Indo-Bangla trade war
India has, in the past, always maintained a pleasant diplomatic relationship with Bangladesh. However, when ousted former Prime Minister of Bangladesh Sheikh Hasina was given political asylum in India, it escalated diplomatic tensions between the two countries. These tensions intensified further when both countries accused each other of violence against minorities.
This strain has now manifested in trade. Last month, Bangladesh restricted imports from India through its land ports. Bangladesh’s National Board of Revenue (NBR) ordered the suspension of imports including yarn, rice, and other items such as paper, tobacco, and milk powder from India via land ports. The order pertains to the import of yarn through land ports in Bangladesh, which accounts for 45 per cent of India’s total cotton yarn exports.
Bangladesh has reportedly been the fastest-growing market for India’s cotton yarn, with export growth at a CAGR of 25 per cent over the past 5 years. In 2024, India exported $1.5 billion worth of cotton and $85 million worth of manmade fibre. Political analysts view this curb by Bangladesh as a clear sign of Chinese influence, following interim government adviser Muhammad Yunus’s visit to China in March, during which several agreements were signed.
Similarly, in a retaliatory move, India recently imposed port restrictions on the import of several Bangladeshi goods – such as readymade garments and processed food items – through the land route. However, according to the Directorate General of Foreign Trade, garments – the mainstay of Bangladesh’s industry – will be allowed via the Nhava Sheva and Kolkata ports.
This latest move by New Delhi is a significant blow to Dhaka, as a major portion of the $700 million garment exports to India is now affected. The directive will prevent Bangladesh from using land ports to export to India, severely disrupting a supply chain that has long relied on overland routes for efficiency and cost-effectiveness. The restrictions imposed by India may benefit the domestic ready-made garment industry, particularly MSMEs, by enhancing their competitiveness. The notification also clarified that the ban does not apply to Bangladeshi goods transiting through India en route to Nepal and Bhutan.
A senior executive of an Indian energy company operating in Bangladesh, speaking on condition of anonymity, said: “Indian companies are not getting active cooperation in Bangladesh. There have been delays in issuing Letters of Credit (LCs) as well as customs clearances, further disrupting the operations of Indian firms. Despite objections, there has been no effort from the Bangladeshi side to improve this situation.” The executive added that several India-funded infrastructure and energy projects in Bangladesh have been abruptly cancelled.
Incidentally, Yunus’s provocative comments, such as “We are the only guardians of the ocean for all this region” or “Bangladesh could be an extension of the Chinese economy” – have further inflamed tensions between the two neighbouring countries, while India has refrained from making any adverse statements.
It is disappointing that Yunus, who has always enjoyed clout in India since founding the Grameen Bank to empower the marginalised and advising several microfinance companies in India, is now perceived to be drifting towards China. A retired IAS officer from West Bengal said: “Bangladesh’s economy is facing challenges primarily due to political instability. Yunus has no choice but is being forced to seek help from superpower China to bail out the country.”
India and Bangladesh share bonds of history, language, culture, and numerous other commonalities. The relationship between the two nations goes far beyond strategic partnership. India was one of the first countries to recognise Bangladesh and establish diplomatic relations immediately after its independence in December 1971. The excellent bilateral ties reflected a strong partnership based on equality, trust, sovereignty, and understanding. Both countries have demonstrated considerable enthusiasm regarding the enhancement of trade and economic cooperation. Additionally, a large number of patients from Bangladesh continue to seek treatment in Indian hospitals.
Trade barriers are potentially harmful to the economy as they damage the overall relationship and disrupt livelihoods. Nobody gains from this situation. India and Bangladesh need a more collaborative and sustainable approach with a shared goal to resolve the issue for the mutual benefit of both countries.
India’s Neighbourhood First Policy shapes its engagement with neighbouring nations. It is, therefore, crucial to ensure that relations with Bangladesh do not deteriorate. India cannot afford to have another Pakistan as its neighbour.