India-Bangladesh bilateral trade in rupee produces lax response from businesses as entire turnover amounts to less than half a million in nearly seven months under the currency-substitution arrangement, sources said.
The two next-door neighbours launched the much-vaunted trade transaction in special rupee nostro account on June 11, 2023 in a bid to reduce their dependency on the US dollar and strengthen regional currency and trade.
But, in around seven months as on January 30, 2024, the bilateral trade between the friendly nations under the trading mechanism stood at INR 38.44 million, equivalent to $0.46 million.
Of the trade operations, three letters of credit (LCs) worth INR 21.03 million or $0.25 million were opened while two export orders amounting to INR 17.41 million or $0.21 million initiated, according to statistics of Bangladesh Bank (BB), the country's central bank.
Three banks - Eastern Bank, State Bank of India and Standard Chartered Bank--were engaged in such bilateral trading using the Indian currency.
Officials, bankers and trade experts point out multiple factors like dominance of the American greenback in global trade, back-to-back LC-related complexities and exchange-rate volatility against rupee behind the poor response of the businesspeople in both the countries.
Spokesperson for BB Md Mezbaul Haque says the progress in such trading window is less than expected as business communities in both the trading partners are not willing to take the opportunity.
A country could do import in rupee to the volume that it exports. But exporters need to import raw materials from various destinations in dollar to make their finished goods. "So, they seem to be reluctant in using the platform."
Talking about the key features of the arrangement, he said that, initially, the trade will be transacted in rupee and then gradually in the Bangladeshi currency, Taka, upon the trade gap between the two countries decreasing.
"As it (rupee) has not got momentum yet, the use of Bangladeshi currency in such special trading takes time," he added.
Seeking anonymity, a senior executive at the State Bank of India said exporters were not willing to use the opportunity because of back-to-back-LC factors.
With such arrangement, both the friendly economies opened a new window or channel for the businesspeople. Starting a new system involves some challenges.
"Once the situation is improved and more opportunities will be included, we believe it will help attract attention of the businesses," the banker added, on a note of optimism.
Contacted, president of the India-Bangladesh Chamber of Commerce and Industry (IBCCI) Abdul Matlub Ahmad said Bangladeshi exporters want the US dollar in the current exchange-rate context.
"As the trade through Indian currency is not performing to the expected level, they now start pushing reverse mechanism of using Bangladeshi currency in execution of the bilateral trade," says the joint-chamber chief.
He explains that the bilateral trade between Bangladesh and India stood at $14 billion with the balance favouring India as Bangladesh exports goods equivalent to $2.0 billion.
If Bangladeshi importers are allowed to import in Taka to the tune of its exports to India and Indian business communities accept it, then Indian importers will be able to clear their payments in Taka, he says.
"So, now we want Bangladeshi Taka to be used in the trade. If it happens, you (people) will see a completely reverse picture of the trading," Mr Ahmed, also chairman of Nitol Motors Ltd, shows the way of a breakthrough in the sluggishness.
Dr Mohammad Abdur Razzaque, Chairman of Research and Policy Integration for Development (RAPID), notes readymade garment (RMG) accounts for a major share of Bangladesh's total exports to India, and it traded in the Indian market through global buyers.
And global retailers will not feel encouraged enough to settle their orders in the Indian currency considering strengths of the American greenback in global trading blocks, says the international trade expert.
"If we see the global experience of bilateral trade on local currency even in countries having good volume of bilateral and comparatively balanced trade, it is not successful as it was expected," he adds.
The India-Bangladesh trade volume stood $13.64 billion in the financial year of 2022-2023, according to Bangladesh Bank statistics.
India is Bangladesh's second-largest trade partner, with Dhaka's exports standing at $2.44 billion in the financial year of 2022-2023 while imports costing $7.52 billion in a gaping trade gap.
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