity to Southeast Asia and eventual connection to Central Asia and Europe, coupled with Malaysia’s close collaboration and partnership with Asean, both India and Malaysia should interpret this as a large infrastructure enabler.
India plans to spend US$1.4 trillion (RM6.3 trillion) on infrastructure as per budget 2022 to ensure a robust local and foreign supply chain and linkages free from any external threat. It ought to be noted that FDIs in the Indian construction sector stood at US$25.38 billion despite the impact of Covid-19 pandemic as of June 2021 and India is poised to be the third largest construction market globally by 2025.
Furthermore, the highway sector is expected to grow exponentially. The national highway network is expected to expand by 25,000km in 2022-2023. The railway sector aims to contribute 1.5% to GDP by building infrastructure to support 45% of the freight modal share of the economy. There are plans for 400 new generation trains to be manufactured in the next three years. It is the highest ever planned capital expenditure of US$29.5 billion in 2022 to 2023. Also in the development plans are 100 multimodal cargo terminals, including 12 major and 200 non-major ports.
In March 2017, the Indian government launched the ambitious Sagarmala programme with the vision of port-led development and growth of logistics-intensive industries. Under Sagarmala, US$123 billion would be invested across 415 maritime projects.
Future of Malaysia-India ties
Malaysia- India cooperation can be elevated to the next level in view of the current geopolitical and geo-economical contexts. The Malaysian economy grew by 8.7% in 2022 as the 12th Malaysia Plan comes with a development expenditure allocation of RM400 billion compared with RM260 billion in 11MP.
MIBC has had a quiet but significant role to play in the re-awakening and the strengthening of our links with India, especially in trade and investments, beginning in 2010 with the prime minister’s visit to India. In view of the enhanced strategic partnership with India, MIBC set up the Malaysia-India CEO Forum (MICEOF). MIBC has played a role with MITI on trade and investment matters between Malaysia and India. We have also established good relations with our Indian counterparts in sectors of special interest to us, such as infrastructure, health, education, information technology, biotechnology, tourism and SMEs through MICEOF and with organisations, such as CII and Federation of Indian Chambers of Commerce & Industry (FICCI).
Over the years, MIBC has upheld its values and goals of fostering closer links between Malaysia and India, notably in investments and services. MIBC acts as a channel providing the authorities with views and recommendations on how to intensify economic ties between Malaysia and India. The sectors that are covered via MIBC are construction, infrastructure, services, education, oil & gas, IT and healthcare. Notable MIBC members include CIDB, TCS, Manipal, IJM, ICICI, GIC, MAHB, PwC, HSS, Petronas and AirAsia.
As relations between India and Malaysia are on the upswing, MIBC will continue to engage with various Malaysian government agencies, chambers and other conglomerates and public-listed companies seeking collaborations. The year 2022 marked an important one for India-Malaysia bilateral relations as it signified 65 years of diplomatic relations between the two nations. It also happened to be the 30th anniversary of Asean-India engagement. The hope is that with this deeper level of cooperation, both nations will prosper and flourish in the years to come.
Tan Sri Kuna Sittampalam is president of the Malaysia-India Business Council
