Over the decades, Bangladesh's trade gap with India had been widening before stabilising at around US$4.0 to US$5.0 billion during the last couple of years. The trade gap was as high as $4.17 billion in the 2012-13 financial year as different non-tariff and para-tariff barriers imposed by India continued to limit Bangladesh's exports to the country. It was widely speculated that the country's trade gap with India, which stood at $4.24 billion in the preceding financial year, would come down as India gave duty-free access to Bangladesh's main export product - readymade garments - in late 2011. The trade gap came down slightly by 1.5 per cent to $4.17 billion in 2012-13, but it was still high compared to the potentiality of Bangladesh's exports to Indian market. According to economists and businesses, the potentialities could not be exploited due to barriers put up by India.
Bangladesh's imports from India were worth $4.74 billion in FY2012-13 as against exports worth $563.96 million made during the same period. In FY2011-12, the imports from India remained almost stationery at $4.74 billion while exports accounted for $498.41 million. According to the latest Bangladesh Bank and Export Promotion Bureau statistics, the trade gap between Bangladesh and India was $4.24 billion in the FY 2011-12, $4.05 billion in the FY11 and $3.51 billion in the FY10. The trade deficit between two countries was still high due to lower exports from Bangladesh to India resulting from non-compliance by a number of Indian states to extend duty-free access facility to Bangladeshi RMG products, contrary to their central government decision.
Due mainly to this reason, Bangladesh's income from RMG exports to India did not reach a satisfactory level in the last two fiscal years. According to the Bangladesh Bank report, the country's total export earnings stood at $26.56 billion in the FY13, of which $21.51 billion, or 80.99 per cent was earned from the RMG products. The Export Promotion Bureau data showed that in the FY13, the country had earned only $75 million from export of RMG products to India against total export earnings of $563.96 million (13 per cent). In FY12, the country's earnings from export of RMG products to India was $55 million against the total export earning of $498.41 million (11 per cent).
Added to the large volume of informal/ illegal trade through the border, which is mostly one way--from India to Bangladesh-further widening of the gap. In fact, the problem of cross-border trade is magnified by poor logistics and infrastructure at land border posts that prompts higher transaction costs for formal imports. Cross-border and technical smuggling are further encouraged when both India and Bangladesh restrict imports over land border via designated ports. Informal trade is substantial but difficult to measure because of its clandestine nature. According to some estimates, it could be as high as three quarters of recorded official trade. Apart from the well-known cross-border informal trade, significant volumes of illegal imports into Bangladesh through legal channels (technical smuggling) are carried out by under-invoicing, misclassification, and gratification of concerned officials.
Financing of informal/illegal trade is weak and transaction costs remain high. A recent study revealed that the prevailing 'hawala' networks perform better than the formal banking system in terms of simplicity, speed, transaction costs, and reliability, and that is why they are not only financing much of the informal bootleg smuggling trade from India to Bangladesh, but also substantial volume of exports to Bangladesh that go through the legal routes. In practice, 'the LC is a mere cover to move goods through Customs', a recent study observed. If this is correct, they involve non-negligible transaction costs without protecting suppliers and importers against commercial risks such as defective shipments, non-payment, delayed payments, etc.
Bangladesh has been suffering from trade deficit with India since its independence. The trade deficit has been widening exponentially in the recent past. This growing deficit is a cause of serious concern for Bangladesh and has serious economic and political implications.
Politically, the milieu of a perpetual trade gap does not augur well for bilateral relations between any two countries and is likely to generate a bitter feeling of misunderstanding and mistrust between them. Bangladesh is no exception and in our case, most people are of the feeling that any serious effort is yet to be undertaken by India to reduce the continuing trade gap. Judging from the economic point of view, non-tariff and para tariff barriers are still in force and preventing growth of RMG export to India which is why Bangladesh could not post any significant growth in export even after duty-free access to India.
The FE recently reported that the country's exports to the Indian market dropped substantially in the just-concluded fiscal even though Delhi had allowed duty-free access of a number of Bangladesh products to make up for a perennial trade imbalance it suffers. In the fiscal year (FY) 2013-14, Bangladesh exported goods worth about US$ 456.633 million to India as against $563.960 in the previous fiscal. The gap marks a negative growth of 19.03 per cent.
The overall export trade with India has, however, been gradually improving, reaching over half-a-billion-dollar mark in FY2012-13. Our exports to India had increased considerably over the last couple of years since Dr Manmohan Singh had eased the sensitive item list of his country and thereby allowed duty-and quota-free access of about 46 Bangladeshi garment products. Export of readymade garment (RMG) products increased substantially, although the last fiscal was an exception. Apparel export to India, however, increased sharply in the just-concluded fiscal (2013-14) compared to previous year. In the last fiscal, Bangladesh exported apparel products worth about US$ 96.25 million in 2013-14 as against US$ 75.21 million in the previous year, recording a growth of 28 per cent.
Garment manufacturers attributed this growth mainly to the duty waiver offered by the Indian government to Bangladesh and high demand for basic garments among the growing middle-class consumers over there.
Traders forecast more trade between Bangladesh and northeast India if the existing non-tariff and para-tariff barriers are removed and connectivity is improved through infrastructural development.
According to a study conducted by the Bangladesh High Commission in New Delhi, harsh testing requirements, complex harmonised code classifications, inadequate infrastructure, and special labelling requirements are among major non-tariff barriers that the Indian authorities have imposed on Bangladesh's exports.
Exporters complained each item of food consignment is subjected to certification by port health officers, which takes more than a month, and slows down export of food items to India. Regarding export of soaps, sources said, all types of soaps are subjected to chemical tests and samples are sent to laboratories that take more than a month to issue clearance.
Despite a huge demand for cement, steel products, electrical and electronic goods, and leather products in northeast India, these are required to comply with the Indian Bureau of Standards' (BIS) mandatory marketing and standard requirements, which also affects exports, and is responsible for trade slowdown.
Most of the land customs stations on the Indian side have no warehousing facilities, and goods exported from Bangladesh are kept in the open until customs formalities are over. This hassle, in turn, results in huge damage and inconsistent supply of goods.
In addition, a number of bank branches in northeastern India are allowed to handle foreign currency transactions and open letters of credit, but they are not allowed to carry out direct transactions with Bangladesh. This is seen in trade circles as a major impediment to Bangladeshi exports getting into the landlocked north of India.
The present state of affairs calls for strengthening the export competitiveness of our ready-made garment products. The ratio of the exported textile products was low compared to other products in the FY13, and foreign businessmen of the RMG sector may be invited to invest here as they would be able to avail the duty-free facility for exports to India. Some experts say, the government should take initiative to develop the export-oriented infrastructures like land ports which are located between Bangladesh and India in the greater interest of the exporters. Besides, industrial parks and specialised economic zones should be established to augment the export volume. A significant volume of import products from India is used for manufacture of export-oriented items.
The prospect of Bangladesh's current level of exports to India posting two- to three-fold increase is easy to be realised if the shortcomings and drawbacks, as elaborated above, are addressed properly and the stumbling blocks in the form of non-tariff and para-tariff barriers are removed.
The writer is a TV personality and writes on economic issues. [email protected]
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