By Joseph Sipalan and Mei Mei Chu
KUALA LUMPUR (Reuters) - Malaysia does not want to escalate a palm oil spat with India by talking of any retaliation for now, two government sources said on Thursday, after the prime minister's media adviser called for tighter regulations on Indian expatriates and products.
Muslim-majority Malaysia is instead betting on diplomacy to quell India's anger at Prime Minister Mahathir Mohamad speaking out against two recent Indian domestic policies, which critics say discriminate against Muslims in the mainly Hindu country.
India, the world's biggest buyer of edible oils, last week set restrictions on imports of refined palm oil and informally asked traders to stop importing all kinds of palm oil from Malaysia. Sources said the moves were in retaliation for Mahathir's criticism of India stripping the autonomy of Muslim-majority Kashmir and a new religion-based citizenship law.
The moves are expected to hurt Malaysia badly as it is the world's second biggest producer and exporter of palm oil after Indonesia, and India has been its biggest market for five years.
India's Commerce Minister Piyush Goyal on Thursday said New Delhi had not imposed any curbs on imports from Malaysia, and that the government was not contemplating any restrictions. However, he added without elaborating that if India did impose curbs, they would apply to all countries uniformly.
One of the sources - both declined to be named as they were not authorised to talk to the media - said that Malaysia's palm oil minister briefly told cabinet colleagues on Wednesday that her efforts to resolve the issue would revolve around engagements with Indian industry and government officials.
"It must be discussed separately from the political issues," said the official, emphasising that Malaysia was treating it mainly as a trade issue and not as retaliation.
Malaysia’s exports to India were worth $10.8 billion (£8.3 billion) in the fiscal year that ended on March 31, while imports totalled $6.4 billion.
Asked if Malaysia would try to placate India by offering to buy more products from that country, Primary Industries Minister Teresa Kok, in charge of the palm ministry, told Reuters: "All palm oil buyers want us to buy more products from their countries. We will always encourage our local companies to do so."
India is the 7th biggest market for all Malaysian exports, while Malaysia is the 17th largest import destination for India.
A. Kadir Jasin, Mahathir's media adviser, said in a Facebook post on Tuesday that Malaysia should respond in kind to India by tightening regulations on Indian expatriates and workers, as well as Indian products imported by Malaysia.
"If India, or for that matter other countries, want to boycott our products as a form of retaliation, we should also reconsider our stance towards them," he said.
There were a total of 117,733 Indian nationals registered as foreign labour in Malaysia as at June 2019, accounting for nearly 6% of the total foreign workforce in the country.
But Malaysia is unlikely to escalate the matter unless Modi's Hindu nationalist government broadens its trade restrictions to other products, the second source said.
"In my experience, Modi nationalism can be tempered with pragmatism," the source said.
(Additional reporting by Liz Lee, Editing by William Maclean)