Strengthening land-based connectivity essential for expanding trade with Bangladesh under the Act East Policy of India
Bangladesh prime minister Sheikh Hasina met President Droupadi Murmu in New Delhi. Twitter/@rashtrapatibhvn
In the global economy roiled in turmoil, Bangladesh has become the third country in India’s neighbourhood to have sought help from IMF to cope with the mounting pressure on its economy. But time and time again, Bangladesh has shown resilience and has rebounded even stronger making its way among the fastest growing economies in the world. The ongoing visit of the Prime Minister Sheikh Hasina of Bangladesh to India envisages to further strengthen bilateral ties, with the likely aim to initiate the talks for a Comprehensive Economic Partnership Agreement.
Prime Minister Narendra Modi shakes hand with his Bangladeshi counterpart Sheikh Hasina during her ceremonial reception at Rashtrapati Bhavan on 6 September 2022. AP
Trade ties
In 2021, India was the 2nd largest import source and 7th largest export destination for Bangladesh. In 2021, the bilateral trade increased by almost 80 per cent, estimated at $15.9 billion in 2021, however accounting for less than 2 per cent of total trade of India and 12 per cent of Bangladesh’s total trade. There lies an untapped trade potential of $5.1 billion between India and Bangladesh.
Bangladesh’s import demand aligns with India’s export capabilities, offering high trade complementarity between the two South Asian economies. Bangladesh’s major import items like cotton, mineral fuel, machinery, electrical equipment, and cereals are among the top exported commodities by India to the world. India shares longest land border with Bangladesh surrounding it from all three sides, making India a natural trade partner of Bangladesh. Yet India accounts for only 19 per cent of the total imports of Bangladesh after China, while USA is the largest export destination even with no GSP and no land borders.
Increased trade and transport cost between India and Bangladesh act as hinderance in cross border trade. Lack of transport integration is an important factor to the high trade costs between the two countries. Since the major portion of trade between India and Bangladesh happens through land, trade costs are mainly determined by the time taken for goods to cross the border. According to World Bank report, it takes 138 hours for a shipment to cross the border at ICP Petrapole, which is the largest land port in South Asia and accounts for nearly 30% of land-based trade between India and Bangladesh. When Indian trucks reach the border, the goods are completely unloaded and then reloaded on Bangladeshi trucks, which alone take 28 hours.
Additionally, there are issues relating to customs and immigration clearances. High tariffs and non-tariff barriers have contributed to the existing high cost of trading goods. India provides duty-free access to imports from Bangladesh for all products except tobacco and alcohol under the agreement on the South Asian Free Trade Area, but Bangladesh still maintains a long sensitive list for imports. India imposes on an average 0.4 per cent import tariff on Bangladeshi goods while Bangladesh imposes on an average 7.8 per cent of import tariff on Indian goods, as per WITS database of World Bank. India however has in place a number of NTBs majorly through Sanitary and Phytosanitary and Technical Barriers to Trade on Bangladeshi goods. Consequently, these tariff and non-tariff barriers are envisaged to come down in case of a trade agreement. This will prove to be in the mutual interest of both Bangladesh and India especially for the northeast region of India.
Connecting Northeast India with the mainland
The northeast region (NER) of India is landlocked, and ring fenced by four foreign nations with a lone land-based connection with the mainland India through a 22-km wide ‘chicken’s neck’ in Siliguri. This translates to a limited and congested land-based network of transport and trade with high transit cost and time. The distance between Kolkata and Agartala by road is treacherous. The 1,650-kilometre route is through Guwahati while the distance between Agartala and Kolkata via Bangladesh is just about 350 km almost equal to the distance between the two Indian cities of Bangalore and Chennai. There are 3 ICPs located between Bangladesh and NER of India, viz. ICP Agartala (Tripura), ICP Sutarkandi (Assam) and ICP Srimantapur (Assam). There lies huge trade potential for trade between Bangladesh and NER of India.
The exports originating from NER of India to Bangladesh are different from major export commodities from other parts of India to Bangladesh. Exports originating from NER of India are dominated by raw materials like cotton fabric, raw cotton, coal, synthetic fabric, cereals agro-horticultural products like ginger and citrus fruits, while imports from Bangladesh are mostly finished goods like readymade garments, cotton rags, cement, palm/soya oil, food items, household goods. Bangladesh lacks in mineral resources which the country imports from the NER of IndiaOn the other hand, northeast states of India import manufactured goods from Bangladesh.
Currently, Bangladesh maintains a positive list of imports and only allows a handful of commodities to be imported from India. According to MOCI, Bangladesh accounted for only 11 per cent of the total exports of NER of India in FY 2022. In case of an FTA, Bangladesh could have greater market access of over 45 million people of NER of India while the latter could get a ready market for its goods in the immediate neighbourhood and expand its share in the nation’s exports. But an efficient and seamless land route connectivity infrastructure is a prerequisite for economic integration of India and Bangladesh.
The implementation of the historic Motor Vehicle Agreement between BBIN nations will unleash new potential between India and Bangladesh by reducing the restriction on cross-border road transit while supporting development of the NER of India through shorter, cheaper transport routes. Upgradation of existing LCS to ICP will also prove to be a step in the right direction.
In the fast-evolving geopolitics and expanding presence of East Asian economies in Bangladesh, having a strategic partnership based on sustainable mutual cooperation in the immediate neighbour will be a valuable pillar in India’s ‘Neighbourhood First Policy’.
The authors are economists with India Exim Bank. Views expressed are personal.
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