Dialogue  January - March, 2009 , Volume 10  No. 3

Bangladesh – India Trade: Widening Gap

R. M. Debnath*

Bangladesh – India trade relation involves an irritating issue like trade gap between the two countries which causes concern here and acts as a strong impediment in the improvement of bilateral relations. Other issues of concern in the area are informal trade, free trade agreement in line with Srilanka and free trade agreement under the SAARC set up. The trade gap issue is so burning that in all meetings of the two countries it is raised and discussed without, however, any result. In the immediate past such an occasion was the bilateral meeting held in early November in New Delhi between Dr. Manmohan Singh, Indian Premier and Dr Fakhruddin Ahmed, Chief Advisor, Bangladesh. While discussing trade issue Mr. Singh assured Mr. Ahmed of reducing trade gap between Bangladesh and India. Assurance was given by Mr. Singh when Bangladesh Chief Advisor met him during a visit to Delhi to attend BIMSTEC (Bay of Bengal Initiative For Multi Sectoral Technical and Economic Cooperation ) meeting. Mr. Ahmed requested Indian Premier to increase Bangladeshi export to India through removal of non tariff barriers. Citing example of import of 80 lakh pieces of garments from Bangladesh, Mr. Singh assured that India would take appropriate steps to reduce the existing trade gap between Bangladesh and India.

    Currently Indo – Bangla trade gap is huge. Bangladesh imported goods worth Tk. 23,213.86 crores during the last fiscal 2007-08 from India whereas exports to India amounted to only a few hundred crores. Imports by Bangladesh from India amounted to Tk. 15,373.20 crores only during the previous fiscal i.e. 2006-07. This suggests that import recorded an increase of about Tk. 7,840.66 crores. During the period imports surged because of huge amount of rice import by Bangladesh in view of an unprecedented increase in shortage of food caused by natural calamities. Bangladesh’s rice import from India during 2007-08  totalled about $ 874 million. Such bill amounted to $ 180 million only in 2006-07. The bill on account of rice import from India was much lower in 2005-06. Payment during the fiscal 2005– 06 on account of rice import was only $ 117 million. The phenomenon of increasing imports from India by Bangladesh has not been caused by rice import alone. In fact, this is a long term phenomenon. It has been increasing uninterruptedly for the last few years specially after the withdrawal of tariff restrictions substantially in the mid – eighties.

       Increased import from India has given rise to another trade scenario in the country. It is observed that an intense competition by India and China has been going on to dominate Bangladesh’s import trade. During the fiscal 2006-07, China was the top import source for Bangladesh followed by India. But during the fiscal 2007-08, China was overtaken by India as top import source for Bangladesh. The country’s Central Bank - Bangladesh Bank - data shows that Bangladesh imported Tk. 1,719.04 crore worth of more goods from India than China in the last fiscal 2007-08. It may be mentioned here that China was the top import source of Bangladesh during the previous two fiscal. How could it happen? Capital machinery, textile fabrics and chemicals etc. items of exports are helping India to become top source of import. Not only for such goods, India is the main source of import for daily necessities like rice, sugar, onion, pulse, garlic and ginger. India is also major source of import for mineral products, motor vehicles, spare parts and iron products etc.

    It may be pertinent to mention here that total import bill by Bangladesh increased by about 26 percent in 2007-08. In dollar terms it was $ 21.63 billion last fiscal. Import bill by Bangladesh for the fiscal 2005-06 and 2006-07 amounted to Tk. 99,130 crore and Tk. 1,18,489 crore respectively. In dollar terms, the amounts were $ 14.76 billion and $ 17.16 billion respectively.

      Trade gap is one of the important aspects of India-Bangladesh trade relationship. Other important trade issues of special interest as well as concern involves issues like informal trade between the two countries, bilateral free trade agreement in line with Srilanka and multilateral free trade agreement among SAARC countries.

    It has already been mentioned that the official trade gap has been increasing in favour of India every year. In 2004, India exported goods worth $ 1.7 billion only to Bangladesh whereas imports by India from Bangladesh amounted to only $ 78 million. Official records show that Indian exports to Bangladesh have been showing an increase by 9.1 percent annually since 1996-97 as against its general growth of total merchandise exports by 8.4 percent. On the other hand, imports by India from Bangladesh during the same period grew by only 3 percent annually. It is noteworthy that during this period Indian total imports showed on average annual growth of 9.2 percent. More Indian exports to Bangladesh compared to imports have given rise to Bangladesh’s large bilateral trade deficit with India consequently raising concerns here about perennial trade deficit. Normally such trade scenario could have led to political agitation by sundry parties. But this has not happened. It is partly because of the fact that combined trade deficit with India and China have been more than offset by huge trade surplus with the European Union and the United States.

     Trade statistics show that India conducts a very small part of its total trade with Bangladesh. Currently  only 3 percent of its total exports are meant for Bangladesh as against 0.01 percent of its total imports. Reversely, for Bangladesh imports from India accounts for about 16 percent of its total imports. It is noteworthy exports from Bnagladesh to India have declined recently. Currently it is only about one percent of total exports.

      Increasing trade gap apart, the problem of informal trade is there. There is no official estimate on the informal trade. But intelligent guess suggests that informal trade will be thrice the amount of formal trade. In this case also, similar pattern is observed. Large volume of goods is smuggled into Bangladesh whereas a much lower volume of goods is smuggled out to India. As a result, informal trade also goes against Bangladesh. Firstly Bangladesh’s over all trade deficit i.e. the combined trade deficit including both formal and informal trade increases. More so, Bangladesh loses a good amount of revenue since informal trade is beyond the Government taxation network.

     In view of the above, Government of Bangladesh in 2002 required import of sugar and textile yarn – two major import items from India - through seaport instead of land and river obviously to curtail smuggling and illegal trade through land border. Industry here did not like the measure and demanded the withdrawal of the requirement. But more importantly, the measure could not yield any observable result.

      Informal trade has become a part of life in Bangladesh so much so that Government in times of deteriorating supply of essential commodities keep border officially open so that goods can enter into the country without any administrative hindrance. For example, the last 4 party Government did it during religious festival Eid. It serves at least two purposes. First smuggled goods leave a moderating impact on the price level since no taxation is involved in such case. Second, millions of people living in the border areas live on it, some people even thrive on it.

      Alongside the above trade scenario, it has been a considered opinion in the academic circle that trade deficit on account of both informal and formal trade caused by reduced transaction cost, quicker delivery and geographical proximity can be taken care of by free trade between Bangladesh and India. Such an attempt was made under SAARC set up first by adopting preferential trade agreement (SAPTA) and then through a declaration to undertake free trade (SAFTA). But it appears that these attempts are yielding no tangible results because of bureaucratic bottlenecks from both sides, specially from India.

     Though free trade initiative is practically stalled, yet suggestions are now being floated for bilateral free trade agreement with India in line with Srilanka. Whatever may be the case – free trade under SAARC umbrella or free trade bilaterally – it seems that they are parts of a larger deal between Bangladesh and India. Even the BIMSTEC – a recently initiated block where both India and Bangladesh are members – is no exception to that.

     The larger deal encompasses issues like extension of transit facility to India, access to India of Chittagong port facilities, sharing the development effort of Eastern India by Bangladesh, joint electricity production and Burma – Bangladesh – India gas link etc. The question of overall economic cooperation is, however, on the agenda since the birth of SAARC more than two decades ago. Thus the steps so far taken officially to further trade and economic relations between the two countries are quite impressive. The declarations made each year in SAARC summit also reflect the intentions of the leaders of the region. But the results so far achieved are negligible. It seems that trade and economic relationship has become hostage of the political environment clouded by mutual mistrust and suspicion. Unless leaders rise above and act like statesman, nothing tangible is going to happen in near future.