Bangladesh Prime Minister Sheikh Hasina resigned and fled from the country on August 5 in the wake of student-led violent job quota reform protests.
During Sheikh Hasina's tenure, trade relations between India and Bangladesh experienced a significant boost, resulting in a notable trade surplus for India.
Her departure could potentially disrupt these gains, impacting the flow of goods and people and potentially delaying the progress of a proposed free trade agreement (FTA) between the two countries, reports India's Financial Express (FF) newspaper.
The trade relationship between the two countries spans various sectors including trade, medical tourism, and corporate expansion.
Bangladesh plays a significant role in the global garment industry and imports cotton from India. In the fiscal year 2023-24, India's exports to Bangladesh fell to $11 billion from $12.21 billion in 2022-23. Similarly, imports from Bangladesh decreased to $1.84 billion in the last fiscal year, down from $2 billion in the previous year.
India's major exports include vegetables, coffee, tea, spices, sugar, confectionery, refined petroleum oil, chemicals, cotton, iron and steel, and vehicles, while its main imports consist of fish, plastic, leather, and apparel.
According to the Global Trade Research Initiative (GTRI), India's exports to Bangladesh are diverse, encompassing agriculture, textiles, machinery, electronics, auto parts, iron and steel, electricity, and plastics.
Amid the political turmoil, India's diversified export portfolio means that any disruptions in trade with Bangladesh are unlikely to significantly affect its overall trade position for the fiscal year, according to S&P Global Ratings.
Andrew Wood, Director of Sovereign and International Public Finance Ratings (Asia-Pacific) at S&P Global Ratings, stated that S&P anticipates weak domestic demand in Bangladesh will reduce support for imports, including those from India.
"India is a well diversified exporter to the entire world and its trade profile is significantly larger than bilateral trade relationships with economies like Bangladesh.
"Whatever the impact is going to be on directly is really quite unlikely to have a meaningful impact on its overall trade position for the fiscal year… its external position is quite strong in the country and is a net creditor to the world by our calculation," Wood said in a webinar, as quoted by PTI.
On the same note, Suman Chowdhury, Chief Economist and Head-Research, Acuité Ratings & Research, said that the crisis in Bangladesh would have very little impact on overall trade volumes.
"While Bangladesh is an important trade partner for India, the impact of the severe political crisis there will have a very limited impact on India's overall trade volumes. The exports to Bangladesh account for only 2.5% of India's total merchandise exports.
"Indian manufacturing and infrastructure companies having business or project operations or supply linkages therein are likely to witness some disruption and uncertainty in the near term. Importantly, the current scenario may lead to deferment or slowdown of fresh investments by Indian companies in the neighbouring country pending the establishment of a stable government. The proposed FTA with Bangladesh will also be put on the backburner under the current circumstances," it said.
Meanwhile, Indian exporters indicated on Tuesday that the political crisis in Bangladesh could result in a short-term shift of garment orders to India. However, they emphasised that India has no desire to take advantage of the situation in its neighboring country.
Mithileshwar Thakur, Secretary General of the Apparel Export Promotion Council (AEPC), expressed hope for a swift stabilization of the situation to allow normal business activities to resume, emphasizing that India has no intention of taking advantage of the crisis.
He noted that while the Indian garment industry strives to grow its exports independently, a temporary shift of orders to India might occur due to the current disruption.
Notably, infrastructure and connectivity projects have been crucial in bolstering Indo-Bangladesh relations. Since 2016, India has provided $8 billion in credit for the development of road, rail, shipping, and port infrastructure in Bangladesh. Key projects include the Akhaura-Agartala rail link and the Khulna-Mongla Port rail line, both inaugurated in November 2023, which aim to boost trade and strengthen people-to-people ties.
Disruptions in these connections, due to the ongoing political chaos, could hinder India's access to its Northeast region, which relies on narrow land corridors, and jeopardise existing bus routes and agreements for Chittagong and Mongla ports.
Further, several Indian companies also have strong business ties to Bangladesh, including Tata Group, VIP Industries, Marico, Adani Power, Emami, among others. —Financial Express (India)
