Home ›› 28 Aug 2022 ›› Opinion
Integration with economies in the world has become timely demand considering future economic challenges. Bangladesh, being a least developed economy has already shown its prowess in various macroeconomics indexes. Among South Asian economies, Bangladesh’s performance has been really admirable in respect of fueling its growth rate. The socioeconomic condition in Bangladesh drew attention to the world’s people. Given improved index in some areas, the United Nations (UN) recommended Bangladesh for turning into a developing nation in 2026. Bangladesh is lucky enough to have such type of recognition from the UN after 50 years of independence. Bangladesh now needs foreign direct investment (FDI) inflow due to grow even faster economically. In respect of FDI inflow, Bangladesh lags far behind compared to other South Asia economies. In 2021, India got US$ 44.73 billion in FDI whereas only US$ 2.9 billion came to Bangladesh as FDI (World Investment Report 2022).
Though Bangladesh is going to change its unenviable brand LDC, the country is set to face huge challenges in sustaining its development in the global arena. Trade facilitation, currently enjoyed by Bangladesh from the European Union, is likely to be withdrawn. The United Nations Conference on Trade and Development (UNCTAD) came up with a study titled “Textiles and Clothing in Asia graduating LDCs: Challenges and Options”. The study was carried out in five countries- Bangladesh, Cambodia, Lao People’s Democratic Republic (PDR), Myanmar and Nepal.
According to a UNCTAD study report, the country is likely to lose 14.28 per cent or US$ 5.73 billion worth of export earnings annually after its graduation to a developing nation from the least-developed country status.
If Bangladesh is deprived of Duty-free-Quota-free (DFQF) facility from the EU, its export earnings is likely to fall drastically. The country’s earnings mainly come from two ways- export and expatriates’ remittance. The government has already set targets to earn 67 billion US Dollars in FY 2023 to boost the economy.
Ultimately, there are no alternative ways but to increase export to the different countries. China and India are widely known as key trading partners of Bangladesh. But, Bangladesh’s exports to those countries are insignificant in volume. In FY2022, Bangladesh’s import from India was recorded at around 13.9 billion US dollars whereas export to India from Bangladesh was 2.0 billion US dollars. India, the second-ranked trade partner of Bangladesh, has been dominating Bangladesh in the trade arena. It is essential to know that Bangladesh is India’s 6th largest trading partner. The World’s second-biggest economy, China is playing a similar role to neighbouring India. The huge trade deficit between these two economies is being widened.
Recently, Bangladesh and India have devised a plan to increase their trading by signing the Comprehensive Economic Partnership (CEPA). CEPA is supposed to appear as a blessing for both South Asian economies.
CEPA will work as a substitute for the Free Trade Agreement (FTA) that ensures trade benefits in many ways. But, FTA is slightly different from CEPA. CEPA is expected to give a wide coverage for goods and services, investment, intellectual property rights and e-commerce.
A Dhaka-Delhi joint feasibility study revealed that Bangladesh will see an increase of 190 per cent in export earnings while it will be 188 per cent for India. Around 1.72 per cent rise in Gross Domestic Product (GDP) in Bangladesh is expected from CEPA whereas India sees 0.03 per cent – the study report said. The proposal on the CEPA issue came first from the Indian side during a high-level meeting in New Delhi held in 2018. India has already signed CEPA with three countries– Japan, Korea and the United Arab Emirates (UAE).
The CEPA will provide a win-win scenario for both nations because of getting an opportunity in respect of doing investment. According to the feasibility study report, India will get a chance to invest in the area of food, pharmaceuticals, leather and leather products, textile and apparel sector, agro-based industries and farm machinery plants, automobiles, light engineering and electronics, ceramics, ICT sector, banking and financial services, telecommunications and mega construction project.
On the contrary, Bangladesh goes for investment in India in the field of food and beverages, agro-processing, pharmaceuticals, plastics and rubber products, leather and leather products, textile and apparel, jute and jute products, cement, spinning mills, electronics and batteries, travel and tourism and ICT sectors.
The two next-door neighbours – Bangladesh and India– had been enjoying a pact titled ‘South Asia Free Trade Area” (SAFTA). Under SAFTA, Bangladesh is entitled to have duty-free and quota-free (DFQF) market access to all products except 25 tobacco and alcoholic items. But, the DFQF facility provided by India will be no more in the LDC graduation era in 2026. The SAFTA came into force in 2006 with eight members of SAARC in the aim of increasing intra-regional trade in South Asia. As Bangladesh is supposed to lose the SAFTA facility following the LDC graduation issue, the CEPA pact has emerged as a timely development which is better than FTA in this writer’s opinion.
The SAFTA pact avoided the foreign direct investment (FDI) issue where CEPA included the FDI issue as a high priority. As per CEPA, Indian citizens are allowed to bring capital to Bangladesh for investment. India’s investment in Bangladesh is on the rise.
According to media reports, Indian investment in Bangladesh is not more than 4.0 billion US dollars. Hopefully, the investment trend goes up in the coming days after striking the CEPA pact. When Prime Minister Sheikh Hasina visited India in 2017, the private sectors belonging to India agreed to invest in Bangladesh. During her visit, the Indian private sector signed several agreements for increasing investment up to 9.0 billion US dollars or more. Now, CEPA has emerged as the facilitating arrow in the affair of investment. But, the CEPA did not favour Bangladeshi investors who need to take prior permission from the Indian government to do investment there.
Bangladesh is set to lose import tax revenue from the CEPA pact resulting in a sorry state in tax to GDP ratio. Bangladesh earns Tk 17, 964 crores from India as import duty. Around 60 per cent of revenue comes at the import stage in the form of advance income tax (AIT). According to the National Board of Revenue (NBR), revenue at import stages grew by around 76.12 per cent from FY 2016-17 to 2020-21. Since, Bangladesh is yet to bring diversification in the export arena, the trade benefits from CEPA are expected an insignificant level. On the contrary, India will gain more at the beginning. Neighbouring states in India bordering Bangladesh would be benefited in many ways from Indo-Bangla CEPA.
Since the proposed CEPA emphasized trade liberalization, the two neighbouring nations are set to experience improved situations in bilateral trading. Bangladesh, because of being an import-oriented economy, the trade balance is in favour of India until now. With an average US$ 10 billion trade deficit with India, Bangladesh will very little benefit from the proposed CEPA. So the deficit has to come down significantly.
India has so far failed to resolve bilateral trade disputes in the affairs of anti-dumping duties imposed on Bangladeshi jute goods. Ahead of signing CEPA, existing trade-related disputes should be settled by the Indian side. As CEPA promises to strengthen bilateral economic relations, the existing trade facilities under SAFTA and SAARC Agreement on Trade in Services ( SATIS) must be given due emphasis. Considering the pros and cons regarding CEPA, Bangladesh should move ahead in signing the pact.
The writer is an economic affairs analyst. He can be contacted at : mazadul1985@gmail.com.
