Appreciation of Taka and trade imbalance with India

Bangladesh Taka, according to FE report, appreciated against Indian Rupee by 6.6 per cent in last four months. The appreciation of Taka must have made the importers, who usually source their goods from India, and visitors from Bangladesh to that country, happy. But experts are worried about its fallout vis-à-vis the trade balance between the two neighbours. Businesses would be interested more to import goods from India because of the favourable exchange rate between Taka and Rupee. And there is nothing wrong in it since the cost of import is one of the basic factors that influence procurement decisions made by importers of any country. Most economists and financial experts the FE had contacted were unanimous in their opinion that the appreciation of Taka against Indian Rupee would encourage greater import from India, leading to further widening of the existing trade gap that has always favoured India. The trade imbalance between the two countries has grown over the years and in the last fiscal (2010-11) it was over US$4.0 billion. In an era of trade liberalization, there should be no reason for grumbling either about source or volume of imports. Businesses make their independent decisions on sourcing their goods taking into consideration a host of factors, including cost of import, quality and marketing prospects at home. But why is Bangladesh failing to enhance its exports to India and take the trade imbalance to a respectable level? The answer to the question, more or less, is known to all. The basic shortcoming is that Bangladesh has a limited export base and the goods it exports are also produced domestically in India. Rather, Indian producers enjoy an edge over Bangladeshi exporters because of local production of basic raw materials there. However, there are now somewhat better prospects for Bangladeshi goods to market in the Indian north eastern states for geographical reasons. The Indian authorities have lately allowed easier market access for Bangladeshi export items. But misalignment of currency rate is likely to partly erode export competitiveness of Bangladesh businesses. Under South Asia Free Trade Agreement (SAFTA), struck in 2004, Bangladesh along with other regional least developed countries, is entitled to duty-free access of its goods, barring those included in the so-called Sensitive List, to the Indian market. Some valuable of time was, however, wasted in the process of preparation and exchange of their Sensitive Lists by the SAFTA signatories. Things, of late, have started taking a final shape as far as duty-free access of goods of LDC member-states of South Asian Association for Regional Cooperation (SAARC) to the Indian market is concerned. Indian authorities in the second week of the current month through an official notification allowed duty-free access of all goods from South Asian LDCs, including Bangladesh, except 25 items falling under the tobacco and alcoholic beverages categories. This coincided with Indian Prime Minister Dr. Manmohan Singh's announcement at the end of the SAARC summit in the Maldives about reducing the number of its 'sensitive' commodities from 480 to 25 for LDCs under the SAFTA. The businesses in Bangladesh have expressed cautious optimism about the latest Indian move. What, in fact, worry them are non-tariff and para-tariff barriers that until recently have been the major problems while accessing the Indian market. Notwithstanding the fact that New Delhi is trying to remove such hindrances, still a lot needs to be done on its part. However, much would depend on the agility, innovation and seriousness of the Bangladeshi entrepreneurs. They have to make the best use of the market access facility, allowed by India and thus help reduce Bangladesh's existing huge trade imbalance with India to a reasonable size.