India and Malaysia agree to combine chip design and manufacturing facilities in trade agreement

Indian Prime Minister Narendra Modi met with Malaysian leader Anwar Ibrahim in Putrajaya on Sunday to discuss deeper cooperation on computer chips and trade, marking his first trip to the country since the two nations elevated their ties last August.

The visit comes less than two weeks after India signed a major trade agreement with the European Union on January 27. While that deal focuses on opening markets for Indian goods and services across Europe, the Malaysia talks center on building the manufacturing capacity India needs to meet that demand.

Semiconductor cooperation drives new partnership

Both countries are trying to take advantage of global companies looking for alternatives to Chinese factories. The Sunday meetings produced agreements on semiconductor production, currency exchanges, and defense matters.

Computer chips dominated the agenda. Malaysia currently does 13% of the world’s chip testing and packaging operations and wants to move into more sophisticated production. India recently put $10 billion into programs designed to attract semiconductor factories.

“Our partnership in the digital and semiconductor sectors is not just about bilateral gains; it is about building a resilient global supply chain,” Modi said at the Seri Perdana complex, speaking alongside Anwar Ibrahim.

The plan connects India’s chip design capabilities and new factories being constructed in Gujarat with Malaysia’s existing facilities in Penang. Government officials believe this arrangement between the two South Asian nations could compete with established industry centers in the West.

The two governments also agreed to speed up efforts to allow businesses to pay each other in rupees and ringgit rather than US dollars, which often shift in value unpredictably.

Last year, India and Malaysia traded $18.6 billion in goods. Anwar said that number should climb higher under the new arrangements.

“We are moving beyond the era of simple buyer-seller relationships,” Anwar told reporters. “We are looking into co-investment and co-development right now. We intend to surpass previous trade norms by focusing on high-value sectors like green energy and the digital economy.”

Security and defense take priority

After covering economic and technology issues, the leaders turned to defense and regional security matters. Officials from both sides said they recognize that stable security arrangements are necessary to protect economic gains.

Malaysia will chair the ASEAN group of Southeast Asian countries in 2026. That makes the country important to India’s “Act East” policy, which aims to strengthen ties across the region.

The leaders also discussed making sure benefits from this partnership reach ordinary citizens and workers in both countries, not just government offices and corporate boardrooms.

Anwar stressed that the “Comprehensive Strategic Partnership” label the countries adopted last August needs to translate into real results on the ground.

“The commitment of both governments is to execute these plans in a speedy manner,” Anwar said, emphasizing action over words.

The relationship between India and Malaysia has historically focused on basic trade across the Bay of Bengal. Sunday’s agreements signal a shift towards cooperation on advanced technology and shared democratic values.

The timing of Modi’s visit reflects India’s broader strategy for 2026. The India-EU agreement covers countries representing roughly 25% of global economic output and provides Indian textile makers and service companies with access to massive European markets. The Malaysia partnership secures the high-tech manufacturing base needed to supply those markets.

As the summit wrapped up, the message from both leaders was clear. India and Malaysia are building something different from their traditional relationship, a partnership based on technology sharing and strategic goals aimed at giving both countries larger roles in a world where economic and political power is spreading among more nations.

India is assuring the technological “supply engine” for its “demand engine” in Europe by adhering to the EU market-access agreement with a semiconductor arrangement with Malaysia. Through this integration, India may transition from a service-based economy to a center for high-value manufacturing, reducing the risk to its growth from supply chains in the North and fluctuations in the value of the dollar.

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