Bangla-Indo economic cooperation enters a crucial phase

It was 20 years ago when two leading think tanks of Bangladesh and India first organised a dialogue on Bangladesh-India trade and economic cooperation. Known as 'track two initiative', the dialogue presented a long list of proposals and suggestions to enhance bilateral cooperation in economy and trade.
The initiative, jointly taken by the Centre for Policy Dialogue (CPD) of Bangladesh and the Centre for Policy Research (CPR) of India, continued for several years. Seven other such dialogues took place in Dhaka and Delhi where policymakers, experts and business leaders participated to share their thoughts and ideas.
Many things have changed in the last 20 years. Bangladesh-India bilateral economic relation has also gone through several phases of change. However, such track-two diplomacy plays an important role in advancing bilateral economic relationship between the two countries.
The visit of Indian Prime Minister Narendra Modi (June 06-07, 2015) appears to have added a different dimension to the bilateral economic relationship. As bilateral and sub-regional connectivity got prominence during his two-day visit, its link with trade and investment has long-term implications, especially for Bangladesh.
CONNECTIVITY: Connectivity in the form of transit/transhipment is a long-standing demand of India to ensure fast and easy link between North-Eastern states and the rest of India.
Debate on transit/transhipment intensified in 2010. Bangladesh government formed a core committee in 2011 to prepare an analytical study on the issue of transit involving Bangladesh, India, Bhutan and Nepal.  The core committee, headed by the then chairman of the Bangladesh Tariff Commission, recommended to invest some $7.0 billion to develop transit infrastructure and also suggested allowing transhipment as interim arrangement. The report suggested the government to consider transit/transhipment through investment-return lens. Formula for imposing transit fee was also there.  However, the report was shelved as top policymakers found the set of recommendations not in line with their preference. Some of them categorically opposed any kind of fees or return in exchange of transit or transhipment facility to India.
Four years later, Bangladesh, has actually provided large and wide facilities of connectivity to India along with Nepal and Bhutan. These facilities go beyond traditional transit/transhipment framework.
Bangladesh will allow Indian cargo ships to use Mongla and Chittagong ports. These ships will ferry cargoes from Bangladesh to the Indian ports instead of routing those via Singapore which will reduce trade cost significantly.  
Usually, a container from Chennai first goes to Singapore before it comes to Chittagong or Mongla. Thus average shipping cost of a container is US$2000 and it takes 35 days. Coastal shipping will, reportedly, reduce the cost and time to $400 and 7 days on average.
Protocol of Inland water transit and trade will allow the use of rivers of the two countries for trade purposes. It is believed to ultimately foster trade between India's north-eastern states and mainland. Bangladesh's trade with the north-eastern states is also likely to improve. The five-year pact will also encourage Indian companies to build ports and other infrastructure.


Flagging off the Kolkata-Dhaka-Agartala buses will cut down the travel time and cost to one-third of that through the Chicken's Neck. Dhaka-Shillong-Guwahati bus service will ultimately link the former route.
The sub-regional motor vehicle agreement among Bangladesh, Bhutan, India and Nepal (BBIN) will foster the transport movement in these countries. But, it is not clear whether cross-border movement of vehicles will be widened in future. India is planning to strike similar deals with Myanmar and Thailand. In that case, linking with BBIN will expand the horizon.  
All these initiatives will primarily bring large benefit to India. Due to existing poor infrastructure, gains for Bangladesh from these facilities will take time.  
INVESTMENT DIMENSION: Bangladesh is looking for higher inflow of foreign direct investment (FDI) for long. But FDI from India is still very low. In 2014, India's outward FDI has jumped to $52 billion while Bangladesh has received less than 1.0 per cent of the amount. Net inflow of Indian FDI in Bangladesh stood $67.82 million in last year while total annual inflow stood at $1.53 billion.
Attracting Indian FDI is thus a challenging task. Requirements of Bangladesh are not necessary priorities for the Indian investors. Nevertheless, Indian entrepreneurs seem to more comfortable with joint ventures. During Mr Modi's visit, the two countries signed an MoU to set up two special economic zones (SEZ) in Mongla and Bheramara, exclusively for Indian investors.  
So far, Bangladesh government has approved 19 SEZs. In private sector, there are two SEZs. But not a single SEZ has started operation. Exclusive SEZs for India  may hasten the process in near future.  
But, investment-starved Bangladesh is not in a position to absorb any project irrespective of its quality. The country has already come over the so-called initial phase of development where bad or low-quality FDI was accommodated. In fact, there is a little room for allowing inflow of low quality FDI. Rather quality investments in economic need based priority sectors with latest technological inputs is now the demand of time.
Reliance's proposal to invest $3.0 billion to set-up 3,000mw re-gasified LNG-based combined cycle power and Adani's plan to invest $2.5 billion to build a 1,600mw coal-fired power plant are aggressive FDI proposals. The respective MoUs signed in this regard categorically ignored the legal procedures and appeared as extending additional favour to two Indian giant companies. Thus risks are high there.
On the other hand, Bangladeshi entrepreneurs have developed capacity to invest in other countries including India. In the brief meeting with Mr Modi, the country's business leaders requested him to allocate 50 acres of land for setting up a clothing warehouse. Bangladeshi garments manufacturers also want to set up a distribution centre in India by investing $25 million.  These proposals carry some weight. It shows the improved competitiveness of Bangladeshi garments entrepreneurs.
Last year, Bangladeshi entrepreneurs invested some $16.85 million in India although mostly in the form of reinvested earnings. The total of Bangladeshi investment in India stands at $27.59 million.    
OLD SAGA OF TRADE: There is little chance that Bangladesh's trade deficit with India will be reduced significantly in near future mainly for two reasons.
First, India is the second largest import source of Bangladesh and import dependency on India will continue due to geographical proximity along with trade complementary. In FY'14 import from India stood at $6.03 billion which was 26 per cent higher than that of FY'13. Bangladesh's overall export is dominated by labour-intensive manufacturing while its export to India is dominated by primary commodities. And large quantities of raw materials and intermediate goods for manufacturing exportable items are imported from India.
Second, despite allowing tariff-free access to Bangladeshi products, India has continuously been imposing series of non-tariff measures (NTMs). Many of these NTMs become non-tariff barriers (NTBs) for Bangladeshi exporters. From stringent product standards to weak infrastructure in border custom stations, there is a long-list of technical barriers to trade (TBT) also. Weak marketing by Bangladeshi exporters becomes another drawback. Thus export to India will not increase significantly in near future.
In this connection, the MoU between Bangladesh Standard Testing Institute (BSTI) and the Bureau of Indian Standards (BIS) should bring positive outcome in the long run.
But long-term economic cooperation needs to be based on the potential of mutual benefits and this can be achieved by addressing the identified barriers to the bilateral trade.
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