The Malaysian Prime Minister, while focusing on Malaysia’s core foreign policy priority on the Palestine issue, is also pragmatic in boosting the local economy through foreign partnerships. 

Semiconductor Ecosystem

There is also limited knowledge of the fact that Malaysia, like Singapore, is a global player in the semiconductor ecosystem.

The Indian Prime Minister's visit to Kuala Lumpur over the past weekend is a clear signal that bilateral ties are moving beyond a buyer-seller relationship and beyond the traditional areas of cooperation. India and Malaysia are building a semiconductor ecosystem to boost India’s semiconductor ambitions. 

Malaysia is a premier global hub for semiconductor assembly, testing, and packaging (ATP), with roughly 13% global market share and the sixth-largest exporter. The Penang region serves as the central hub for major MNCs like Intel, Infineon, and Micron, leveraging a robust ecosystem to drive growth.

The industry is rapidly advancing from back-end operations towards higher-value IC design and wafer fabrication, backed by the National Semiconductor Strategy. The Malaysian government's National Semiconductor Strategy aims to move beyond low-cost manufacturing by fostering local IC design firms and enhancing high-skilled talent.

Penang, Silicon Valley Of The East

Penang remains the "Silicon Valley of the East," housing the majority of multinational corporations (MNCs). Malaysia’s Kulim (Kedah) is emerging as a power semiconductor and substrate hub, while Selangor is becoming a centre for IC design. Benefiting from the "China Plus One" strategy, Malaysia has attracted increased investment due to its neutral position in geopolitical tensions and established ecosystem.

Seeking diversification amid geopolitical tensions in the Taiwan Straits (the supply chain is risky as only one Taiwanese company, TSMC, makes the most advanced chips), companies are turning to Malaysia. Penang attracted a record-breaking $12.8 billion in foreign direct investment in 2023. The Malaysian government considers this industry development a "critical goal."

Therefore, India-Malaysia semiconductor is natural given the geographical proximity. India is in the process of establishing a multi-layered collaboration arrangement with Malaysia through a government-to-government MoU, semiconductor industry-led collaborations and R&D, both in terms of setting up fabrication centres. 

Building New Ties

India and Singapore are also collaborating to build a robust semiconductor ecosystem through a September 2024 Memorandum of Understanding (MoU), focusing on strengthening supply chain resilience, talent exchange, and joint industrial park development. This partnership combines Singapore’s established manufacturing expertise with India’s, scaling manufacturing capabilities. The partnership aims to enhance semiconductor complementarities and competitiveness, with a focus on advanced manufacturing. 

The MoU covers supply chain diversification, joint ventures, and technology transfer. Singapore is assisting India in designing training programmes for technicians and engineers, leveraging its experience in the field. This includes partnerships between universities for research and exchanges. The cooperation seeks to build an alternative, reliable semiconductor supply chain, reducing reliance on traditional, concentrated sources.

Expanding Ties

Similarly, Indonesia, Southeast Asia’s biggest state and economy, is also seeking to diversify its partnership with India, primarily on the digital public infrastructure (DPI), with the Indonesian President replicating India's DPI model.

Indonesia has also launched Open Network (ION), an open digital infrastructure designed to expand market access, reduce transaction costs, and strengthen the competitiveness of Indonesian MSMEs in the digital economy. ION represents the best adaptation of India’s experience with the Open Network for Digital Commerce. Indonesia has more than 62 million MSMEs that need market access. ION will provide that market with low costs, minimal entry barriers, and open standards.

Boosting Defence Ties

It is not just the semiconductor industry that is shaping India’s ties with Malaysia. For several years now, Delhi and Kuala Lumpur have also been boosting defence ties. During Narendra Modi's Feb 7-8 visit, the National Security Councils of both sides agreed to launch cooperation to boost security ties. India-Malaysia defence relations have steadily grown over the years. 

The MoU on Defence Cooperation signed in 1993 is the cornerstone of defence relations between the two countries, which allows for widening the scope of existing bilateral cooperation to include joint ventures, joint development projects, procurement, logistics, maintenance support and training. 

An amendment to the MoU was signed in July 2023, during the visit by Defence Minister Rajnath Singh to Malaysia. The first regional office of Hindustan Aeronautics Limited was also inaugurated in Kuala Lumpur during the visit. India has offered to provide spares and maintenance for Malaysia's Sukhoi fleet.

The India-Malaysia Sukhoi Forum is a bilateral mechanism established to enhance cooperation between the Indian Air Force (IAF) and the Royal Malaysian Air Force (RMAF), regarding their shared Su-30 fighter fleets. The Su-30 forum aims to enhance cooperation between the Indian Air Force (IAF) and the Royal Malaysian Air Force (RMAF) by facilitating the exchange of expertise and best practices in maintaining their respective Sukhoi-30 (Su-30) combat aircraft fleets. 

Diaspora's Role 

Yet another aspect of India’s centuries-old linkages with Southeast Asia – the presence of the Indian diaspora in the region, is less appreciated. While the presence of the Indian diaspora in Singapore is still felt, the Indian diaspora in Malaysia is less well-known. 

There is considerable goodwill for India in Malaysia at the people-to-people level, which hosts approximately 2.75 million PIOs, and is the second largest PIO community in the world after the US, and the third largest Indian diaspora in the world (2.9 million).

Therefore, it requires a structured format to deepen the people-to-people connection between India and Malaysia.  

(The writer is a commentator on geopolitics and geoeconomics. Views are personal.)