India, Bangladesh Unshackle Trade Barriers, But More Needed – Analysis


By Rupak Bhattacharjee*

Trade and economic cooperation between India and Bangladesh has been steadily growing over the years, especially after the Awami League’s (AL) assumption of power in 2009. The political leaders of the two nations appear committed to deepen and broaden bilateral economic and commercial engagement for the benefit of their people. Emphasising on further strengthening trade relations with New Delhi, Prime Minister Sheikh Hasina during her brief interaction with Indian counterpart Narendra Modi on August 19 said both the nations will achieve “great things” if their large economies could be tapped.

Under its “Act East” policy, the National Democratic Alliance (NDA) government wants to forge strong partnership with India’s eastern neighbours, including Bangladesh. Such a policy thrust of the NDA government was received well in Dhaka. The AL government has urged greater Indian participation in Bangladesh’s economic development. The bilateral economic relations got fresh impetus during Modi’s landmark visit to Dhaka in June. The signing of several bilateral agreements related to infrastructure development, connectivity, power and energy cooperation will open the floodgates of trade opportunities and boost investment in the region.

Bangladesh’s power sector, which has been facing numerous challenges, is a big gainer from the recent bilateral summit. Responding to Dhaka’s persistent demand, New Delhi decided to provide 600 MW of power in the next two years by constructing an additional grid interconnection in the western region of Bangladesh. India is assisting the country to build a 1,320 MW coal-based power plant at Rampal in Bagerhat. New Delhi has also agreed to facilitate Bangladesh’s import of power from Nepal and Bhutan.

India could play a key role in achieving the country’s goal of generating 24,000 MW electricity by 2021. Bangladesh, which now generates about 7,500 MW of electricity, has been looking for foreign investment to meet its ever-increasing demand for power. Encouraged by this, some leading Indian companies have come forward to engage in long-term power business with Bangladesh. On June 6, Power Development Board of Bangladesh inked two memoranda of understanding (MoUs) worth $5.5 billion with Adani Power Limited and Reliance Group to build 4,600 MW power plants in the country. These deals are set to be hugely beneficial for power-starved Bangladesh.

The two sides also made considerable progress in the area of fuel supply. New Delhi accepted Dhaka’s long-standing demand for providing diesel to Bangladesh. Assam’s Numaligarh Refinery Limited has agreed to export 1 million ton of diesel per year after completion of the Rs.200 crore pipeline project from Siliguri in India to Parbatipur in Bangladesh. This initiative will augur well for Assam’s oil industry, which could not flourish due to chronic insurgency in the northeast. Besides, both sides have decided to broaden bilateral cooperation in new areas of energy, including civil nuclear power.

To assist Bangladesh in its development endeavours, India extended a $2 billion line of credit to the country for infrastructure development, power, health and education projects. Bangladesh stands to gain immensely from this soft loan especially in the infrastructure sector. Ten out of 15 projects identified for using the fund are related to the up-gradation of roads, rail and ports in Bangladesh. Once these projects become fully operational, Bangladesh is poised to emerge as a hub of trade, transit and connectivity between South and Southeast Asia.

The projects envisaged under the loan will be beneficial for India too. Reports suggest that they are likely to create 50,000 jobs in India and add a fillip to the NDA government’s “Make in India” initiative. Implementations of the projects are going to revitalise the manufacturing sector, particularly steel and cement. Under the agreement, India will export most of the ingredients of the projects.

To augment commercial ties between India and Bangladesh, a trade agreement was signed and a protocol under it — Protocol on Inland Water Transit and Trade, was renewed. Bangladesh has emerged as India’s largest trading partner among the SAARC (South Asian Association for Regional Cooperation) nations in recent years. Reports say the Indian investment in Bangladesh stood at $2.5 billion in fiscal year 2012-13. In 2013-14, Bangladesh imported goods worth $6.03 billion. In the previous FY, Bangladesh’s imports were worth $4.78 billion while it exported goods worth $456.63 million in 20113-14 and $563.97 million in 2012-13.

The sudden fall in Bangladesh’s exports to India was caused by political turmoil and repeated transport blockades enforced by the Bangladesh Nationalist Party-led opposition alliance. Political stability is crucial for the expansion of Bangladesh’s exports. The Confederation of Indian Industry (CII) believes that bilateral trade can reach $10 billion by 2018.

However, the trade deficit has been widening over the years despite India allowing Bangladesh duty-free and quota-free access to its market for all but 25 items. One of the key factors attributed to the rising trade imbalance is Bangladesh’s greater import of basic commodities from its bigger neighbour. During Modi’s visit, both sides explored the possibilities of initiating corrective measures to arrest the trade imbalance, and the Indian prime minister assured Bangladesh of his government’s cooperation in this regard.

In their bid to contain the widening gap, the two sides inked an agreement to establish Special Economic Zones (SEZs) for India in Bangladesh’s Mongla and Bheramara. The AL government has offered land for setting up SEZs. Reports indicate that at least 10 Indian firms have shown interest to build industries in Bangladesh. This initiative will raise Indian investment in Bangladesh substantially. In addition to generating local employment, the setting up of such manufacturing units in Bangladesh could increase Dhaka’s exports to third countries.

The two countries also signed a coastal shipping agreement to make transportation of goods faster and cheaper. The deal will not only improve utilisation of port capabilities but also increase volume of trade between the two countries. To tap marine resources, both the countries inked a MoU on Blue Economy and maritime cooperation in the Bay of Bengal and Indian Ocean.

Moreover, to make trade easier and smoother, and enhance cooperation in standardisation, a MoU was signed between Bangladesh Standard and Testing Institution and the Bureau of Indian Standards. This deal addresses the concerns of Bangladeshi business leaders who identified several impediments, including testing and certification, packaging and leveling issues that stood in the way of expanding business with India. This is indeed a positive development and will add new momentum to India-Bangladesh commercial ties.

The business and industry leaders of both countries have been meeting regularly in the last few years to explore ways of increasing bilateral trade. There is a growing realisation that expansion of bilateral trade will create a win-win situation for both nations. It is imperative that the two sides open new land custom stations and make efforts to remove non-tariff barriers, and extend banking cooperation to boost bilateral trade and economic cooperation.

There is enormous scope for expansion of commercial ties between the two South Asian neighbours. The entrepreneurs of India and Bangladesh should further explore the avenues of increasing bilateral trade and investment for mutual benefit. The signing of the Bangladesh Bhutan India and Nepal (BBIN) Motor Vehicle Agreement in June this year has unfolded vast opportunities for the private sector like never before.

The AL government’s decision to allow India’s landlocked and economically isolated northeastern states to use Bangladesh’s Chittagong, Mongla and Ashuganj ports for transportation of goods has been a major breakthrough. Now New Delhi must expedite the process of infrastructure building and up-gradation of transport networks in the border regions to realise economic integration among South Asian countries.

*Dr. Rupak Bhattacharjee is an independent political analyst. He can be reached at [email protected]

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