Sunday, 13 Oct, 2024
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Bangladesh has emerged as India’s leading trade partner in South Asia, with bilateral merchandise trade hitting $13 billion in FY 2023-24. This trade relationship yields a significant surplus for India, amounting to $9.2 billion.
Indian companies are adopting a wait-and-watch approach amid the political upheaval in Bangladesh, as bilateral trade and investment ties with the neighbouring country face unprecedented strain, marking the most severe weakening of relations in more than fifty years. Following the removal of Sheikh Hasina as Prime Minister of Bangladesh last week, Indian companies with operations in the country are closely monitoring the situation, assessing how the regime change might affect their business in the coming months.
Notably, the Adani Group, one of India's largest conglomerates, has established a significant presence in Bangladesh, particularly in the power and food sectors. Additionally, several FMCG giants, including Marico, Emami, and Dabur, have set up manufacturing facilities and distribution networks across the country, further strengthening their foothold in the Bangladeshi market.
Adani Power Ltd (APL), which operates a 1,600-megawatt thermal power facility in Godda, Jharkhand, provides electricity to Bangladesh through a cross-border transmission network managed by Adani Energy Solutions Ltd. Although the company has upheld a steady power supply, it is experiencing several months of overdue payments from the Bangladesh Power Development Board (BPDB).
Dhaka is India's leading trade partner in South Asia, and New Delhi is Bangladesh's second-largest trading partner in Asia. Despite this close economic connection, Bangladesh represents only 2.53 per cent of India's total exports. Experts are of the view that that the current political unrest in Bangladesh is unlikely to have a substantial impact on India's overall export performance for the fiscal year.
Data from the Ministry of Commerce reveals that in the fiscal year 2023-24, India exported goods valued at Rs 91,614 crore to Bangladesh, while imports from Bangladesh totalled Rs 15,268 crore. This trade balance resulted in a surplus of Rs 76,346 crore for India. These figures underscore Bangladesh's critical role as a major trading partner for India, suggesting that any disruptions in this trade relationship could have significant repercussions for both nations' economies.
However, while the broader effect might be limited, certain industry sectors are expressing concerns about potential repercussions for their specific markets.
According to the latest figures from the Bangladesh Investment Development Authority for 2022-23, New Delhi is now the second-largest source of proposed foreign and joint venture investments in Bangladesh, after Beijing. India has proposed investments totalling around $185 million, compared to China's around $425 million. This marks a mega increase from previous years, when Indian investments were relatively lower. Historically, from 2000 to 2023, India ranked ninth in foreign direct investment in Bangladesh with $689 million, lagging behind China ($1.3 billion), the US ($3.9 billion), the UK ($2.8 billion), and five other countries, including Malaysia ($851 million).
India’s share of investment proposals in Bangladesh surged to 24.1 per cent in 2022-23, up from just 0.8 per cent in 2018-19, representing a 350 per cent growth in absolute terms.
Andrew Wood, Director of Sovereign and International Public Finance Ratings (Asia-Pacific) at S&P Global Ratings, has noted that India’s global trade profile is highly diversified and significantly larger than its bilateral trade with countries such as Bangladesh.
"Any direct impact is unlikely to significantly affect India's overall trade position for the fiscal year... India's external position remains robust, and by our calculations, it is a net creditor to the world," he remarked.
Bangladesh has emerged as India's foremost trade ally in South Asia, with bilateral merchandise trade between the two nations soaring to $13 billion for the fiscal year 2023-24. This exchange has resulted in a significant trade surplus of $9.2 billion, as per Indian government sources. Additionally, Bangladesh has been a key contributor to India's tourism industry, with 2.6 million Bangladeshi visitors—representing 23.6 per cent of all international arrivals—making their way to India in 2019, the most recent year unaffected by the pandemic.
If we juxtapose New Delhi and Beijing, the early 2000s saw India and China with similar stakes in Bangladesh's import market, with India holding a slight advantage in 2003. However, OEC data indicates that Beijing has since made significant gains, commanding a 31 per cent share of Bangladesh's imports by 2020, while New Delhi's share has slipped to 16 per cent.
According to data from Bangladesh Bank, Beijing has overtaken New Delhi in investment in Bangladesh. While India's annual investments exceeded those of China until 2017, China has consistently outpaced India from 2018 onwards, with the exception of 2020. By 2021, Chinese investments in Bangladesh were more than three times the amount of Indian investments.
If the political unrest in Bangladesh continues for an extended period, it may lead to a substantial shift in export orders towards India. A report from the rating agency CareEdge suggests that in the short term, India might experience an increase in monthly export orders worth $200-250 million. Over the medium term, this figure could rise to approximately $300-350 million. The report reveals that Bangladesh's ready-made garment exports have already dipped by 17 per cent in the first quarter of the current fiscal year compared to the same period last year.
Meanwhile, exports of agricultural products from India to Bangladesh, particularly onions, have restarted through the land border, though the volume remains limited. This resumption follows a hiatus caused by a political crisis, according to suppliers and trade officials from the neighbouring nation.
