Malaysian Prime Minister Mahathir Mohamad on Sunday warned that a trade war with India will spell losses for both countries as he responded to New Delhi's reported threat of trade sanctions against the Southeast Asian nation over the Malaysian leader's criticism of Indian action in Kashmir.

"We will study the impact of the action taken by India. They are exporting goods to Malaysia too. It's not just one-way trade, it's two-way trade," Malaysian state news agency Bernama quoted Mahathir as telling reporters in his parliamentary constituency Langkawi after attending a briefing on the development of the archipelago.

Stating that his government is monitoring the situation, Mahathir reiterated that Malaysia and India must avoid making the issue a cause for a trade war.

Earlier on Friday, Reuters news agency in an exclusive report claimed that India is considering curbs on imports of Malaysian produce, including palm oil, to express its strong displeasure over Mahathir's criticism of New Delhi's recent actions in Kashmir.

Addressing the United Nations General Assembly last month, Mahathir had rebuked India for "invading and occupying" Jammu and Kashmir and urged New Delhi to work with Pakistan to resolve the issue.

Muslim-majority Kashmir has been at the center of a dispute between India and Pakistan, both of which control a part of the region and have gone to war twice over the territory. India revoked the special constitutional status of its portion of Kashmir in August, angering Pakistan and drawing sharp criticism from China, Malaysia and Turkey at the United Nations.

Read also: China, Pakistan slam India's move to change Kashmir status

India, the world's biggest importer of edible oils, is planning to substitute Malaysian palm oil with supplies of edible oils from countries such as Indonesia, Argentina and Ukraine, Reuters reported citing unnamed Indian government and industry sources.

Palm oil accounts for nearly two-thirds of India's total edible oil imports. India buys more than 9 million tons of palm oil annually, mainly from Indonesia and Malaysia.

Trade deficit

In the first nine months of 2019, India was the biggest buyer of Malaysian palm oil, taking 3.9 million tons, according to data compiled by the Malaysian Palm Oil Board. Bernama reported however that India is the second-largest buyer of Malaysia's palm oil, importing approximately 150,000 tonnes monthly.

On Friday the Malaysian Prime Minister said he had not received any official communication from India on the matter. "That is only reported, but we have not received anything official," he said. 

Last month Malaysia's Minister of Primary Industries Teresa Kok announced his government is planning to step up imports from India in an effort to help reduce New Delhi's trade deficit with Kuala Lumpur.

"Malaysia is in touch with India's various ministries to identify the commodities that Kuala Lumpur can import,"  Kok was quoted by Reuters in a report dated September 27.

Malaysia's key imports from India include petroleum products, live animals and meats, metals, chemicals and chemical products.

Malaysia's exports to India stood at 10.8 billion U.S. dollars in the 2018-19 fiscal year, and imports from New Delhi totaled 6.4 billion U.S. dollars, according to India's trade ministry data.

New Delhi hasn't confirmed officially any decision to impose trade curbs against Malaysia but the report has already prompted Malaysian palm oil futures to shed a week of gains last Friday.

The benchmark palm oil contract for December delivery on the Bursa Malaysia Derivatives Exchange, which fell 0.9 percent on Friday to close at 2,185 ringgit (522.48 U.S. dollars) per ton, further tanked by nearly 1.5 percent Monday afternoon, trading at 2,150 ringgit (514.11 U.S. dollars) per ton.