How Sheikh Hasina’s ouster may impact India-Bangladesh trade ties

What is the scale of bilateral trade between India and Bangladesh?

In trade terms, Bangladesh is India’s biggest partner in the subcontinent, and India is Bangladesh’s second biggest partner in Asia after China. Their total bilateral trade amounted to $13 billion in the financial year 2023-24, according to the Union Ministry of Commerce.

Bangladesh is the biggest export destination for India’s cotton, accounting for 34.9% of India’s total cotton exports (some $2.4 billion in FY24). Other major Indian exports to Bangladesh are petroleum products and cereals. India’s top import from Bangladesh are readymade garments, amounting to $391 million in FY24. In recent years, Bangladesh has emerged as a major global hub for textiles.

In October 2023, India and Bangladesh began discussions on an FTA during a meeting of the Joint Working Group on Trade in Dhaka. An FTA would reduce or eliminate customs duties on goods traded between India and Bangladesh, and ease norms to help promote further trade and investments.

A 2012 working paper published by the World Bank estimated that a full FTA for goods would increase Bangladesh’s exports to India by 182%, whereas a partial FTA could lead to a 134% increase. However, an FTA accompanied with improved transport infrastructure and better connectivity could see Bangladesh’s exports rise to 297%. India, too, would see an increase to its exports by as much as 172% in this scenario. A successful FTA would substantially expand Bangladesh’s market reach and give Indians access to more manufactured goods.

It is unclear if and how an FTA plan would proceed under the interim Bangladeshi government, or the dispensation to follow.

Infra & connectivity

Infrastructure and connectivity has been a growing part of India-Bangladesh ties, according to the Minister of External Affairs. India has extended three lines of credit to Bangladesh since 2016 amounting to $8 billion for the development of road, rail, shipping and port infrastructure. In November 2023, two joint projects – the Akhaura-Agartala cross-border rail link and Khulna-Mongla Port rail line – were inaugurated.

The latest Akhaura-Agartala link, which provided an alternate route from mainland India to the Northeast, was the sixth cross-border rail line between the countries. This has cut down the travel time (by train) between Agartala and Kolkata from 31 hours to 10 hours and was expected to boost tourism, trade, and people-to-people exchanges between the two countries.

A disruption in Indo-Bangladesh ties could thus restrict India’s access to the Northeast, which will be connected to mainland India only through the narrow “Chicken’s Neck” — only 22 km at its narrowest — between West Bengal and Assam.

Besides rail, there are currently five operational bus routes between India and Bangladesh, including connections from Kolkata, Agartala and Guwahati to Dhaka. In 2023, the countries had agreed to operationalise the agreement for the usage of the Chittagong and Mongla ports to ease the movement of cargo between mainland India and the Northeast.