New Delhi: Bangladesh’s political turmoil could unleash repercussions on India’s exports, trade and infrastructure projects in the neighbouring country, adding to security concerns amid continuing civil unrest and escalating economic instability.
Shares of Indian textile makers, however, surged on Tuesday on expectations that they might see a surge in business because of the crisis’s impact on Bangladesh’s global textile hub.
India, which shares a 4,096 km border with Bangladesh, the longest with any of its neighbours, has a strategic interest in a stable administration in Dhaka, particularly in the context of insurgency and China’s attempts for greater influence in the region.
Sheikh Hasina, who resigned as Bangladesh’s prime minister and fled to India on Monday following unrelenting protests over job reservations, was seen as having close ties with New Delhi. India has been a keen partner in Bangladesh’s development journey, which has also provided opportunities for companies back home.
“As Bangladesh experiences political turmoil, it is essential for all political factions to protect garment and other factories and keep supply lines open across the border to sustain trade and economic activity,” said Ajay Srivastava, founder of economic think tank Global Trade Research Initiative.
A senior government official told Mint the political crisis in Bangladesh could hinder India’s plans to boost exports to the neighbouring country.
“If the situation worsens, which is highly possible, Bangladesh may stop importing Indian goods and seek other countries to meet their domestic needs,” the official said, declining to be identified.
Other experts said India faces losses in multiple trade segments due to the Bangladesh crisis, which could turn into opportunities for competitors like Vietnam and China.
“India will need to create strategies to compete with these countries and seize any potential market share,” said Biswajit Dhar, economist and a retired professor at the Centre for Economic Studies and Planning at Delhi’s Jawaharlal Nehru University.
“Bangladesh is one of the major destinations for Indian goods. After covid-19, Bangladesh was among the top five export destinations. However, trade has declined slightly after the export ban on rice and wheat. Despite this, it remains one of India’s best trade partners,” Dhar said.
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Union ministers Amit Shah, Rajnath Singh and Kiren Rijiju leave after an all-party meeting in Parliament on the Bangladesh crisis, a day after the neighbouring country’s ousted prime minister Sheikh Hasina fled to India. (PTI)
Exports already in decline
In recent years, Bangladesh’s economic challenges have hurt bilateral trade with India.
India’s exports to Bangladesh, which amounted to $16.2 billion in 2021-22, fell to $11.1 billion in 2023-24, declining by about 31.5%. Imports from Bangladesh have been relatively stable, increasing from $1.9 billion in FY22 to $2 billion the following year, before sliding back to $1.8 billion in FY24.
“Bangladesh has been facing a severe dollar shortage, which has limited its ability to import goods, including from India. The rising inflation in the country has also reduced domestic demand, leading to lower consumption of both local and imported products,” Srivastava said.
He, however, added that India’s exports of electricity, onions, and other agricultural products may not be significantly affected.
“India’s exports to Bangladesh are highly diversified, covering agriculture, textiles, machinery, electronics, auto parts, iron and steel, electricity and plastics. Notably, most of these exports to Bangladesh are subject to full tariffs and are outside the South Asian Free Trade Area (SAFTA) agreement,” Srivastava said.
Also read | Mint Explainer: Why India needs to have a wary eye on the Bangladesh coup
In contrast, Bangladesh’s exports to India are concentrated in a few categories such as textiles and garments. These items benefit from zero tariffs under the SAFTA agreement extended by India.
The unrest in Bangladesh could also exacerbate already weakening demand for India’s engineering exports. The total value of such exports from India to Bangladesh in the June quarter fell 8.2% from a year ago to $542.1 million.
“Recently, Bangladesh has seen a significant reduction in imports of industrial raw materials and capital machinery. The weak demand for consumer goods has affected factory production levels and worsened supply chain disruptions, complicating the economic landscape,” said Arun Kumar Garodia, chairman of the Engineering Export Promotion Council of India.
“The ongoing political uncertainty may further worsen the situation and impact engineering exports.”
Freight disruptions
Also at stake are connectivity projects between the two countries.
Train services connecting India and Bangladesh, including freight, have been suspended, resulting in a complete stop of movement of people and goods between the two countries.
Indian Railways is connected to the Bangladesh railway network through five interchange points, which have been impacted by the turmoil in the neighbouring country. The fate of another rail connection between Agartala and Bangladesh also hangs in the balance.
Plans to develop rail and road interconnection points connecting Nepal, India and Bangladesh and Bhutan-India, with linkage projects going all the way up to Bangladesh’s Chittogram port, now stare at an uncertain future.
Also read | India plans linkage to Bangladesh’s Matarbari port in regional connectivity push
Also facing uncertainty is a ₹950 crore contract won by Indian Railways’ exports arm, RITES Ltd, in May to supply 200 broad gauge passenger carriages to Bangladesh Railway.
Meanwhile, the world’s longest ferry service connecting Varanasi with Dibrugarh in Assam via Bangladesh remains suspended.
An official with India’s ministry of ports, shipping and waterways said the situation is being evaluated.
Energy supplies uninterrupted
Last year, Indian Prime Minister Narendra Modi and Hasina jointly inaugurated the India-Bangladesh Friendship Pipeline, a cross-border energy pipeline with a capacity to transport 1 million tonnes per annum of high-speed diesel.
While Assam-based Numaligarh Refinery Ltd has been supplying petroleum products to Bangladesh since 2015,Adani Power Ltd supplies 1,496 MW of power from its plant in Godda, Jharkhand to the northern neighbour.
“Adani Power has a (power purchase agreement) with Bangladesh power distribution utility, Bangladesh Power Development Board (BPDB), to meet their power requirement,” a spokesperson for Adani Power said in a statement.
“In its normal course of business, BPDB is scheduling the power supply to meet their demand and as per that schedule, Adani Power continues to supply power to the Bangladesh power utility without any disruption.”
An official with another power generating company, speaking on condition of anonymity, said power supplies from India to Bangladesh are unlikely to be affected given the demand in the neighbouring country.
An apparel opportunity
Bangladesh is a major textile hub catering to an international clientelle, benefiting in recent years also from a global policy to not rely purely on China for manufacturing. Several experts believe that the current turmoil in Bangladesh could present an opportunity for India’s textile and apparel segment.
“The manufacturing of garments in Bangladesh may face a significant hit as factories are being set on fire, given that most textile units are owned by traders associated with (Sheikh Hasina’s) Awami League Party,” the government official quoted above said.
“In this scenario, India might fill the gap and become a supplier of garments to developed economies, although this would come at a cost,” he added. “Bangladesh, being on the list of Least Developed Countries, enjoys zero duty benefits, while Indian goods face tariff barriers.”
Also read | Now Bangladesh shows the risk posed by unresolved job crises
Also, India may be compelled to maintain cordial relations with Dhaka and refrain from imposing duties on garment imports, which are currently duty-free.
“It’s very early to speculate, but if borders remain closed and duty-free export-import activities are halted, it could significantly increase demand. This might benefit the Indian garment industry,” said Anil Buchasia, executive member-eastern region, Apparel Export Promotion Council.
“About 85% of Bangladesh’s foreign exchange comes from the garment industry. Given the significant political involvement in this sector, it’s likely that the political class in Bangladesh will take swift control of this segment,” Buchasia added.
Indian companies with operations in Bangladesh are already feeling the heat.
Gurugram-based clothing manufacturer Pearl Global Industries Ltd said its Bangladesh facilities were temporarily non-operational due to the curfew imposed in the country. Its shares fell by more than 3% to ₹906 apiece on NSE on Tuesday.
A spokesperson of the Union ministry of commerce and industries didn’t respond to emailed queries.
Beyond trade and business
On Tuesday, following attacks on minorities in Bangladesh, India’s external affairs minister S. Jaishankar said India remained concerned about the status of minorities in the neighbouring country until law and order is restored.
“We are in close and continuous touch with the Indian community in Bangladesh through our diplomatic missions. There are an estimated 19,000 Indian nationals there, of which about 9,000 are students. The bulk of the students have already returned to India in the month of July on the advice of the High Commission,” Jaishankar said in the Rajya Sabha.
Dhar, the economist quoted earlier, flagged another major concern.
“If the political crisis escalates and starts affecting the economy, and there is instability as it looks like law and order have broken down completely, it is a worrying sign,” Dhar said.
“I am also worried that as economic uncertainty deepens and people start losing their jobs, there are chances of illegal migration.”
With inputs from Rituraj Baruah, and Subhash Narayan.
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