On December 16, President Ram Nath Kovind joined the 50th Victory Day celebrations of Bangladesh as the chief guest to signify the importance of our bilateral relations with the strategic neighbour. The robust economic relations are a vital and growing component of India-Bangladesh bilateral ties.
Bangladesh is not only the largest trading partner of India in South Asia but is also one of India’s leading export destinations. However, China’s growing economic prowess coupled with its strategic investments in South Asia has eroded India’s clout in Bangladesh’s external economic profile in the recent past. China is proposing to offer tariff concessions on 97% of imports from Bangladesh. Therefore, if India is to retain its economic presence in Bangladesh, it will have to address the existing issues that impede trade and investment flows, and identify the key areas for mutual cooperation.
India-Bangladesh bilateral trade has witnessed notable growth and almost tripled - from $3.4 billion in 2010 to $9.8 billion - in 2018. During the last decade, India’s trade with Bangladesh witnessed faster growth vis-a-vis the rest of the world. Even during Covid-19 (2020), the bilateral trade showed more resilience — India’s trade with the world contracted by 19.8% while with Bangladesh it declined only by 5.5%. In 2021, trade with Bangladesh grew faster than that with the rest of the world. However, India has always maintained a favourable trade balance with Bangladesh and this has been viewed as an area of concern for the Bangladesh side.
Bangladesh’s share in India’s exports increased from 1.4% in 2010 to 3.5% in 2021. India’s share in Bangladesh goods exports stood at 3.3% and it was the eighth largest export destination. On the other hand, China was ranked as the 15th largest export destination with a share of 1.75% in Bangladesh’s exports. Moreover, China constituted 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 unfavourable trade balance with China compared to India.
Being part of the South Asian Free Trade Area (SAFTA), both India and Bangladesh get preferential treatment in terms of tariff concessions in each other’s market, but there exist several non-tariff barriers (NTBs) that hamper the realisation of the full potential of India-Bangladesh trade relations. The Bangladesh side highlights two specific concerns over its exports to India — first, the new Indian customs rules that stipulate the verification of certificate of origin from Bangladesh, and second, the anti-dumping duty imposed by India on imports of jute products, hydrogen peroxide and fishing nets.
Limited routes
Indian companies also complain about discriminatory treatment with regard to the tenders floated by various ministries and departments of the Bangladesh government. These NTBs along with other issues like limited routes, customs harassment, visa problems etc increase the trade cost and dampen bilateral trade. Infrastructure connectivity through sea routes from China is more efficient than trading on roadsides at Benapole and Petrapole with India.
One of the key areas that could boost trade in a significant manner and requires urgent attention is upgradation of infrastructure at existing land customs stations (LCSs) along with the establishment of new LCS without port restrictions. With rising trade volumes, the bilateral trade basket is getting diversified, which is making it necessary to have harmonisation of standards and mutual recognition of certificates between the two countries. Being an LDC (least developed country), Bangladesh gets market access with zero tariffs in most of the developed economies of the world. Both countries could explore ways to cooperate to strengthen their positions in the global supply chains. Similar opportunities exist in the jute sector as well.
China is capturing the Bangladesh market by flooding it with cheap exports, investing aggressively and extending credit lines for various strategically important projects. Some of the important investments by China in Bangladesh are financing and constructing the Deep Sea Port project (Chittagong and Mongla) and developing generation and distribution lines in the power sector. China has been investing in visible public infrastructures such as friendship bridges, sewage treatment plants, economic zones, expansion of airports, roads and rail links. All these certainly create a positive public perception of China.
Given Bangladesh’s vitality in India’s external relations, India must enhance its economic relations to contain China in Bangladesh. In fact, it is also good for Bangladesh as trade with China is more unfavourable to it and is likely to bring it into China’s debt trap. India must invest in visible public infrastructure and help to Bangladesh without considering the economic gains but to minimise the growing influence of China in the region.
(Sahoo is Professor, Institute of Economic Growth, Delhi; Rai is Fellow, Indian Council for Research on International Economic Relations, Delhi)