What Happened
- PM Modi and Malaysian PM Anwar Ibrahim held extensive bilateral talks in Kuala Lumpur on Day 1 of Modi's official visit (7 February 2026), covering the full spectrum of bilateral relations.
- Both leaders witnessed the exchange of 11 Memoranda of Understanding (MoUs) and agreements covering semiconductors, digital payments, defence, energy, anti-corruption, disaster management, healthcare, vocational education, and audio-visual co-production.
- A landmark agreement was announced to promote the use of Indian Rupee and Malaysian Ringgit in bilateral trade settlement, reducing dependence on the US dollar.
- Both leaders agreed to deepen cooperation in the semiconductor value chain, pairing Malaysia's back-end manufacturing expertise with India's front-end design capabilities.
- Malaysia welcomed India's BRICS 2026 chairmanship and expressed support for India's push for UN Security Council reforms.
- Modi described India as a "trusted partner for growth," emphasising economic complementarity between the two nations.
Static Topic Bridges
Local Currency Settlement in International Trade
Local currency settlement (LCS) allows two countries to conduct bilateral trade using their own currencies rather than a third-country currency (typically the US dollar). This reduces transaction costs, minimises exchange rate risks, and lowers dependence on the dollar-dominated global financial system. India has signed local currency settlement arrangements with several countries, including the UAE (Rupee-Dirham), and is exploring similar mechanisms with Russia, Indonesia, and now Malaysia. The Reserve Bank of India (RBI) introduced a framework for international trade settlement in Indian Rupees in July 2022 through Special Vostro Rupee Accounts (SVRAs).
- RBI's Rupee trade settlement framework: Launched July 2022 via SVRAs
- India-UAE: Rupee-Dirham trade settlement implemented under CEPA
- India-Russia: Rupee settlement for oil purchases explored since 2022
- India-Malaysia: Ringgit-Rupee trade settlement agreement announced February 2026
- Reserve Bank of India and Bank Negara Malaysia to facilitate the framework
- Purpose: Lower transaction costs, reduce dollar dependence, deepen bilateral economic integration
Connection to this news: The Rupee-Ringgit settlement mechanism represents a practical step toward de-dollarisation in Asian trade, building on India's broader strategy to internationalise the Rupee through bilateral currency arrangements.
India-Malaysia Semiconductor Cooperation
The semiconductor agreement signed during Modi's visit establishes a value chain integration between Malaysia's mature back-end ecosystem (assembly, testing, and packaging — Malaysia handles approximately 13% of global chip testing and packaging) and India's growing front-end capabilities in chip design. A partnership between IIT Madras Global and the Advanced Semiconductor Academy of Malaysia focuses on workforce development and technical innovation. The Indian Electronics and Semiconductor Association (IESA) and Malaysia Semiconductor Industry Association (MSIA) are also collaborating on industry linkages.
- Malaysia: Handles ~13% of global semiconductor testing and packaging
- India: Emerging front-end chip design hub; India Semiconductor Mission launched 2021 with $10 billion outlay
- IIT Madras Global and Advanced Semiconductor Academy of Malaysia: Joint workforce development
- IESA-MSIA industry partnership for supply chain integration
- India's semiconductor incentive schemes: Modified Programme for Semiconductors and Display Fab Ecosystem
- Global semiconductor market: ~$600 billion (2024), projected to reach $1 trillion by 2030
Connection to this news: The semiconductor cooperation creates a potential "Silicon Shield" diversifying global chip supply chains away from concentration in Taiwan and South Korea, while positioning both India and Malaysia in the semiconductor value chain.
India-Malaysia Defence Cooperation
Defence ties between India and Malaysia have evolved from basic military exchanges to sophisticated operational cooperation. Both countries operate variants of the Sukhoi Su-30 fighter aircraft (India: Su-30MKI; Malaysia: Su-30MKM), forming the basis of the Su-30 Forum for technical cooperation and joint maintenance. The Strategic Affairs Working Group (SAWG) coordinates on security matters. Defence cooperation covers joint exercises, maritime security in the Malacca Strait and Indian Ocean, counterterrorism, and military training. The 11 MoUs from the February 2026 visit include provisions for expanded defence and national security cooperation.
- Su-30 Forum: Joint technical cooperation for Su-30 aircraft variants
- SAWG: Strategic Affairs Working Group for bilateral security coordination
- Joint exercises: HARIMAU SHAKTI (Army), bilateral naval exercises
- Malacca Strait: One of the world's busiest shipping lanes; ~80,000 vessels annually
- India's MILAN multilateral naval exercise: Malaysia participates as a regular partner
- Defence cooperation MoU: Updated during the February 2026 visit
Connection to this news: The expanded defence agreements during Modi's visit elevate the military relationship from interoperability to strategic partnership, reflecting shared concerns about maritime security in the Indo-Pacific.
Key Facts & Data
- 11 MoUs/agreements signed during PM Modi's Malaysia visit (7-8 February 2026)
- Sectors covered: Semiconductors, digital payments, defence, energy, anti-corruption, disaster management, healthcare, TVET, audio-visual co-production
- Rupee-Ringgit trade settlement: Agreed by RBI and Bank Negara Malaysia
- Malaysia handles ~13% of global semiconductor testing and packaging
- India Semiconductor Mission: Launched 2021 with $10 billion outlay
- India-Malaysia bilateral trade (FY2024-25): $19.86 billion
- Both countries operate Su-30 variants (India: Su-30MKI; Malaysia: Su-30MKM)
- Malaysia supports India's BRICS 2026 chairmanship and UNSC reform push