Fate of India-Bangladesh trade likely to hang in balance

In FY24 India’s exports to Bangladesh fell by 9.5% to $11bn

NEW DELHI: India’s trade and investment relationship with Bangladesh has entered a phase of uncertainty following the resignation of Bangladesh Prime Minister Sheikh Hasina after weeks of violent demonstrations. The Army chief has declared that an interim government will now run the country.

Bangladesh is India’s 25th largest trading partner, with bilateral trade valued at $12.9 billion. This trade is dominated by exports, making Bangladesh India’s eighth-largest export partner.

In FY24, India’s exports to Bangladesh contracted by 9.5 per cent to $11 billion. Over the last two years, outbound shipments to Dhaka have been declining. For example, during FY22, Bangladesh was India’s fourth-largest export market. However, factors such as dollar shortages, high inflation, and India’s export restrictions on essential items like wheat and some categories of rice have affected outbound shipments.

A key destination for Indian auto exports

Bangladesh is also a key destination for Indian auto exports, alongside African and Latin American countries. The political unrest in the neighboring country could pose risks for investors with existing projects and may lead to an influx of illegal migrants into India.

“The political unrest in Bangladesh will create uncertainty for exporters. In fact, there will be greater risk for investors,” said Arpita Mukherjee, professor at the Indian Council for Research on International Economic Relations (ICRIER).

According to Delhi-based think tank Global Trade Research Initiative (GTRI), India’s exports, such as onions, other agricultural products, and electricity, are crucial for the people and economy of Bangladesh and may not be significantly affected by the unrest.

Facing a severe dollar shortage

However, Bangladesh’s economic challenges have negatively impacted bilateral trade in recent years. The country has been facing a severe dollar shortage, which has limited its ability to import goods, including those from India. The rising inflation in Bangladesh has also reduced domestic demand, leading to lower consumption of both local and imported products.

India’s imports from Bangladesh contracted by 8.7 per cent to $1.8 billion in 2023-24. Top inbound shipments include iron and steel products, textiles, and leather goods, among others.

Biswajit Dhar, distinguished professor at the Council for Social Development, emphasized that Bangladesh is a very important and large market for India. “Political uncertainty in Bangladesh will certainly hit us on the trade front. If the political uncertainty spills over to economic uncertainty, then Bangladesh’s economy will get affected. That may result in illegal migration into India,” Dhar added.