Indian Prime Minister concluded his high profile visit to Bangladesh on 7th September. This was first visit to Bangladesh of any Indian prime minister in the past 12 years. In this meeting both the countries agreed on a range of measures to improve relations between the countries. These measures were of both political and economic in nature. While the long pending border issues were resolved, India also granted concession to Bangladeshi exporters to improve commercial ties. Other issues which were discussed were sharing of River water, Transit facilities to Indian goods through Bangladeshi soil and improvement of cultural ties between both the countries to bring people across the border closer.
From the commercial point of view, the most important issue discussed between the two countries was reducing the huge Trade Deficit unfavorable to Bangladesh. To meet these objectives, Indian Government has agreed to remove the duty from import of 61 products from Bangladesh, 46 of which are textile products. At present India-Bangladesh Trade is highly skewed in favor of India with India’s net export to Bangladesh being almost 10 times of what India import from it. One of the prime reasons of this trade deficit is the restrictions put forth on Bangladeshi import by Indian Authorities. As many as 480 items feature on the Indian negative list of products for Bangladesh and of those, 154 are related to RMG (Ready Made Garment) sector. Textile industry which is one of the most important industries of Bangladesh from the perspective of International Business and constitutes 75% of total Bangladesh’s exports has greatly suffered from these restrictions. Out of total Bangladesh exports to the world, Textile products (HS CODE: 50 to 63) constitutes more than 85 % in value terms but for India this figure is far below at 40% in 08-09 and 55 % in 09-10. This pact promises to improve the current situation. Exports from Bangladesh to India are expected to increase two to three times the present volume in coming years. In that scenario Bangladesh's annual export to India will cross $1 billion and will help in shifting the balance of trade in favor of Bangladesh.
In spite of all these measures, still there are some issues that need more efforts from both the sides. The prominent among them are the Teesta River Water Treaty and transit facility to Indian goods through Bangladesh. Of these the latter is of interest to India and Indian authorities expect Bangladesh to finalize the modalities of this agreement as soon as possible. North Eastern states are geographically closer and have better access to Bangladesh. While distance between Agartala and Kolkata (nearest Indian Port) is 1750 k.m., Chittagong (nearest Bangladeshi port) is only 70 k.m away from Agartala. If the region is approached from Chittagong port via Tripura the distance will be considerably reduced. It will also give a boost to Indian export such as Assam tea and Tripura Rubber from North-Eastern states. This transit facility will not only help Bangladesh in revenue generation but will also help it in improving the infrastructural facility. India has already approved USD 750 million out of the promised USD 1 billion infrastructure loan to Bangladesh to develop rail and road linkage. In future the scope of this transit route can be extended to accelerate commercial activities in whole of South Asia by including Nepal and Bhutan in this broader trade corridor and giving it a transnational face. This will not only promote commercial relations between the countries but will also help India in shedding its Big Brother image. The infrastructure improvement activities in Bangladesh will give a big opportunity to Indian Companies to invest in Bangladesh in development of port, rail and road infrastructure.
From the commercial point of view, the most important issue discussed between the two countries was reducing the huge Trade Deficit unfavorable to Bangladesh. To meet these objectives, Indian Government has agreed to remove the duty from import of 61 products from Bangladesh, 46 of which are textile products. At present India-Bangladesh Trade is highly skewed in favor of India with India’s net export to Bangladesh being almost 10 times of what India import from it. One of the prime reasons of this trade deficit is the restrictions put forth on Bangladeshi import by Indian Authorities. As many as 480 items feature on the Indian negative list of products for Bangladesh and of those, 154 are related to RMG (Ready Made Garment) sector. Textile industry which is one of the most important industries of Bangladesh from the perspective of International Business and constitutes 75% of total Bangladesh’s exports has greatly suffered from these restrictions. Out of total Bangladesh exports to the world, Textile products (HS CODE: 50 to 63) constitutes more than 85 % in value terms but for India this figure is far below at 40% in 08-09 and 55 % in 09-10. This pact promises to improve the current situation. Exports from Bangladesh to India are expected to increase two to three times the present volume in coming years. In that scenario Bangladesh's annual export to India will cross $1 billion and will help in shifting the balance of trade in favor of Bangladesh.India and Bangladesh also agreed to the proposal of establishment of 7 Integrated Check Post (ICP) at the India Bangladesh Border. These ICPs are expected to provide the facilities for smooth cross-border movement of persons, goods and transport and would improve the turnaround time of vehicles at the border. They will also address the problem of lack of connectivity faced by Indian North Eastern States, by providing them and easy connectivity to Bangladesh. ICPs will also tackle the issue of illegal cross border trade. Indian states have a long and porous border with Bangladesh which acts as the haven for the smugglers. This not only causes loss in revenue but also hide the true figure of trade between the countries. After the completion of this project not only the local trade between the states and Bangladesh will get a fillip but also the true trade figures can be realized.
In spite of all these measures, still there are some issues that need more efforts from both the sides. The prominent among them are the Teesta River Water Treaty and transit facility to Indian goods through Bangladesh. Of these the latter is of interest to India and Indian authorities expect Bangladesh to finalize the modalities of this agreement as soon as possible. North Eastern states are geographically closer and have better access to Bangladesh. While distance between Agartala and Kolkata (nearest Indian Port) is 1750 k.m., Chittagong (nearest Bangladeshi port) is only 70 k.m away from Agartala. If the region is approached from Chittagong port via Tripura the distance will be considerably reduced. It will also give a boost to Indian export such as Assam tea and Tripura Rubber from North-Eastern states. This transit facility will not only help Bangladesh in revenue generation but will also help it in improving the infrastructural facility. India has already approved USD 750 million out of the promised USD 1 billion infrastructure loan to Bangladesh to develop rail and road linkage. In future the scope of this transit route can be extended to accelerate commercial activities in whole of South Asia by including Nepal and Bhutan in this broader trade corridor and giving it a transnational face. This will not only promote commercial relations between the countries but will also help India in shedding its Big Brother image. The infrastructure improvement activities in Bangladesh will give a big opportunity to Indian Companies to invest in Bangladesh in development of port, rail and road infrastructure.Other steps to improve commercial ties include establishment of Special Economic Zone in Bangladesh at Border Areas for Indo-Bangla Joint Venture with a focus on North Eastern states. In the past too CII has shown interest in such a prospect. This SEZ is expected to attract investment worth BDT 1500 Crore (INR 930 Crore). Establishment of “Border Haat” is also a step in right direction. Two countries have opened a “Border Haat” in Meghalaya which along with two others such “Haats” is expected to promote $20 million of bilateral trade annually. This will not only curb the massive illegal trade which goes in this region but will also help in bringing the population of the two countries residing in Border Area together.
However there are few cautions in this journey. Duty free access for textile products from Bangladesh will adversely hit the domestic Garment industry. One of the steps that can be taken by the government to balance the macro-impact on Indian economy is a pre-condition for the duty-free import that the origin of fabric for these textile products should be in India. This will incentivize the Bangladeshi exporter to give preference to Indian raw products over other sources. Illegal immigration from Bangladesh, Illegal Cross Border Trade and anti-Indian activities in Bangladesh are other Indian concerns. After these Confidence-Building-Measures from Indian side the onus is on the Bangladesh to reciprocate to Indian concessions by addressing these crucial issues.
A peaceful neighbourhood will help India to focus on its economic development and will accelerate the economic growth of whole of South Asia. Hence India- Bangladesh relations are important not only for these two countries but for whole of South Asia. Apart from creating a model for future bilateral agreements in this region, this summit will also help India in shedding its image of regional bully.
