Is India Weaponising Trade ?

Background 

When Prime Minister Mahathir Mohamad, 95, returned to power, PM Modi was one of the first foreign leaders to congratulate him. The Indian MEA had then called Malaysia as "a priority country in our Look East policy."

India's relations with both Malaysia and Turkey took a sharp turn south after the revocation of Article 370 from J&K.  At last year's UNGA, the leaders of both the countries condemned Indian Action on Kashmir.

In 2018, Malaysia refused India's extradition request of Zakir Abdul Karim Naik, an extremist cleric accused of radicalization of youth.   More recently, he has criticized the CAA and NPR.

Similarly, Turkey under Erdogan has endorsed the removal of Pakistan from the FATF (this move was also backed by Malaysia) and has started working with Pakistan on naval shipbuilding when it already had a similar MoU with India. On security grounds, India terminated this agreement. Turkey has also sided with Pakistan on India's membership of the Nuclear Supplier's group. Turkey's views on J&K have also been critical of Indian actions.

The India-Malaysia bilateral trade as of November 2019, stood at 51.84 billion INR. The Malaysian Exports to India averaged around 10.4 billion INR from 1991 to 2019. India’s trade with Turkey stood at $8 billion.

India has now decided to scale down its trade relations with both countries. Indian authorities have increased the tax on palm oil and Indian importers have collectively decided to boycott palm oil from Malaysia and shifted preferences to Indonesia This has impacted the palm oil industry in Malaysia whose stocks fell.  In response, Mahathir has said, "We are too small to take retaliatory action...We have to find ways and means to overcome that."

As regards Turkey, India has a trade surplus. Indications are that India may reduce its import of oil and steel from Turkey. 

Analysis

Foreign economic relations are an intrinsic part of foreign policy and security considerations. The effectiveness of foreign policy is determined by the strength, success, and intensity of its foreign trade relations with regard to the national economy. 

The spat is the latest regional diplomatic dispute to impact trade flows. South Korea and Japan's disagreement earlier this year over the latter's colonization of the Korean Peninsula has resulted in stricter export checks and hits to tourism, while the China-U.S. conflict over issues including intellectual property has roiled global trade flows and financial markets.

While going by statistics alone, the trade does not amount to much, it is perhaps the signaling which goes along with it that is meant to convey intent. India's bilateral trade with Turkey and Malaysia stands at 2.9% of its total in the year 2018-19. India has a trade deficit with Malaysia as the former is the world's largest consumer of edible oil, the principal export of Malaysia. It counts palm oil as a vital component of its economy and loss of sale in these distressing times will have a significant impact. There are indications that these trade restrictions may be extended to other goods like petroleum, aluminum ingots, computer parts, and microprocessors.

In order to better decipher these events, it is important to understand the socio-political narrative of both countries. Domestic politics in Malaysia is gravitating towards conservative Islam. It has a 60% Muslim population and the rest 40 comprise of Buddhists, Chinese, and Hindu. It is possible that Malaysian PM is appeasing his domestic populace while making such statements. Similarly, in Turkey, a country that was formerly known for liberal values, the bridge between Europe and Asia is now increasingly shifting right under President Erdogan.

CounterPoint

The Solvent Extractors Association of India (SEAI) has supported the raising of import taxes on Malaysian refined palm oil in order to protect domestic producers and refiners.    

There is also pushback inside India. The Tamil Nadu Congress Committee, a political group in the south Indian state of Tamil Nadu, called for Prime Minister Narendra Modi to avoid cutting imports of Malaysian palm oil. It argued any move against the Southeast Asian nation would negatively impact the hundreds of thousands of migrant workers from Tamil Nadu working in the country, as well the large Malaysian Indian community. 

While these two smaller countries are being targeted, China, which is most vocal in most fora taking up cudgels against Indian interests, has not been imposed with similar trade restrictions