Let Bangladesh presence grow in Indian market
Bangladesh has highlighted its burgeoning trade deficit with India. It is an area of discord between the two.
Bangladesh Prime Minister Sheikh Hasina’s recent visit to India, and her discussions with Prime Minister Narendra Modi and other leaders, was yet another occasion for the two neighbours to revisit their traditionally close relations and set new markers for enhancing them. The Joint Statement issued at the end of Sheikh Hasina’s visit identified several critical areas of cooperation. Over the past several years, India provided support for infrastructural projects in Bangladesh, particularly in the energy sector, and the two leaders emphasised the need for expeditious implementation. The Modi-Hasina talks also underlined the importance of implementing bilateral and sub-regional rail connectivity projects as well as riverine projects that would ensure better economic integration between the two countries. But perhaps the most important decision taken by the two leaders was to deepen trade and economic cooperation by putting in place a Comprehensive Economic Partnership Agreement (CEPA), the negotiations for which would begin before the end of 2022.
There are several reasons why India must ensure that the CEPA must be concluded expeditiously. The first is that as a least developed country (LDC), Bangladesh is currently benefiting from India’s ‘Duty Free Tariff Preference’ (DFTP) Scheme, which was introduced in 2008. Following the decision adopted at the Sixth Ministerial Conference of the World Trade Organization that “developed-country Members, and developing-country Members declaring themselves in a position to do so” would “provide duty-free and quota-free market access on a lasting basis for all products originating from all LDCs by 2008”, India became the first developing country to extend this facility to the LDCs. At present, the DFTP Scheme extends duty-free access to 98.2% of India’s total tariff lines (products).
All this could change for Bangladesh in November 2026 as it would complete its graduation from an LDC. This implies that Bangladesh will cease to be a beneficiary of the DFTP scheme in just over four years. Therefore, India needs to act promptly to seal a bilateral CEPA through which the benefits that Bangladesh currently enjoys can not only be continued, but India could also top up the benefits by giving market access in the services sector as well.
A second and important reason for which India needs to act promptly is because of Bangladesh’s ambition to enter into negotiations with the members of the Regional Comprehensive Economic Partnership (RCEP). An inter-ministerial meeting held in July 2022 agreed that the “country will join the RCEP … if an opportunity is created after negotiations”. Bangladesh is clearly seeking to partner with RCEP member states to expand its footprint in East Asia, something that it has not been able to do in India.
India’s imports from Bangladesh have been abysmally low, expanding from just over $1 billion in 2018–19 to below $2 billion in 2021–22. In contrast, India’s exports to Bangladesh have always been high and since 2018–19, they have expanded from $9 billion to over $16 billion in 2021–22. Bangladesh has consistently highlighted its burgeoning trade deficit with India, and this has remained one of the major areas of discord between the two countries. Bangladesh has explained its lack of market access in India by arguing that India has been imposing restrictions on its imports using non-tariff barriers (NTB). In other words, the NTB are effectively nullifying the advantages which India is offering through its DFTP scheme.
Although this charge has not been conclusively established, the point remains that India has not been importing enough readymade garments (RMG), which overwhelmingly dominates Bangladesh’s export basket. Bangladesh’s Export Promotion Bureau reports that in the previous financial year, from July to June 2021–22, the share of RMG exports was 85.6% of the country’s total exports. However, in India’s imports from its neighbour, the share of the RMG sector was just 35%. Therefore, a case can be made that India needs to redraw its import strategy and ensure that it is better attuned to Bangladesh’s perceived area of export strength.
At the same time, there is no gainsaying that the lack of diversification of Bangladesh’s manufacturing sector is an important factor limiting its overall exports, and those to India, in particular. The country, therefore, needs to focus on identifying sectors which its manufacturing activities can diversify, and India can be a useful partner in this regard. Governments and businesses in the two countries need to quickly identify the sectors in which the two countries can usefully collaborate.
One important advantage that India and Bangladesh have for furthering their trade relations is harnessing the potential of border trade between the two countries. India and Bangladesh have a major advantage in this regard, for they have 38 active border trade points, 32 of which are in the Northeast (Assam, Meghalaya, and Tripura) while six are in West Bengal.
The Central government, through the Ministry of Development of North Eastern Region (DoNER), has had a long-standing plan of converting a majority of these trade points that have traditionally been land customs stations (LCS) with minimal infrastructure into integrated check posts (ICP) that have the necessary facilities for conducting seamless trade and to, therefore, reduce the cost of doing business. However, progress toward converting the LCS into ICP has not been quite encouraging. Thus far, only four ICP are fully functional, while seven others are at various stages of implementation.
Besides enabling trade to expand rapidly, conversion of the LCS into ICP could have one major advantage, which is to formalise the large volumes of informal trade that takes place across the border. A well-established fact is that the actual trade between the two countries is much larger than the official statistics reveal since much of the trade taking place through the LCS is not properly documented. There should be much better opportunities for Bangladesh to expand its presence in the Indian market if the two countries focus on expeditiously creating/strengthening their trade-related infrastructure.
Professor, Centre for Economic Studies and Planning, School of Social Sciences, JNU