Trade relation between India and Bangladesh

Asymmetry may be an appropriate word to describe the trade relationship between India and Bangladesh. Historical data indicates a perennial and yawning trade deficit since independence. Historically, the top three trade partners of Bangladesh China, the USA, and India constitute over one-third of total trade-in value but recent statistics indicate that India may emerge as the second biggest trade partner in the near future. China would dominate as the largest trade partner with an average of 15 per cent of total trade value, the share of India in total trade now exceeding over 10 per cent with dwindling share of the USA with an average of about 8 percent. However, the bilateral trade deficit with China and India is currently over 10 per cent but Bangladesh enjoys continuous trade surpluses with the USA.

The trade deficit of Bangladesh with India grew by about USD 580 million in 2001 from just USD194 million in 1991. This represents almost a three-fold increase in a decade. Bangladesh imported USD 200 million against the export of only USD 6 million in 1991. In 2001, Bangladesh exported only USD 17 million against an import of USD 890 million. A comparison of the trade deficit between 2021 and 2011 unfolds a wider deficit, the trade deficit was over USD 7 billion in 2021 against a trade deficit of USD 4 billion in 2011. Bangladesh is now the fifth-biggest export destination of India but may surpass Hong Kong to become India’s fourth-biggest export destination next year. With export earnings stagnating at the threshold of USD 2 billion, the trade deficit may be at the tune of 9 billion in near future. With the current trend of export and import, the trade-in value may reach USD 16 billion within the next two years but the trade gap may cross the USD 10 billion mark. Though Bangladesh’s bilateral trade with India is at the threshold of 10 per cent of the trade value, it is hovering around 1 percent in about four decades in India’s trade with the rest of the world. Bangladesh’s export and import from India as a percentage of total export and import manifest a wide divergence in percentage value with an increase in absolute value; whereas the value of export as a percentage of Bangladesh’s total was 1.88 in 2011 but the import from India as a percentage of Bangladesh’s total import was 12.06 percent. With an increase of the trade deficit near USD 10 billion in near future, the divergence in percentage may be unsustainable.

The dilemma with this huge trade deficit with India addresses two immediate issues; one related to export augmentation with India to finance the growing trade deficit; the other is the sustainability issue of trade surplus with the EU and USA in financing the deficit. The Covid-19 pandemic may be an obstacle in the attainment of the second alternative as there is uncertainty in navigation and air transportation. The first option in reducing the deficit is more pragmatic in this post-pandemic period.

Governments in both countries need to work out the complementary between the economies to find the comparative advantage in each country in reaping the maximum benefit of trade. The threefold increase in transportation cost in the EU and USA constitutes a major hurdle in augmenting export earnings and ensuring adequate surplus to pay for the trade deficit of both India and China. Bangladesh and India enjoy commodity and traffic movement in three modal transport networks, road, railway, and river that could reduce the transportation cost at a minimal level. It is incumbent on both the governments to work out the rigidities and challenges in reducing the deficit so that the gain from trade is more even and not one-sided. Unfortunately, interregional trade in South Asia accounted for barely 5 percent of the region’s total trade; one-fifth of the ASEAN region. Currently, sub-optimal transport integration is a key factor for the low trade volume and both governments should sincerely work in the activation of the Bangladesh-Bhutan-India-Nepal Motor Vehicle Agreement (MVA) that could facilitate vehicle movement in order to circumvent the trans-loading problem. Transport connectivity could increase national income by at least 10 per cent for both countries.

The issue of comparative advantage in the context of inter-industry trade between the two countries figures prominently in reducing the trade deficit. Bangladesh enjoys a comparative advantage in a few industries where easy access and duty-free export to India could ease the pressure of deficit. Most important are apparel, textile articles, footwear, natural fibers, hides and leather, and seafood. The deficit may also be reduced by limiting the intra-industry trade through production efficiency and marketing management in Bangladesh especially in many agricultural products. One outstanding example is the import of onion and the price gyrations in the event of shortages owing to abrupt policy changes by India.

Trade augmentation with the northeastern part of India’s seven sisters is another avenue in reducing the deficit. Bangladesh has five land ports with Tripura, Meghalaya, and Assam. However, certain non-tariff barriers often harm the smooth flow of commodities. Anti-dumping duty on Bangladeshi jute products against the consumer interest was a case in point that India, unfortunately, addressed as due to a subsidy by the Government of Bangladesh. Again, the list of duty-free access should cover products where exists huge potentialities in bilateral trade creation.

A comparative perspective of two economies in trade performance criteria such as total export and imports of goods and services in global ranking asserts that India enjoys a commendable position in all the criteria. Bangladesh compares with only one criterion, the openness of the economy. Bangladesh with an economy of only $ 400 billion [ equivalent to Indian export target in 2020-21] deserves many incentives for fair trade with India, the fifth-largest economy in the world with a GDP of above USD 3 trillion. Trade with India may not be fair with a disproportionate share of imports of 90 percent of total bilateral trade only accentuating the deficit and uneven gain from trade.

The writer is the Treasurer and a Professor at the School of Business and Economics, United International University. He may be contacted at obaidur@eco.uiu.ac.bd