The sudden turn of events have raised concerns about the potential impact on trade, economic stability, and the broader geopolitical dynamics of the region
Since Sheikh Hasina assumed office as the Prime Minister of Bangladesh in 2009, the country has been a key ally of India. Her leadership has seen significant progress in bilateral relations, with a focus on infrastructure, connectivity, and trade. However, the recent political crisis in Bangladesh has raised concerns about the future of this partnership.
On January 8, 2024, Sheikh Hasina declared that boosting the country's economy would be her top priority for the next five years. Yet, by August 2024, the nation was engulfed in violent demonstrations over a quota system for government positions, leading to a deepening domestic political crisis. As tensions escalated, Sheikh Hasina resigned and sought refuge in India, raising concerns about the stability of Bangladesh and its impact on Indo-Bangladesh relations.
The Evolution of Indo-Bangladesh Relations
Over the past decade, India and Bangladesh have fostered strong economic ties, with infrastructure and connectivity projects playing a crucial role in strengthening their relationship. Since 2016, India has extended $8 billion in credit to Bangladesh for the development of road, rail, shipping, and port infrastructure. The two nations have also engaged in various areas of commerce, including medical tourism, business expansion, and the international garment trade. Bangladesh, a major player in the global garment industry, relies heavily on cotton imports from India.
The textile and garment sectors account for 56% of Bangladesh's total exports to India, making it a vital trading partner in South Asia. In the financial year 2023-24, bilateral trade between the two countries reached $13 billion, according to the Union Ministry of Commerce.
The Impact on Trade
Sheikh Hasina's leadership saw a flourishing of commerce between India and Bangladesh, leading to a significant trade surplus for India. However, the ongoing political turmoil in Bangladesh threatens to disrupt this economic partnership. The civil unrest and worsening economic situation have created security concerns that could impact Indian exports, commerce, and infrastructure projects in the neighboring nation.
One of the major challenges will be on the bilateral trade front. After reaching $12.21 billion in 2022–23, India's exports to Bangladesh dropped to $11 billion in 2023–24. Similarly, Bangladesh's imports decreased from $2 billion in the previous year to $1.84 billion in the most recent fiscal year. Indian exporters have voiced concerns about the situation in Bangladesh, fearing that the instability in the country will negatively affect commerce between the two nations.
A significant scarcity of dollars in Bangladesh, as noted by the think tank GTRI, has already curtailed the country's ability to import goods, particularly from India.
Uncertainty Surrounding the Free Trade Agreement
In October 2023, India and Bangladesh discussed the possibility of a free trade agreement (FTA) during a Joint Working Group (JWG) on Trade meeting in Dhaka. An FTA could streamline regulations, encourage investment and commerce, and potentially remove customs tariffs, boosting trade between the two countries. According to a 2012 World Bank working paper, a full-product FTA could enhance Bangladesh's exports to India by 182%, while a partial FTA might grow them by 134%. This would contribute to strengthening Bangladesh's trade transport infrastructure and commerce links, leading to a significant rise in exports. However, the current political crisis has cast doubt on the future of the FTA proposals. Sheikh Hasina's exit might slow or pause this development, affecting the expansion of commerce and trade in new areas between the two nations.
Challenges for the Textile and Garment Industry
The ongoing crisis in Bangladesh could also have a negative impact on other sectors, particularly the textile and garment industry. In the fiscal year 2021-2022, Bangladesh exported garments worth $42.613 billion, solidifying its position as the second-largest apparel exporter globally. However, the recent incidents of factories being set on fire have raised concerns about the future of this industry. Many of these textile units are owned by traders associated with the Awami League Party, making them particularly vulnerable in the current political climate.
While India has the potential to step in and provide garments to developed economies, there are certain drawbacks to this shift. Bangladesh, as a Least Developed Country, benefits from zero-duty advantages, while Indian goods face tariff barriers. If borders remain closed and duty-free export-import activities are suspended, there is a possibility of increased demand for Indian garments. However, it is still too early to make definitive predictions about the opportunities and gains that might arise from this situation.
(The author is a PhD scholar at HBTU, Kanpur; views are personal)
