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Changing Dynamics of Indo-Bangladesh Economic Relations

By Dr. Anand Kumar

The political relationship between India and Bangladesh may not be very
encouraging, but the economic relationship recently has improved in favour of
Bangladesh. For a long time India’s eastern neighbour has been complaining
about the growing imbalance in trade. However, the latest data released by
Bangladesh have indicated that there has been a significant change in this
There has been a massive increase in the exports of Bangladesh to India. It has
risen by 68 percent, amounting to $241.96 million in fiscal 2005-06. In the
preceding year, they stood at $143.66 million only. This increase in exports has
largely been to northeastern states. On the other hand, according to the statistics
provided by Export Promotion Bureau (EPB) of Bangladesh imports from India
have dropped by around 8 percent, totaling $1,868 million in the last financial
year from $2,025.78 million in FY 2004-05. As a result of this rise in exports and
decline in imports the trade deficit of Bangladesh with India narrowed by around
14 percent in the last financial year.
The trade deficit of Bangladesh with India had ballooned to a record $2,003
million in 2003-04. However, it came down to $1,882 million in the following year
and $1,626 million in FY 05-06.
According to vice-chairman of Export Promotion Bureau (EPB), Mir Sahabuddin
Mohammad exports to the northeastern states of India have increased
substantially in the last financial year. This rise is because of change of policy of
government of India which has facilitated the work of businessmen. Earlier the
banks in the northeastern India could not open letters of credit (L/Cs) for imports
from Bangladesh, discouraging potential importers. But now they can open L/Cs,
which has facilitated the trade between the two countries. Though Bangladesh
has a trade deficit with India, it is surplus with the northeastern states.
Bangladesh has also made sustained effort to increase its exports to India. EPB
had organised several exhibitions in India and received a good response from
the Indian importers and buyers. Bangladeshi officials say that there are
demands for Bangladeshi products including toiletries, cosmetics, melamine, fish,
leather and ceramics in these Indian states.
Despite this jump in exports, Bangladeshi exporters are still complaining that
some non-tariff barriers like mandatory testing required by India, inadequate
banking facilities and poor infrastructure at the land ports are hindering
Bangladesh's export growth to India. They also claim that India deliberately tries
to stall import from Bangladesh, as its land customs officials are not informed
about the preferential market access given to Dhaka by New Delhi.
Bangladesh has earlier not been able to export to India because it had a very
small export basket. Besides, its products were not very competitive
internationally. As a result they have not been able to penetrate into Indian
economy that is increasingly getting globalised.
Still, India has been trying to help Bangladesh and is willing to relax restrictions
for Bangladesh even in the area of restricted categories like readymade
garments for which Bangladesh has been insisting.
Problem of Infrastructure
The trade between India and Bangladesh also suffers because of poor
infrastructural facilities. The reason behind this under development of
infrastructure has been the reluctance of Bangladesh to provide trans-shipment
facilities to India. This has discouraged both sides from constructing proper road
and rails links.
The infrastructural bottleneck was also highlighted by the multilateral donor
agency World Bank. The donor agency feels that an inter-country railway link
between Bangladesh and India would accelerate economic growth of the two
countries. Speaking at a press conference in Dhaka on July 3, 2006 World Bank
Country Director Christine I Wallich said, "When I first came to Bangladesh, I had
visited some border areas and found the possibility of such a railway linkage."
The issue of infrastructure was also raised by Indian High Commissioner Veena
Sikri when Bangladesh Commerce Minister Hafiz Uddin Ahmad tried to highlight
the issue of trade gap while inaugurating the Indian Cotton Yarn and Fabric
Show 2006 at a hotel in Dhaka on July 9. Sikri suggested that Bangladesh
develop its Mangla port and link it with Haldia port in West Bengal to accelerate
trade and reduce the trade gap between the two countries. She stressed the
need for increased direct transport links with Bangladesh, which in turn has
invited India to invest more in its fabric and yarn sector. Noting that Bangladesh
remained India's third largest export destination for fabric and the second largest
for yarn, Sikri said that increase in trade and the bridging of the deficit would
depend on how fast Bangladesh improved its infrastructure.
The issue of infrastructural bottleneck was discussed at the fourth meeting of the
Indo-Bangladesh Joint Working Group (JWG) on trade which was held in
Agartala on July 5 and 6 this year. MVPC Sastri, joint secretary in the commerce
ministry, headed the Indian delegation while additional secretary in the
commerce ministry Elias Ahmed led the Bangladesh team. Senior officials of the
commerce and industries departments of the five bordering states - West Bengal,
Assam, Meghalaya, Mizoram and Tripura - also participated in the meeting,
being held in the northeastern state for the first time.
In this meeting India and Bangladesh have decided to modernise and upgrade
existing infrastructure, including roads, to boost their bilateral trade. After the
meeting Sastry said, 'We have decided to modernise and upgrade our existing
infrastructure including road connectivity to further boost the trade between the
two countries - especially between the northeastern states of India and
In this meeting once again the issue of huge bilateral trade gap existing between
the two nations was discussed. Sastry, who led the 16-member Indian team said,
'The northeastern states of India have huge resources and raw materials and
these can be exported to Bangladesh. After due processing, the finished
products can be made available to the people of the region at much cheaper
It was also decided that the custom officials of both the countries will soon meet
and review the performance of 176 land custom stations in the five states along
the India-Bangladesh border. Some of the stations will be further strengthened
and some of them will be redeployed. Earlier, India had allocated Rs.2 billion for
the development of five trade centres at Sutarkandhi and Karimganj in Assam,
Demagiri in Mizoram, Dawki in Meghalaya and Moreh in Manipur.
Recently Tripura Chief Minister Manik Sarakar also highlighted that business in
India's northeast would get a major boost if the region is allowed to use
Bangladeshi ports for speedier transportation of goods. Speaking to media on
September 14 he said, "Business between India's northeast and Southeast Asia
would grow if we are allowed to use the Bangladeshi ports of Chittagong and
Ashuganj for ferrying goods and other raw materials." Chittagong port is just 75
km from south Tripura's border town of Sabroom, while the Ashuganj port is 25
km from state capital Agartala. It is believed that Bangladesh would benefit
immensely if India was allowed to access its ports. According to Sarkar the
northeastern market is estimated to be about Rs.200 billion and this could help
Bangladesh ease its trade deficit with India.
Unfortunately, an attitude of cooperation has not been seen from the side of
Bangladesh. The country has negative trade balance with most countries and
uses remittances from expatriate Bangladeshis to finance its imports. But
Bangladesh appears to be obsessed with the trade gap, which it has with India.
As a result, in recent times the country has been following policies which
discourage import from India. No wonder, the latest data show that the
Bangladesh import from India has declined.
In the past, India has been the largest trading partner of Bangladesh. That is no
longer the situation. Sometime back data released from Bangladesh indicated
that China has replaced India as its largest trading partner. There is no denying
the fact that Chinese economy has been growing and making its presence felt in
the world, the increase in Sino-Bangladesh trade is also because of a conscious
policy followed by both these countries. There is nothing wrong if Bangladesh
tries to increase its trade with China. What is problematic is its attempt to restrict
economic relationship with India, which is showing in the latest data of imports.
Bangladesh thinks that its negative trade balance with India is because of the
tariff and para-tariff barriers, which is not true. Even if India reduces its duties to
0-5 percent which it has agreed to do under SAFTA, a yawning trade gap would
remain. Bangladesh must realize that if it wants to reduce this gap it would have
to come up with more products of quality which are internationally competitive.
India knows the limitation of Bangladesh. Hence to help the country on this
count, India’s leading business house, Tata group suggested a three billion dollar
investment proposal. Had this proposal been accepted by Bangladesh it would
have drastically changed the complexion of bilateral trade. Unfortunately
Bangladesh does not want to take any policy decision which is viewed as pro-
India in an election year. Though sound economics demanded this, political
considerations are keeping the proposal in abeyance.
There is almost no hope that the Bangladesh government would approve a $3-
billion investment by the Tata group before the formation of next government.
Alan Rosling, executive director of Tata Sons said, "If we can't make progress,
we will cut back our commitments in these projects and reallocate our
resources." He also felt that the priority for the group might change in next six
months. Hence the opportunity for Bangladesh is now.
Officials in Bangladesh are however, hopeful that the Tata group would stay on
course until after the polls. Mahmudur Rahman, energy adviser to the
Bangladesh government is optimistic that Tata will eventually show their patience
for six more months after doing “all the hard work covering nearly two years."
The investment by the Tata group would have exceeded all the foreign
investment Bangladesh has received since 1972. It could have boosted
Bangladesh's GDP by 1.9 percent annually, and benefit its balance of payments
by as much as $18 billion, besides creating jobs for 24,000 people. The coal
project could have added to the energy supply of Bangladesh, where just 30
percent of its 140 million people have access to electricity.
A pullout by the Tatas would be a further setback to the country's creaky power
infrastructure and its ability to attract critical foreign investment. A section in both
India and Bangladesh believes that the proposal of Tatas might become a reality
after the next government is formed in Bangladesh. But if that does not happen, it
would seriously hurt the economic interests of Bangladesh.
The huge trade gap existing between India and Bangladesh has more to do with
the differing nature of economies of both countries. It is not because of any
hostile or restrictive policy followed by India. Bangladesh is dependent on India
even for the import of its essentials. When India restricted export of these items
because of growing domestic demand, prices of these commodities shot up in
Bangladesh. Besides, India is exporting a number of other items. On the other
hand, Bangladesh has very few items to offer. Hence a huge trade gap is bound
to exist. Bangladesh could have bridged this gap by providing trans-shipment
facility to India. Unfortunately, the country does not want to do that as any policy
which is pro-India is perceived as anti-national by many in Bangladesh. India has
also tried to encourage investment in Bangladesh so that the number of products
exported from that country can be increased. But even in that case, Bangladesh
has shown little interest. The recent increase in Bangladeshi export to
northeastern India is because of favourable policy followed by this country. India
wants to deepen the economic relationship between Bangladesh and
northeastern India which will be beneficial for both of them. A lot will depend on
the attitude of the government formed after the next elections in Bangladesh.