Need for a new impetus in relations with Bangladesh
On December 16, President Ram Nath Kovind joined Bangladesh’s 50th VE Day celebrations as a chief guest to signify the importance of our bilateral relations with the strategic neighbor. Strong economic relations are an essential and growing component of bilateral relations between India and Bangladesh.
Bangladesh is not only India’s largest trading partner in South Asia, but also one of India’s major export destinations. However, China’s growing economic prowess, coupled with its strategic investments in South Asia, have recently eroded India’s weight in Bangladesh’s external economic profile. China proposes to offer tariff concessions on 97% of imports from Bangladesh. Therefore, if India is to retain its economic presence in Bangladesh, it will need to address the existing issues that hamper trade and investment flows, and identify key areas for mutual cooperation.
Bilateral trade between India and Bangladesh has witnessed notable growth and almost tripled – from $3.4 billion in 2010 to $9.8 billion – in 2018. Over the past decade, trade of India with Bangladesh has grown faster compared to the rest of the world. Even during Covid-19 (2020), bilateral trade showed more resilience – India’s trade with the world contracted by 19.8% while with Bangladesh it only fell by 5.5%. In 2021, trade with Bangladesh grew faster than trade with the rest of the world. However, India has always maintained a favorable trade balance with Bangladesh and this has been seen as a matter of concern for the Bangladeshi side.
Bangladesh’s share in India’s exports increased from 1.4% in 2010 to 3.5% in 2021. India’s share in Bangladesh’s merchandise exports stood at 3.3% and it was the eighth export destination. On the other hand, China was ranked 15th among export destinations with a 1.75% share in Bangladesh’s exports. Additionally, China accounted for about 30% of global exports to Bangladesh and was the top exporter to Bangladesh in 2020, followed by India with 16% share. Overall, Bangladesh has a more severe unfavorable trade balance with China than with India.
Being part of the South Asian Free Trade Area (SAFTA), India and Bangladesh enjoy preferential treatment in terms of tariff concessions in each other’s market, but there are several non-tariff barriers (NTBs) ) which hinder the realization of the full potential of India-Bangladesh trade relations. The Bangladeshi side highlights two specific concerns regarding its exports to India — firstly, India’s new customs rules which stipulate the verification of Bangladesh’s certificate of origin, and secondly, the anti-dumping duty imposed by India on imports of products jute, hydrogen peroxide and fishing nets.
Indian companies also complain of discriminatory treatment in tenders issued by various ministries and departments of the Government of Bangladesh. These non-tariff barriers, along with other issues such as limited routes, customs harassment, visa issues, etc., increase the cost of trade and hinder bilateral trade. Infrastructure connectivity via sea routes from China is more efficient than roadside trade in Benapole and Petrapole with India.
One of the key areas that could significantly boost trade and which requires urgent attention is the upgrading of infrastructure at existing Land Customs Stations (LCS) as well as the establishment of new LCS without port restrictions. With the increase in trade volumes, the bilateral trade basket is diversifying, which makes it necessary to harmonize standards and mutual recognition of certificates between the two countries. As a LDC (Least Developed Country), Bangladesh gets duty-free market access to most developed economies in the world. The two countries could explore ways to cooperate to strengthen their positions in global supply chains. Similar opportunities also exist in the jute sector.
China is capturing the Bangladeshi market by flooding it with cheap exports, investing aggressively and extending lines of credit for various strategically important projects. Some of China’s significant investments in Bangladesh are the financing and construction of the Deep Sea Port project (Chittagong and Mongla) and the development of generation and distribution lines in the electricity sector. China has invested in visible public infrastructure such as Friendship Bridges, sewage treatment plants, economic zones, expansion of airports, roads and rail links. All this certainly creates a positive public perception of China.
Considering the vitality of Bangladesh in India’s external relations, India needs to strengthen its economic relations to contain China in Bangladesh. In fact, it is also good for Bangladesh because trade with China is more unfavorable to it and risks making it fall into the Chinese debt trap. India should invest in visible public infrastructure and help Bangladesh regardless of economic gains but to minimize China’s growing influence in the region.
(Sahoo is a professor at the Institute of Economic Growth, Delhi; Rai is a Fellow of the Indian Research Council on International Economic Relations, Delhi)