The ongoing political unrest in Bangladesh, if it leads to prolonged slump in that country’s economic activities, India’s trade with it could suffer in the near-to-medium term. However, this would not have any material impact on India’s overall external trade, as the country is well-diversified exporter, the share of Bangladesh in its merchandise exports is just 2.5%.
In 2023-24, the bilateral goods trade between India and Bangladesh was $12.9 billion, with a trade surplus of $9.3 billion in favour of India.
Trade between the two neighbours have been on the decline in recent years, partly due to the dollar shortage witnessed by Bangladesh buyers that made payments difficult. Low domestic demand in Bangladesh due to high inflation also adversely affected shipments from India.
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The turmoil has occurred at a time, when both the countries were looking forward to a rise in trade in the current financial year.
As Bangladesh experiences political turmoil, all its political factions need to protect garment and other factories and keep supply lines open across the border to sustain trade and economic activity, Global Trade Research Initiative (GTRI) said.
The political developments in Bangladesh are a significant concern for Indian engineering exporters, EEPC India Chairman Arun Kumar Garodia said.
The total value of engineering goods exported to Bangladesh during the April-June period of the current financial year 2024-25 stood at $ 542.1 million, down 8.2% year-on-year from $590.4 million in the same period last year, due to weaker demand.
“The ongoing political uncertainty may further worsen the situation and impact engineering exports,” Garodia said.
India’s exports to Bangladesh are highly diversified and fall in two categories: daily use items and intermediate goods.
India’s exports daily use items such as wheat, rice, lentil, onions, spices, sugar, oil cake, electricity, are crucial for the people, any disruption in supplies will lead to massive price rise in Bangladesh and inconvenience to people.
India’s intermediate exports include cotton, textiles, iron and steel, electronics, machinery, auto parts, petroleum products needed by Bangladesh factories as inputs.
Notably, most of India’s exports to Bangladesh are subject to full tariffs and fall outside the South Asian Free Trade Area (SAFTA) agreement. In contrast, Bangladesh’s exports to India are concentrated in a few categories, with textiles, garments, and made-ups making up 56% of their exports. These items benefit from zero tariffs under the SAFTA agreement, extended by India, GTRI said.
India is a well diversified exporter and a blip in its exports to Bangladesh is unlikely to have any meaningful impact on India’s overall trade position for the full year, S&P Global Ratings said on Tuesday.
Bangladesh is facing its worst political crisis since independence in 1971, with Prime Minister Sheikh Hasina resigning amid massive anti-government protests.
Bangladesh Army Chief General Waqar-uz-Zaman on Monday announced that an interim government would be taking over the responsibilities.
S&P Global Ratings, Director, Sovereign and International Public Finance Ratings (Asia-Pacific), Andrew Wood said that S&P expects domestic demand conditions in Bangladesh in this period of time to be weak and probably going to entail less support for exports from other countries, including India, into Bangladesh.
“India is a well diversified exporter to the entire world and its trade profile is significantly larger than bilateral trade relationships with economies like Bangladesh.
“Whatever the impact is going to be on directly is really quite unlikely to have a meaningful impact on its overall trade position for the fiscal year… its external position is quite strong and is a net creditor to the world by our calculation,” Wood said in a webinar.
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