India has withdrawn a key transshipment facility for Bangladesh's export cargo, which could have far-reaching effects on the neighbour. Here's a breakdown of the situation and its potential consequences.
The 2020 transshipment facility: What was it?
In June 2020, India allowed Bangladesh to use its Land Customs Stations (LCSs) for transshipment of export cargo destined for third countries including Bhutan, Nepal, and Myanmar. This arrangement was designed to facilitate smoother trade flows and reduce logistical costs for Bangladesh, particularly for its vital readymade garment (RMG) sector. Under this system, cargo could be transported through Indian borders and shipped from Indian ports or airports, which provided a significant advantage for Bangladeshi exporters.
What changed now?
On April 8, 2025, India rescinded the 2020 circular that permitted this transshipment. The CBIC circular effectively cancels the earlier facilitation of Bangladeshi cargo being transported through Indian LCSs for onward shipment to international destinations. But the External Affairs Ministry said this move does “not impact Bangladesh exports to Nepal or Bhutan transiting through Indian territory." This sudden policy change disrupts established trade routes and is expected to raise both shipping costs and delivery times, particularly for goods moving through Indian airports and ports.
Impact on Bangladesh’s trade
The immediate consequence of this policy shift is the disruption of Bangladesh’s exports to third countries. The arrangement had streamlined trade, making it easier and cheaper for Bangladesh to access international markets using Indian infrastructure. The termination of this facility will likely increase costs for Bangladesh’s already strained export sector, especially its booming RMG industry. The suspension could improve the efficiency of logistics, especially at key hubs like New Delhi’s Indira Gandhi International Airport, which handles a large portion of Bangladesh’s air cargo.
What are Bangladesh’s main exports?
In 2024, Bangladesh's exports reached a milestone of $50 billion, with a strong annual growth of 8.3%. The RMG sector, which forms the backbone of the country’s economy, saw substantial growth. Additionally, exports of leather and leather goods rose 10.44% to $577.29 million, while cotton and cotton product exports surged by 16.32% to $319.06 million. This growth underscores the importance of maintaining efficient and cost-effective trade routes for Bangladesh's export sector.
Any political underpinning?
One of the potential reasons for India’s withdrawal of the transshipment facility could be Bangladesh’s increasing engagement with China and the recent comments of Bangladesh interim adviser that Muhammad Yunus, during his recent visit to China. He described India's northeastern states as a “landlocked region with no access to the ocean” and portrayed Bangladesh as the “only guardian of the ocean in the region,” suggesting this as an opportunity for China to extend its economic influence.
Bangladesh has been seeking Chinese investment in strategic infrastructure, including revitalising an airbase in Lalmonirhat, near the critical Siliguri Corridor (often referred to as the Chicken's Neck). This region is strategically important for India, as it is the narrow land link connecting the northeastern states with the rest of the country.
Any domestic pressure behind the decision?
The decision to revoke the transshipment facility has been backed by the Apparel Export Promotion Council (AEPC) of India, which has been lobbying for its removal. India and Bangladesh are direct competitors in the global textile market, and AEPC argues that eliminating this facility will reduce congestion at Indian airports, benefiting Indian exporters. Rising logistical costs, especially air freight rates, have added urgency to this push. For example, air freight rates for shipments to the U.S. and Europe have surged dramatically, further exacerbating the strain on India’s infrastructure.
Broader implications
India’s revocation of the transshipment facility is a significant shift in bilateral relations with Bangladesh and could have broad implications for regional trade. While it addresses domestic concerns regarding logistics and competition, it also introduces new tensions, particularly given the strategic context surrounding Bangladesh’s increasing ties with China.