KUALA LUMPUR (REUTERS) – Malaysia is considering raising imports of raw sugar and buffalo meat from India, potentially easing trade tensions after reports New Delhi could restrict Malaysian palm oil imports following the country’s criticism of India’s actions in Kashmir.

Malaysia is the world’s second-largest producer and exporter of palm oil after Indonesia. Its benchmark palm oil futures FCPOc3 recouped losses to end higher on Tuesday (Oct 15) after the announcement by the country’s government.

The country’s Ministry of Primary Industries, which handles palm oil matters, said in a statement that it made the decision in the light of India’s importance as Malaysia’s third-largest export destination in 2018 for palm oil and palm-based products worth RM6.84 billion (S$2.24 billion).

“The minister views with concern recent news reports regarding unfavourable bilateral relations between Malaysia and India as both countries have enjoyed strong and comprehensive relations for more than six decades,” the statement said, referring to Ms Teresa Kok, the Malaysian minister-in-charge of the palm oil portfolio.

“Malaysia is open to further trade negotiations to address India’s concerns on the trade imbalance between both countries.”

The edible oil contributed 2.8 per cent of Malaysia’s gross domestic product last year and 4.5 per cent to total exports. The palm oil industry is one of the biggest employers in the South-east Asian country of 32 million people.

The statement added that Malaysia was also considering importing raw sugar from India from next year. India is the world’s biggest exporter of buffalo meat and the biggest producer of sugar, which it is struggling to export due to weak global prices.

Reuters reported last week that India was considering curbing imports of some products from Malaysia, including palm oil, after Prime Minister Mahathir Mohamad said at the UN general assembly last month that India had “invaded and occupied” Kashmir, a disputed Muslim-majority region also claimed by Pakistan.

India stripped its portion of the Kashmir valley of statehood and autonomy on Aug 5.

Malaysia’s exports to India were worth US$10.8 billion in the fiscal year that ended on March 31, while imports totalled US$6.4 billion.

Some Indian traders said refiners had already stopped buying Malaysian palm oil for shipment in November and December, fearing higher import taxes or other measures.

Twitter users in India and Malaysia have sparred with each other over Kashmir. A #BoycottMalaysia call recently trended on social media in India.

India’s foreign ministry has rebuked Malaysia for its stance on Kashmir, asking it to “bear in mind the friendly relations between the two countries and desist from making such comments”.

“It’s a pity that we have this low point in India-Malaysia relations,” former Malaysian diplomat Hasmy Agam said. “I hope the foreign ministries of both countries will try to do something to make sure not to create more divisions between countries that have had close ties.”

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