Bangladesh had imported goods worth $15.18 billion from neighbouring India back in FY22, but the figure dropped to $10.02 billion in FY23 – mainly due to the central bank’s import restriction policy implemented to stem the steady depletion of forex reserves.
The finance ministry’s draft budget for FY25 shows a continuation of this trend, indicating that the imports from India would further slip to $5.92 billion in FY24.
In the first three quarters of this FY, Bangladesh earned $1.46 billion from India through merchandise exports, with a 3.27 per cent year-on-year growth. In FY23, the earnings stood at $2.13 billion, according to Export Promotion Bureau (EPB) data.
Economists and industry insiders say Bangladesh usually imports refined petroleum, food grain and textile materials, especially cotton and yarn, from India. The country meets nearly 70 per cent of Bangladesh’s wheat demand, and most of the imported onions and rice.
But in this FY, India banned these food grain exports for months citing a domestic supply shortage, and that is why Bangladesh’s importers were forced to look for alternative markets.
On the other hand, Bangladesh has been facing a severe forex reserve shortage throughout the last two years, causing the central bank to implement a restrictive import policy. This is one of the key reasons why the country’s overall imports slipped.
Latest data from the central bank show that Bangladesh’s import payments for the July-March period of FY24 declined by 15.42 per cent compared year-on-year. Some local businesses have shifted to imports from China in recent years, which is also a factor.
Besides, most businesses in Bangladesh are navigating troubled waters because of power and energy shortages, high inflation, and fewer export orders due to the global economic headwinds.
As Bangladesh’s key imports of materials from India are industrial raw materials and capital goods, these factors contributed significantly to the reduction in overall imports from India.
According to the central bank data, during the July-March period of FY24, imports of petroleum goods declined year-on-year by 14.2 per cent, RMG raw material declined by 9.1 per cent, other intermediate goods declined by 20.2 per cent, capital machinery declined by 23.7 per cent.
Commenting on the issue, former governor of central bank Salehuddin Ahmed said, “Our trade deficit with India is much higher. Businesses had believed that if they increased imports from India, their export volume to this country would go up significantly as well.
“But India already reduced, or is in the process of reducing the import facilities for Bangladesh, and also banned the export of many food grains, which are essential for Bangladesh. That is why local businesses intentionally or unintentionally shifted to other markets, especially China, to meet their demand.”
Speaking to The Business Post on condition of anonymity, an apparel manufacturer said, “A large number of entrepreneurs used to cover their cotton, yarn, and fabric demands through imports from India.
“But nowadays, we have increased our imports from the USA and West African countries.”
He added, “Many businesses also shifted to China for rapid delivery of imported goods. The USA cotton quality is world-class, and African cotton is cheaper. Besides, the volume of our export orders has not gone up too much, although their values have increased.
“Under such circumstances, imports have slipped from India by a significant level.”
Import state of affairs
According to the finance ministry’s projection in their draft budget, India’s market share in Bangladesh will be 13.42 per cent in FY24, while the Chinese market share will stand at 28.14 per cent.
During this period, imports from China are likely to reach $12.55 billion, compared to $21.12 billion, and $24.26 billion recorded in FY23 and FY22 respectively.
In FY24, Bangladesh’s overall import values are likely to stand at $44.1 billion, which is a year-on-year decline of 41.23 per cent compared to FY23's $75.06 billion.
Bangladesh fell into a forex reserve shortage at the end of 2022, and the central bank took a stronger position on imports to keep the reserves healthy. The monetary authority increased the LC margin for almost all goods by up to 100 per cent, except essential commodities.
This move is intended to discourage the opening of new LCs for luxury item imports.
The central bank secured a $4.7 billion loan from the International Monetary Fund (IMF) to tackle the reserve shortage, and $1.16 billion has already been disbursed by the global lender.
But the reserve shortage is persistent, and it recently dropped below $13 billion, according to the central bank.
Sounding a note of caution, Salehuddin Ahmed said, “The central bank’s import restriction policy is not good for a country’s economy, but the move was implemented anyway due to the ongoing shortage of forex reserves.
“At end of the day, we are an import-dependent country, and such a policy is creating barriers to economic growth, and encouraging inflation hikes.”
He pointed out, “This policy creates barriers to industrialisation, and interrupts the goods chain in local markets, as entrepreneurs fail to open Letters of Credit (LCs).
“The government should withdraw all restrictions from the money market, and take necessary policies to reduce import dependency.”
Bangladesh is facing severe inflation, with overall inflation in April hitting 9.74 per cent, and food inflation reaching 10.22 per cent. That is why actual wages in the country have declined. Manufacturers produced fewer goods due to these reasons.
The private credit growth was 10.49 per cent in March.
Former lead economist of World Bank Dhaka Office Zahid Hussain said, “Imports from India and other countries slipped as industrial production and consumer demand in Bangladesh declined steadily. A drastic decline in imports is not a good sign for the country’s economy.
“The central bank should focus on private credit growth, and increase consumers’ purchasing capacity by reducing inflation. Overall monetary and other policies should be reformed.”
The eminent economist emphasised reducing the trade deficit with India by increasing exports to that neighbouring country, and recommended focusing on product diversification.
