The Thaw After the Chill, Modi’s Kuala Lumpur Visit, the Mahathir Interregnum, and the Patient Reconstruction of India-Malaysia Trust
Trust is the rarest currency in geopolitics. It is earned slowly, through decades of consistent engagement, mutual respect, and shared interests. It can be squandered quickly, through a single careless statement, a diplomatic slight, or a policy misstep. And once lost, its recovery demands patience, pragmatism, and a clear-eyed recognition of mutual interest.
The accompanying analysis, written by a senior journalist with extensive experience in international affairs, traces the arc of such a recovery. Prime Minister Narendra Modi’s latest visit to Kuala Lumpur is significant not simply because of new agreements, but because it marks a conscious reset after one of the coldest periods in modern India-Malaysia relations. That chill, which set in after Malaysia’s dramatic 2018 political upheaval, was personified by Dr Mahathir Mohamad, whose second stint as prime minister at the age of 92 reshaped Malaysia’s foreign policy tone. His accusations at the United Nations that India had “invaded and occupied” Jammu and Kashmir, his criticism of the Citizenship Amendment Act, his refusal to extradite controversial preacher Zakir Naik, and his questioning of New Delhi’s domestic policies collectively drove ties to a low ebb. India’s response—restrictions on Malaysian palm oil imports—was widely read as diplomatic retaliation, and what followed was a rare public spat between two countries that had historically managed disagreements quietly.
The return of Anwar Ibrahim to the centre of Malaysian politics has changed the equation. Anwar projects a more pragmatic, economically anchored diplomacy. He speaks openly about cultural pluralism, embraces Malaysia’s multiethnic identity, and frames international partnerships through growth and technology rather than symbolism. This difference in approach is central to understanding why India-Malaysia ties are warming again.
Modi’s visit symbolises that reset. It produced agreements on digital payments, local currency trade, semiconductors, and maritime security. It established the Malaysia-India Digital Council, signalling that both governments now see technology as a strategic pillar of their relationship. It demonstrated that patient diplomacy, economic logic, and technology can repair even bruised bilateral relationships.
The Mahathir Interregnum: When Personal Politics Derailed Bilateral Ties
To understand the significance of the current thaw, one must appreciate the depth of the preceding chill. The 2018 Malaysian general election was historic: it ended Barisan Nasional’s uninterrupted 61-year rule and returned Mahathir Mohamad to power at the age of 92. Mahathir’s political persona is complex and contradictory. He is a figure of immense stature in Malaysian politics, a moderniser who drove the country’s economic transformation. But his relationship with India has always been complicated.
During his second stint, Mahathir’s statements on India crossed a line that previous Malaysian leaders had avoided. His UN General Assembly speech accusing India of “invading and occupying” Jammu and Kashmir was particularly damaging. The language echoed rhetoric used by Pakistan and other adversaries; coming from a leader of a major Southeast Asian nation, it carried weight. His subsequent criticism of the Citizenship Amendment Act and his refusal to extradite Zakir Naik, despite India’s repeated requests, added to the strain.
India’s response—restrictions on Malaysian palm oil imports—was calibrated to send a message without escalating to a full-blown diplomatic rupture. Palm oil is a significant Malaysian export, and India is a major market. The economic pressure was felt, and it signalled that India would not tolerate public criticism of its internal affairs from a partner.
The episode was a reminder that personal politics matter in diplomacy. Mahathir’s individual views, shaped by decades of engagement with the world and a distinctive worldview, had the power to reshape bilateral relations. His departure from office opened the door for a reset, but the damage had been done, and trust had to be rebuilt.
The Anwar Approach: Pragmatism, Pluralism, and Technology
Anwar Ibrahim’s return to the centre of Malaysian politics brings a different orientation. Anwar is a figure of international stature in his own right, but his approach to foreign policy is distinct from Mahathir’s. He emphasises pragmatism over symbolism, economic logic over ideological posturing.
Anwar speaks openly about Malaysia’s multiethnic identity and the importance of cultural pluralism. This resonates with India’s own commitment to secularism and diversity. His framing of international partnerships through growth and technology aligns with India’s focus on digital infrastructure and innovation.
The agreements signed during Modi’s visit reflect this alignment. The entry of India’s Unified Payments Interface (UPI) into Malaysia is more than a technical upgrade; it is India exporting its digital public infrastructure as a model of economic cooperation. UPI now accounts for nearly half of the world’s real-time digital transactions. Linking it with Malaysia’s PayNet system creates a new financial corridor that reduces friction for businesses, travellers, and small enterprises. It makes cross-border payments faster, cheaper, and more accessible.
The decision to encourage settlement of bilateral trade in local currencies—the Indian rupee and the Malaysian ringgit—is equally significant. In an era of currency volatility and global financial uncertainty, reducing dependence on third-party currencies strengthens economic autonomy. It insulates trade from shocks in the dollar or euro and reduces transaction costs for businesses on both sides.
The Malaysia-India Digital Council signals that both governments now see technology as a strategic pillar. Semiconductors, advanced manufacturing, artificial intelligence, cybersecurity, and digital finance are not peripheral sectors; they are the industries shaping the next industrial era. Malaysia’s electronics ecosystem, built over decades of investment and expertise, complements India’s engineering scale and design capacity. Few bilateral partnerships offer such natural economic symmetry.
The Supply Chain Realignment: Why Southeast Asia Matters
The broader context for this reset is the ongoing realignment of global supply chains. Companies are diversifying production to reduce geopolitical risk, moving away from excessive concentration in any single country. Southeast Asia is emerging as a trusted manufacturing hub, benefiting from its strategic location, infrastructure investments, and growing integration into global trade networks.
Malaysia is well-positioned in this realignment. Its electronics industry is a global leader, producing semiconductors and components for major technology companies. Its infrastructure, while requiring continued investment, provides a solid foundation for manufacturing.
India’s role in this evolving landscape is complementary. Its engineering talent, design capabilities, and growing manufacturing sector position it as a partner rather than a competitor. Indian companies can provide the design and innovation that Malaysian factories execute. Malaysian manufacturers can integrate Indian components into their global supply chains.
The bilateral trade figures reflect this depth. Two-way trade reached approximately $18.6 billion in 2025, with Malaysian exports to India at $12.2 billion and Indian imports at $6.4 billion. These numbers are substantial, but the potential for growth is even larger. The agreements on digital payments, local currency settlement, and technology cooperation create the conditions for that growth.
Maritime Security and the Indo-Pacific Framework
The joint emphasis on maritime security, intelligence sharing, and counter-terrorism cooperation reflects a shared recognition that economic modernisation and security are inseparable. In a world where emerging technologies create new vulnerabilities, where maritime trade routes are contested, and where terrorism remains a persistent threat, bilateral security cooperation is essential.
Both countries have a stake in the stability of the Indo-Pacific. The region’s sea lanes carry a significant portion of global trade, and disruptions would have cascading economic consequences. Piracy, terrorism, and great-power competition all pose risks that no single country can manage alone.
The joint condemnation of terrorism in the leaders’ statements is not merely rhetorical. It signals a commitment to intelligence sharing, operational cooperation, and a shared understanding of the threat. It also sends a message to other regional actors that India and Malaysia are aligned on this issue.
The Human Bridge: Culture, Community, and Continuity
The agreements on digital payments and semiconductors are important, but the relationship is also sustained by something less tangible: the human bridge between the two countries. Malaysia hosts one of the largest Indian-origin communities outside India. Generations of Indians have made Malaysia their home, contributing to its economy, culture, and society.
This community is a living connection between the two countries. It maintains cultural and family ties, facilitates business and educational exchanges, and provides a reservoir of goodwill that can sustain the relationship through difficult periods. The Modi-Anwar agreement to expand scholarships and educational exchanges will strengthen this bridge.
The symbolism of Modi and Anwar travelling together, projecting personal rapport, is also significant. Personal relationships between leaders do not determine the course of bilateral relations, but they create an atmosphere in which difficult issues can be addressed and cooperation can flourish. The trust that was lost during the Mahathir years cannot be restored overnight, but visible personal chemistry between the two leaders signals that the process of restoration is underway.
Conclusion: The Currency of Trust
The reset in India-Malaysia relations is not a dramatic breakthrough; it is a patient, incremental reconstruction of a relationship that had been allowed to fray. The agreements signed during Modi’s visit are important, but they are means to an end rather than ends in themselves. The real achievement is the restoration of trust.
Trust, as the analysis notes, is the rarest currency in geopolitics. It cannot be created by a single summit or a set of agreements. It must be earned through consistent engagement, mutual respect, and a demonstrated commitment to shared interests. The chill of the Mahathir years demonstrated how quickly trust can be squandered. The thaw under Anwar demonstrates that it can be recovered, but only through patient effort and clear-eyed pragmatism.
The agreements on digital payments, local currency trade, semiconductors, and maritime security provide the institutional framework for that recovery. The personal rapport between Modi and Anwar provides the political context. The human bridge of the Indian-origin community provides the social foundation. Together, they create the conditions for a relationship that is resilient, productive, and sustainable.
The road ahead is not without challenges. Geopolitical tensions in the Indo-Pacific, economic volatility, and domestic political changes on both sides could create new strains. But the reset initiated by Modi’s visit provides a foundation on which to build. The chill has thawed; the question now is whether the warmth can be sustained.
Q&A Section
Q1: What caused the diplomatic chill between India and Malaysia during Mahathir Mohamad’s second term, and how did India respond?
A1: The chill was caused by a series of actions and statements by Mahathir during his 22-month second stint as prime minister (2018-2020). At the UN General Assembly, he accused India of “invading and occupying” Jammu and Kashmir, using language previously reserved for major Western powers. He publicly criticised India’s Citizenship Amendment Act and questioned New Delhi’s domestic policies. Most damagingly, he refused India’s repeated requests to extradite controversial preacher Zakir Naik, who faces charges in India. These actions represented a sharp departure from the historically quiet management of bilateral disagreements. India’s response was calibrated but firm: it imposed restrictions on Malaysian palm oil imports, a significant Malaysian export for which India is a major market. This was widely read as diplomatic retaliation, signalling that India would not tolerate public criticism of its internal affairs from a partner. The episode demonstrated how quickly trust can be squandered and how personal politics can derail even well-established bilateral relationships.
Q2: How does Anwar Ibrahim’s approach to foreign policy differ from Mahathir’s, and why is this difference central to the current reset?
A2: Anwar Ibrahim projects a more pragmatic, economically anchored diplomacy compared to Mahathir’s more ideological and sometimes confrontational style. Anwar speaks openly about cultural pluralism and embraces Malaysia’s multiethnic identity, which resonates with India’s own commitment to secularism and diversity. He frames international partnerships through growth and technology rather than symbolism, aligning with India’s focus on digital infrastructure and innovation. Unlike Mahathir, who allowed personal views to reshape foreign policy, Anwar emphasises institutional engagement, economic logic, and mutual interest. This difference is central to the reset because it creates a foundation for cooperation based on shared interests rather than personal chemistry alone. The agreements signed during Modi’s visit—on digital payments, local currency trade, semiconductors, and maritime security—reflect this alignment. Anwar’s approach signals that Malaysia is once again a predictable, reliable partner with which India can build a long-term relationship.
Q3: What is the significance of linking India’s UPI with Malaysia’s PayNet system, and how does it exemplify India’s approach to economic diplomacy?
A3: The linkage of UPI (Unified Payments Interface) with Malaysia’s PayNet system is significant for several reasons. First, it represents India exporting its digital public infrastructure as a model of economic cooperation. UPI now accounts for nearly half of the world’s real-time digital transactions, demonstrating India’s technological capability. Second, it creates a new financial corridor that reduces friction for businesses, travellers, and small enterprises by making cross-border payments faster, cheaper, and more accessible. Third, it strengthens economic integration between the two countries, embedding India’s digital ecosystem into Malaysia’s financial infrastructure. This exemplifies India’s approach to economic diplomacy: using technology and digital infrastructure as tools of partnership, building relationships that are resilient because they are embedded in daily economic activity. The linkage is not merely a technical upgrade; it is a strategic investment in a relationship that will generate benefits for years to come.
Q4: Why is the decision to settle bilateral trade in local currencies (rupee and ringgit) described as potentially “consequential”?
A4: The decision to encourage settlement of bilateral trade in local currencies—the Indian rupee and Malaysian ringgit—is potentially consequential because it reduces dependence on third-party currencies, primarily the US dollar. In an era of currency volatility, global financial uncertainty, and geopolitical tensions, this strengthens economic autonomy for both countries. It insulates trade from shocks in the dollar or euro, reduces transaction costs associated with currency conversion, and creates a more resilient trading relationship. It also signals confidence in each other’s currencies and economic management. For India, which has been promoting rupee trade with several partners, this is a significant step in diversifying its external economic engagements. The move is not just technical; it is strategic, reflecting a shared recognition that economic security requires reducing exposure to external financial volatility.
Q5: What role does the “human bridge” of the Indian-origin community in Malaysia play in sustaining bilateral relations, and how do the new agreements strengthen this connection?
A5: The Indian-origin community in Malaysia, one of the largest outside India, serves as a living connection between the two countries. Generations of Indians have made Malaysia their home, contributing to its economy, culture, and society. This community maintains cultural and family ties, facilitates business and educational exchanges, and provides a reservoir of goodwill that can sustain the relationship through difficult periods. The human bridge ensures that ties extend beyond governments to people, creating a foundation of mutual understanding and shared interest that is more resilient than any single agreement.
The new agreements strengthen this connection in several ways. The UPI-PayNet linkage will make it easier for community members to send money, support families, and conduct business across borders. Expanded scholarships and educational exchanges will bring more Malaysian students to India and Indian students to Malaysia, deepening mutual understanding. The focus on technology and digital cooperation creates opportunities for professionals from both countries to collaborate. The symbolism of restored trust at the leadership level also reassures the community that their home countries are on good terms, reducing the potential for the kind of diplomatic tensions that can put diaspora communities in difficult positions. The human bridge is not merely a cultural artefact; it is a strategic asset, and the new agreements recognise and strengthen it.
