Trade cooperation between Bangla

Trade cooperation between Bangladesh and India with Special Reference to the North-East India

Bangladesh-India trade cooperation is perhaps not growing proportionately to the warmth, emotion, good will and friendship these two countries share with each other. A substantial trade deficit (USD 2.5 billion) with a balance tilted to the Indian side seems to be the major point of discontent both for the government and business community in Bangladesh. There exists host of complementariness between Bangladesh and India which could and should properly be channeled into the mutual economic growth and benefits. But the opportunities have possibly not been optimally tapped and thus the trade volume has remained far below its potentials. The problems are, however, identified, needs are articulated and understanding between the two governments is well underlined but things are not seemingly implemented, at the pace as it is expected, on the ground. It is the need of the hour to work resolutely to step up mutual cooperation in this sector, not only to close the trade gap but also to give visibility to their relationship. The result oriented trade cooperation may be serving as a confidence building measure between the two countries and in turn make phenomenal contributions to the over all bilateral relations, positively impacting on the other long pending/ outstanding issues. At this critical juncture of bilateral relations, both India and Bangladesh should look ahead to redefine their bilateral trade and commercial cooperation in a way that would only promise prospects and opportunities but no challenges.

Bangladesh is surrounded by four-north-eastern states which all together share a 1,880 km border with Bangladesh with 1,434 km on land and 446 km riverine. North-east India may serve a gate-way for Bangladesh’s access to Indian markets and in the course of time may act as a game changer in the Bangladesh-India trade relations. For long, it has been argued that the geography has made the north-east India an isolated, landlocked region that shares less than 2 per cent of its borders with the rest of the country, and 98 percent with Bhutan, Bangladesh, Myanmar and the Tibetan region of China. The geographical disadvantages resulted in the cutting off the regions from trade and commerce, transport and communication as well as other linkages that existed in pre-partition days. Before the partition, the economy of the eastern side of Indian sub-continent functioned as an integral entity. Even the rail and Inland water trade was allowed up to 1965. However the perception on the land-lockedness of the north-east is now being eroded, gradually but noticeably. Efforts are being made to convert the region into the ‘land-linked’ from the ‘land-locked’. With a well thought-out long-term policy, this region has the potential to emerge as a strategic base for domestic and foreign investors to tap the potential of contiguous markets of China, Myanmar, Bangladesh, Laos, Thailand, Vietnam, Cambodia, Malaysia, Indonesia and beyond. With the growing realization of the Indian policy makers about the potentiality of the north-east, it appears to be a necessity for the policy makers of Bangladesh to view the region at the same wave-length which would bring mutual benefits to both the nations.

(i) The nature of complexities Bangladesh and India share in their bilateral trade cooperation with particular attention to the current economic realities and more specifically the factors that have led to the trade imbalance between the countries

(ii) role of the India's north-east region in determining the course of the Indo-Bangladesh trade relations, with particular emphasis on the competitive advantages to the north-east in this particular case

(iii) additional measures/initiatives required to facilitate trade interactions between Bangladesh and north-east region of India in particular and Bangladesh-India at large in view of the current developments in this sector

The following tables capture the trade figures between Bangladesh and India. While the first table shows the huge trade gap between the two countries, the second table manifests meager amount of trade India is conducting with Bangladesh in terms of its total global share.

The following tables demonstrate the range of products being traded between the two countries. It is important to note that cereals and cotton are the major exportable items from India to Bangladesh and both of them play a major role in the socio-economic development of Bangladesh. Cotton is required for industrial consumption, especially for the ready-made garments, one of the major revenue earners for Bangladesh.

Things that are understandably creating the yawning trade imbalance between Bangladesh and India are productivity issues and structural factors. India has productive advantages both in agriculture and industry as compared to Bangladesh because of its sheer size and scale of economies. Structurally Indian economy is much larger, more diversified and technologically advanced. All these factors have made Indian products very competitive, both in terms of price and quality in Bangladesh’s markets. On the other hand, India’s imports from Bangladesh are limited to a few items, as Bangladesh does not have a large supply base to offer a wide variety of products to India. The obvious result is an increase of trade imbalance between the two nations. But if one could assume that market competitiveness and technical/technological sophistication are the only factors that have been denying Bangladesh’s goods and services in India’s large growing market, he/she would be missing the larger part of Indo-Bangladesh trade relations. The other important factors causing this imbalance are the tariff and non-tariff regimes as described below:

Duty structure imposed by the Indian authority on the products from Bangladesh is complex and difficult to interpret as the duty varies not only from category to category but also differs from product to product belonging to the similar category. In some cases, basic duty may be nil but other forms of duty, in aggregation, may ultimately precipitate to a substantial figure which is at all not encouraging for exports from Bangladesh. The following tables indicate different type of duties one has to pay to export his/her products from Bangladesh to India:

CVD- Countervailing duty, CESS- kind of local taxation, ACD-Additional Custom Duty

It is observed also that there are different types of duty structures for similar types of products from which one may conclude that the duties are randomly imposed/calculated in terms of Bangladesh’s export to India. The following tables reflect the same.

Trade facilitation is not an isolated matter, rather it is a comprehensive matter which requires the coordination/combination of the elements involved in it- (a) simplification (Elimination of unnecessary elements and duplications in formalities, processes, procedures and documentations), (b) harmonization (Alignment of national procedures, operations and documents with international conventions, and practices, (c) standardization (Adopting internationally agreed formats and practices, procedures, standards and information) and (d) modernization (Provide adequate infrastructure, modernize and enhance efficiency through information technology across logistic chain). Some of the non-tariff barriers that are hurting hard Bangladesh-India trade relations are furnished below:

Restrictions on the movements of Bangladesh citizens: The movements of Bangladesh citizens inside the Indian cities for the purpose of business/investment or even for tourism/ medical treatment are not easy. Bangladesh nationals have to go through a number of formalities/procedures for the purpose. Bangladesh citizens are restricted to travel to certain north-east States like Mizoram and Nagaland. They also face problems in renting apartments for accommodations and are subject to police reporting on a weekly basis. Visa procedures adopted by the Indian authority for Bangladesh travelers are also not encouraging for good business interactions between the two countries.

Vehicle Movement restrictions: Bangladeshi trucks and drivers are not allowed to cross the 'no man's land' to unload the goods which is causing many unnecessary hassles in the transshipment of goods across the border. This is not only a hassle or time-consuming matter but also a costly affair. The costs pertaining to loading/unloading and warehousing are no less substantial and ultimately add to the product cost.

Technical Standards: Any products going to Indian markets from Bangladesh requires Lab test from CFL located in Calcutta or Guwahati as reports/certificates from Bangladesh Lab are not accepted by the Indian side.This is done for each and every consignment and it often takes at least 15 -25 days to get the CFL report. The products are held at the port till the arrival of reports and this long time waiting may affect the quality of products.

Infrastructure at Land Custom Stations: Logistics and infrastructures at the border specially countries enjoying geographical proximity and cross border trade play a vital role in boosting trade between the neighboring countries. Lack of infrastructure facilities at the LCSs between Bangladesh and India are causing delays in valuation and product clearance. Apart from this, there is also route- restriction of imports meaning that certain products are allowed to import/export through only a few specified land ports.

The following table gives a hint about days spent for a shipment to reach Petropole (Bangladesh land border) from Kolkata :

Banking barricades: Indian banks lack direct correspondence arrangements with Banks in Bangladesh and vice-versa. The absence of this sort of arrangements ultimately adds up to the product’s cost making the product lees competitive and less attractive.

The following table displays how deeply the tariff and non-tariff barriers impact on the value chain of a product. The figure reveals that 13% of the cost is increasing because of duty while the non-tariff barriers make the product cost rise up to 15%.

The major business/investment destinations in the north-east fall within 20 km perimeter from the Bangladesh capital, Dhaka which gives an exclusive attraction for business between Bangladesh and North-East India. Apart from the distance, the cultural affinity and similar needs and demands of their people also facilitate their bondage in many areas including trade and commerce. The table furnished below explores the competitive advantages of North-East India:

As reflected in the above table, per capita Agricultural land of every North-Eastern state is higher than that of Bangladesh. On the area of agricultural trade, Bangladesh and north-east could harness the potentials the sector offers and create a symbiotic condition to meet the agriculture and trade related demands of both the sides (using north-east’s land for agriculture as per needs and demands of Bangladesh).

Since many of the States in the north-east suffer from underdevelopment, they have huge demands for the outside products. Bangladesh can sell its products in the north-east which has a market for about Rs.25000 crore, nearly five times the trade deficit of Bangladesh. Bangladesh-north-east trade is mainly conducted through Assam, Meghalaya and Tripura with ranking Meghalaya number one in terms of trade volume (64% of total trade). The following tables feature trade routes and trade figure between Bangladesh and north-east of India:

A Joint Communiqué issued during the visit of Bangladesh’s Prime Minister to India in January 2010 dedicates several paragraphs in improving trade and commercial ties between Bangladesh and India. The Communiqué reads “with a view to encouraging imports from Bangladesh, both countries agreed to address removal of tariff and non-tariff barriers and port restrictions and facilitate movement of containerized cargo by rail and water.” Bangladesh side agreed to open its sea ports (Chittagong and Mongla) for the use by India, Nepal and Bhutan which would certainly make substantive contributions towards the enhancement of Indo-Bangladesh trade relations, particularly with the north-eastern part. Both sides agreed to declare Ashuganj and Silghat as ports of call; operationalise land customs stations at Sabroom-Ramgarh and Demagiri-Thegamukh and set-up border haats on a pilot basis at selected areas which are landmark initiatives in the trade cooperation between Bangladesh and north-eastern part of India.

While both the sides agreed to make Rohanpur-Singabad railway link available for Nepal, the construction of the proposed Akhaura-Agartala rail link were discussed on the official-level talks with a positive tone. Indian and Bangladesh railway officials recently completed technical formalities and finalized the alignments of the 11-km Agartala-Akhaura rail link.

Both sides agreed to allow the movement of trucks from Bhutan and Nepal to enter about 200 meters into Zero Point at Banglabandh at Banglabandh-Phulbari land customs station. India has decided to construct a bridge over the Feni river in southern Tripura to get access to Chittagong port for carrying goods and heavy machineries for the landlocked region. The proposed bridge to be built at a cost of Rs.13 crore will connect Sabroom and Bangladesh Ramgarh and would not only serve as a trading life line for the whole of north-east India but also help trade from the South-East Asian countries.

Bangladesh Commerce Minister visited India from 21 to 24 October 2010 during which a number of decisions apparently made at Bangladesh’s satisfaction included, among others, export of 11 lakhs bales of cotton to Bangladesh (it meets 30-35% of its cotton requirements through imports from India), duty free import of 1.7 million pieces of textile products in the last quarter of 2010, withdrawal of the requirement of a ‘Made in Bangladesh’ label on each jute bag exported to India and granting of transit to trucs from Nepal to Bangladesh up to Land Customs Stations.

The roads for Bangladesh-India trade interaction are not smooth and arguably bottlenecks are there, but these are not permanent. Most of the non-tariff barriers can be removed with due attention and little effort from both the sides. Both the sides should seriously consider the removal of trade barriers as the restriction on the legal trade may encourage the illegal trade and thus inflate the informal trade figure which is presently, as per a study, as much as the formal trade.

Transit/transhipment is an issue which has been discussed between Bangladesh and India since long. In the North-East Indian context, transit means the passage of Indian goods to the region from the other parts of the country through Bangladesh using Indian owned fleet, while transshipment means the movement of Indian goods to the region across Bangladesh using Bangladesh’s owned fleet. Currently there exists no transit but transshipment is there. The Indian side has been asking for sometime to allow them to use Bangladesh sea port, which would make the trade of north-east with the international market easier, faster and cheaper. Tea shipment from Assam has to travel 1400 km to arrive at the Kolkata port for onward shipment and similarly goods from Tripura travel 1645 km to reach at the Kolkata port, where as Tripura’s southern border town subroom is just 75 km away from Chittagong sea Port in Bangladesh.

Bangladesh may consider offering the transit facilities to India in the economic context and taking into cognizance the long perspective of India-Bangladesh relations. Not only that Bangladesh could charge transit fees from the Indian authority, the transit would have a range of spill-over beneficial effects including the development of infrastructures in Bangladesh. On the other hand, India could gain from reduction of transport costs for the products from north-east exported to the rest of the world making these exportable more competitive in the international markets. Transit may therefore serve a win-win situation for Bangladesh and India.

A new dimension to this debate is getting prominence that transit is now evolved into a regionalism, going beyond the bilateralism as Nepal and Bhutan want to use Bangladesh southern sea port for their commercial and economic purposes. Other than the bilateral negotiations on the connectivity between Bangladesh and India (particularly north-east), there are other proposals on the same issue such as Asian Highway and the SAARC multi-modal transport system which also need to be examined carefully and fitted into the India-Bangladesh relations.

Increased investment is surely a way forward to overcome the trade imbalance and that the Indian investments in Bangladesh in the fields of textiles, leather goods, agro-based industries, telecommunications and power may be welcomed. Bangladesh’s proposal for setting up of an exclusive economic zone should be positively explored by the Indian side.

Bangladesh may also be provided the opportunity to invest in India, especially in the power sector projects being undertaken by the Indian Union/State governments in the bordering States (such as Tripura etc) which would in turn ensure the regional energy security. In view of the growing energy demand of this region and developing energy crisis in the world, it is an imperative to have a sort of cooperation/collaboration between the regional countries in the sector.

Indo-Bangladesh free trade agreement may also benefit to the effect that Indo-Sri Lanka free trade agreement concluded in 2000 is reported to have benefited both the countries. The conclusion of comprehensive motor vehicular agreement may help facilitation of trade by facilitating seamless cross-movement of cargo up to the delivery points.

Since larger portion of Indo-Bangladesh trade takes place through the land border routes (mainly Benapole-Petropole, Hilli-Changrabandha) a serious consideration from both sides is required to address the hard-infrastructure (warehousing, banking etc) and soft-infrastructure (custom clearance, standardization etc) issues. The LCSs located in the north-east region also needs to be upgraded and properly equipped and manned.

Although a protocol on Inland water transport and trade is in place governing major inland waterways connectivity between the two countries, this water corridor seems to have not been used optimally in the past. A proper initiative needs to be taken to reactivate the water channels between Bangladesh and India which is commercially viable and economic. There is no direct flight running between Bangladesh and any of the north-eastern states which also need to be looked into from the business angle.

In the light of food crisis/inflation, the world is facing today, Bangladesh and India could seriously think about a joint collaboration in the area of agriculture and the north-east may play an important role to the effect as discussed earlier.

Bangladesh could chalk out a comprehensive plan to organize a trade-event on an annual basis in the different States of the north-east which would not only introduce its exportable items in the region but also familiarize the people of the region with Bangladesh’s tradition and culture. All of these would ultimately help to create a space for Bangladesh’s products in the north-east market.

An in-depth study needs to be conducted to determine the nature and size of the north-eastern market, need and demands of the people and range and scope of business/investment. Bangladesh side needs to be prepared accordingly. Bangladesh also needs to closely monitor activities of the competitors who are also trying to claim a sizable share in the north-east market.

Indian market has undergone a dramatic change in the last few decades, especially since it adopted its open-market policy way back in 90’s. Most of the major powers of the world are eying on the emerging market of India, either for business or for investment. This has been clearly expressed by the world leaders during their visits to India in 2010. Bangladesh needs to recognize the present reality and thus should devise reason-based strategy rather than basing on emotion/sentiment to make an entry into the Indian market. Bangladesh needs to prove its competitiveness in terms of cost and quality. On the other hand, India is required to rise above its mindset that as a big economy it could influence the course of relationship with the smaller neighbors including Bangladesh. And that India needs to take all the neighbors on board and give them a feeling of equal partnership. There are plethora of examples that country size alone can not all the time determine and dictate the nature of relationship with other countries (Brazil for instance). Many small countries have turned out to be influential players in the global economy (Singapore and Japan for examples). In this globalized world, the countries should think more about inter-dependence and mutual benefit rather than individual survivability or making others dependent on it. In this context Bangladesh-India is a natural choice of partnership developed on shared history, values and cultures.

The two countries can not completely rule out the regional and global influence on their bilateral relationship. If India fails to cut ice with Bangladesh, many other countries are ready to fill in the gap. Similarly, if Bangladesh takes time in responding to India’s request, India may turn its eyes to elsewhere. The countries should not lose the sight of the fact that they have something in common which they perhaps would not find in relationships with other countries.

North-eastern region is a natural market for Bangladesh and this should be explored in a deeper and creative fashion as Bangladesh enjoys certain locational and comparative advantages with regard to the north-east. On the other hand, closer economic integration and physical connectivity with Bangladesh would not just reduce the economic isolation of the region but more importantly these would also reduce the isolation of north-east with the mainland India. This is what perhaps underlies in the India’s look east policy. The development of Indian north-east is inextricably linked with India’s political, economic social and security issues. The development of the region would, understandably, serve India’s strategic purpose. Both the nations should, therefore, recognize the fact that Bangladesh’s economic development is in India’s interest and similarly India’s development including the prosperity of the north-east region is in Bangladesh’s interest.

1. “India to improve rail, road links to Bangladesh” published in the Mail Today, 07 December 2010.

3. New equation in cross-border trade, published in the Statesman, New Delhi, 11 October 2010.

4. Joint Communiqué issued during the Bangladesh’s Prime Minister’s visit to India in January 2010.

5. Status paper on India-Bangladesh Economic Relations, published by the Federation of the Indian Chambers of Commerce and Industry (FICCI), July 2009.

6. Paper presented by Mr. Abdul Matlub Ahmad, President of the Indo-Bangladesh Chamber of Commerce and Industry at the ‘India-Bangladesh Dialogue’ organized by the Asian Institute of Transport Development (AITD) held in New Delhi from 12-13 October 2009.

7. Paper presented by Mr. Ahsan Khan Chowdhury, Deputy Managing Director, PRAN-RFL Group, Bangladesh at the ‘India-Bangladesh Dialogue’ organized by the Asian Institute of Transport Development held in New Delhi from 12-13 October 2009.

8. Paper presented by Mr. Raghu Dayal, Director (Logistics), AITD at the ‘India-Bangladesh Dialogue’ organized by the Asian Institute of Transport Development held in New Delhi from 12-13 October 2009.

* Mohammad Monirul Islam is Counsellor, Bangladesh High Commission, New Delhi. The paper expressed writer’s personal opinion and does not reflect the government’s position/views.