Notwithstanding a significant strain in relations, bilateral trade between Bangladesh and India witnessed a modest rise in the last fiscal year, reflecting the reciprocal reliance on each other for sourcing various goods for domestic consumption. It also indicates that long-term trading partners cannot abruptly end their partnership, despite deterioration in the bilateral relationship and an increase in the frequency of disputes.
Indo-Bangla bilateral trade increased by 6 per cent to US$11.24 billion in FY25 from $10.57 billion in FY24. The bilateral trade reached its highest level at $15.68 billion in FY22, mainly due to a big surge in imports from India, and it declined to $11.26 billion in FY23. Both exports to and imports from India increased in the last fiscal year, which also widened the trade gap with India. Export increased to $1.77 billion in FY25 from $1.57 billion in FY24, whereas imports from India stood at $9.44 billion and $9.0 billion, respectively.
After the fall of the autocratic regime of Hasina in August last year in the face of student-led mass uprising, Bangladesh and India's bilateral diplomatic relations deteriorated significantly for obvious reasons. During her 15-year regime, Hasina in exchange for securing full backing to stay in power had offered all possible concessions to India. The July uprising, however, changed the calculation, although to curb the movement, the Hasina regime resorted to the use of brutal force, killing 1,400 people in less than three weeks. More than 20,000 people were also injured. Nevertheless, she was forced to resign on August 5 last year and flee to New Delhi for shelter.
Besides providing shelter to Hasina for her loyalty in advancing Indian interests for more than a decade, the Modi-led Indian government has initiated several steps to exert pressure on the Yunus-led interim government in Bangladesh. Restricting exports to India by making it costlier is a key tool in this connection. For instance, India cancelled the transhipment facility granted to Bangladesh for third-country exports using Indian sea routes and airports. The country also imposed restrictions on imports of certain products, including ready-made garments (RMG), from Bangladesh, primarily to the north-eastern states of India via land routes. Through these measures, New Delhi expressed its dissatisfaction with the political changeover in Bangladesh and has yet to accept the new reality.
New Delhi is also unresponsive to Dhaka's repeated requests to discuss trade-restrictive measures. Instead, there is a hint from India that it is likely to impose more trade restrictions in the near future to mount pressure on Bangladesh.
So, what drives the modest increase in bilateral trade, especially the rise in exports to India from Bangladesh, in the last fiscal year? At least three major factors are behind the increase in exports to India from Bangladesh.
Firstly, most of the trade restrictions have been imposed by India in the last quarter of FY25. So, the negative impacts of the restrictions are yet to be visible at the macro level.
Secondly, most exporters want to maintain their market share in India. Therefore, they shifted to sea routes after India restricted exports through land routes for RMG and other products. By exporting products through the Nhava Sheva port in Mumbai (western India) and the Kolkata port in West Bengal (eastern India), they incur an additional 10 per cent cost. Nevertheless, Indian importers are still able to obtain the product at a competitive price.
Thirdly, during the last fiscal year, the Bangladesh taka against the US dollar depreciated by around 3.90 per cent. At the same time, the Indian rupee appreciated by around 0.90 per cent against the greenback. These currency fluctuations, which are often overlooked, also played a role in the modest increase in export earnings.
However, it's important to note that jute and jute goods have been severely affected by India's imposition of restrictions and non-tariff barriers (NTBs). Previously, jute could be exported through both land and sea ports. But in the last month, India banned imports of jute products from Bangladesh through land ports, allowing only the Nhava Sheva port in Mumbai. This has led to a significant drop in jute exports to India, almost to zero.
Other products, such as food items, plastics, and wooden furniture, have also been subject to restrictions. Indian importers are now only allowed to import these products through a limited number of land ports. For instance, land ports and customs stations near the borders of north-eastern Indian states like Assam, Meghalaya, Tripura, and Mizoram are no longer permitted to ship these Bangladeshi products.
Imports from India posted a modest growth of five per cent in the last fiscal year, when there were almost no restrictions on imports from India, except for rice, onions, and a few food items. The Indian government withdrew the export suspensions on onions in the last month. Bangladesh also allowed duty-free imports of rice from India in the last month. In the last week, India, however, imposed a new condition on exporting non-basmati rice from India.
For Bangladesh, it is not easy to import many raw materials and intermediate goods from a third country other than India due to the high cost. Geographical proximity makes the imports from India faster and competitive. Only some of the products may be possible to import from China if India also imposes restrictions. Already, China is the largest source of imports for Bangladesh, and in the last fiscal year, imports from China jumped by 9 per cent after a decline of 6 per cent in FY24. It is also unlikely that India will impose stringent conditions for exporting a large number of products to Bangladesh in the near future, as this would also hamper its export earnings. New Delhi may, however, continue to put various trade restrictions on a limited scale to increase the cost of trade for Dhaka. The move night be driven more by resentment than economic considerations.
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