Red flags on the eastern front
In a development that has been largely underplayed due to the recent India-Pakistan face-off, diplomatic relations between India and Bangladesh, once considered a model for bilateral conduct in south Asia, have hit an inexplicable low. Both countries have implemented reciprocal trade restrictions that impact textiles, yarn and garments businesses. India has intensified efforts to deport Bangladeshis living illegally within its borders. The actions against Bangladeshi immigrants and Rohingya infiltrators have prompted a sharp response from Bangladesh, with its army labelling these deportations as ‘push-ins’ and warning of potential military intervention.
Meanwhile, resentment is growing in Bangladesh over tightened Indian visa rules, with approvals plunging since Sheikh Hasina was driven from power. Previously, two million Bangladeshis visited India yearly for tourism, business, education and medical care. The number of visas issued daily has dropped by over 80 per cent in the past few months, according to Bangladesh media.
Dhaka, in what is seen as a tit for tat, has cancelled a $21 million contract for an advanced ocean-going tug with an Indian state-run shipbuilding firm, Garden Reach Shipbuilders and Engineers Ltd (GRSE), reportedly without any explanation. The defence contract with GRSE, signed in July 2024, before Sheikh Hasina’s ouster, was the first major contract under the $500 million line of credit New Delhi provided for Dhaka’s defence-related procurements. Dhaka is now reaching out to China in other defence-related matters. It is reportedly planning to revive a World War II-era air base – Lalmonirhat in Rangpur division – with help from the Chinese.
Alarm bells
This has rung alarm bells in the upper echelons of the Indian security establishment, because re-activating Lalmonirhat allows Beijing a military foothold literally on Delhi's doorstep; the base is less than 20km from the India-Bangladesh border, more specifically the Siliguri Corridor – the 22 km-wide stretch of land connecting the seven north-eastern states to the rest of the country. The corridor, referred to as the 'chicken's neck', is bordered by Nepal to the west and Bhutan to the north.
These concerns have prompted India to fast-track the refurbishment of a three-decade-old civil airport in northern Tripura's Kailashahar region. It is likely to remain for civil use but, as with all other major airports in the northeast, on-ground facilities will be enhanced to allow Air Force fighter jets and planes to take-off, land, and refuel in times of war or in case of emergencies.
The first official meeting between Modi and Yunus on the sidelines of the BIMSTEC Summit in Thailand offered a tentative step towards mending strained ties between their countries. The meeting between Yunus and Modi was described by Dhaka as ‘very constructive and fruitful’, while New Delhi said both leaders had agreed that all bilateral issues would be addressed ‘through constructive discussions’. Yet, behind the diplomatic niceties, the two leaders are reported to have had more pointed exchanges. According to accounts, Yunus urged Modi to restrain Hasina – now in refuge in India – from making ‘incendiary remarks’ and demanded her extradition. Modi in turn asked Bangladesh’s interim leader to avoid rhetoric that could ‘poison the atmosphere’.
Unravelling climate
For the ministry of external affairs, the political climate in Bangladesh has begun unravelling sooner than expected. Sheikh Hasina was seen as a valuable ally, a reliable counter to the Chinese sniffing around north-east India. But there had been tension building within for years and all of that erupted in student-led protests over her announcement of job and college quotas for war veterans.
Hasina was deposed and an interim government set up under Yunus, a Nobel Peace laureate, who has so far failed to announce an election and who has proven to be less friendly to New Delhi than was anticipated, with his reaching out to China and Pakistan.
As head of the interim government, Yunus is actively disbanding Hasina’s security co-operation with India. To fill the vacuum, Beijing is moving swiftly to strengthen its existing defence diplomacy with Dhaka. According to some reports, Dhaka is already in talks with Beijing to procure an initial batch of 16 J-10C aircraft, the kind used by Pakistan in its recent conflict against India. Dhaka has also substantially increased its ammunition imports from Pakistan – to 40,000 rounds of ammunition in 2024 from 12,000 rounds in 2023.
Dhaka’s demand
With Hasina still in exile in India, Dhaka has demanded her extradition to face charges of crimes against humanity, money laundering and corruption. Hasina denies the accusations against her and New Delhi has not officially reacted to the demand. India has also frequently criticised reports of attacks on the minority Hindu community in Bangladesh. It recently said the alleged killing of Hindu community leaders "reflects a pattern of systematic persecution under the interim government". Bangladesh denies targeting Hindus, calling most incidents politically motivated or ordinary crimes. Hindus make up less than 10 per cent of its 170 million population.
Complicating this fast-moving situation are growing rifts between Bangladesh’s interim government and the military. Recently, a spokesman of the army publicly voiced opposition to the interim government’s proposal to open a ‘humanitarian corridor’ to Myanmar’s conflict-torn Rakhine State, home to the persecuted Rohingya. The government’s plan was to supply medicines and other aid, but the military believes it would pose significant security challenges.
Before that, Bangladesh army chief, Genweal Waker-Uz-Zaman, had expressed concerns about several of the government’s initiatives, including the so-called humanitarian corridor, the potential foreign management of Chattogram Port and the introduction of Starlink, Elon Musk’s satellite Internet service. He also urged the government to hold early elections for ‘a stable, elected government’ that is capable of making decisions related to national security. Amid the growing rift, speculation swirled in Dhaka last fortnight that Yunus might step down. Later, a Cabinet member said that Yunus ‘is staying with us’, but the army’s subsequent press conference suggests that the cold war is far from over.
Targeting Awami League
When Yunus, backed by student groups, took over as the ‘Chief Adviser’ of the interim government on 8 August 2024, three days after the fall of the Hasina administration, he promised to lead Bangladesh into a new dawn of democracy from the semi-authoritarian years of the Awami League. But nine months on, he is still struggling to stabilise the country and rein in the mobs. The government’s crackdown on the Awami League, one of Bangladesh’s largest political parties, has further eroded hopes for inclusive elections. Most of the party’s senior leaders are either in exile or in hiding, while hundreds of party workers have been killed. Earlier this month, the interim government officially banned the Awami League, yielding to pressure from the student leaders and Islamist factions.
Yunus and his allies, including the National Citizen Party, established by student leaders after Hasina’s fall, claim that elections can be held only by mid-next year, citing the need for electoral and political reforms. But the continued delay has sparked protests by the Bangladesh Nationalist Party and drawn public criticism from the military. By postponing the elections, suppressing the Awami League, using both state and non-state tools and failing to restrain the mobs, “Yunus, an unelected leader, is steering Bangladesh into deepening chaos and uncertainty,” says a former Indian high commissioner to Bangladesh. “What Bangladesh urgently needs is a stable, legitimate government with a clear popular mandate. The interim government and all relevant stakeholders must prioritise holding inclusive, free and fair elections, at the earliest possible opportunity, ensuring the participation of all political factions.”
Impact on businesses
Businesses are bracing for possible impact after India and Bangladesh recently imposed tit-for-tat trade restrictions after months of verbal sparring. Recently, Bangladesh restricted land imports of cotton yarn from India to shield local industries from cheaper imports. Dhaka's move came days after India abruptly stopped the transhipment facility it had offered Bangladesh to export its cargoes to third countries via its ports and airports, citing ‘congestion’.
Many see New Delhi's withdrawal of the transhipment facility as a response to remarks by Yunus during a recent China visit. He had called Bangladesh the ‘only guardian of the ocean’ for India's landlocked north-east and suggested that the region could become an ‘extension of the Chinese economy’. Leaders from India's north-eastern states called the comments ‘offensive’. Yunus's remarks, spotlighting India's strategic vulnerability in the region to China, raised alarms in New Delhi. Bangladeshi analysts, however, say Yunus' remarks were misinterpreted and aimed at promoting regional connectivity.
Textiles, garments face heat
As the countries spar, textile and garments companies are counting the cost. Yarn, vital for Bangladesh's clothing factories, can still enter by sea and air – but they are slower and costlier routes. In 2024, India had exported $1.6 billion worth of cotton yarn to Bangladesh, a third of it via land ports. The now-halted transhipment facility let Bangladeshi exporters send clothes made for high-end brands by road to Indian cities, from where it would be flown to Europe and the US.
Bangladesh, the world's second-largest garment exporter after China, shipped $38 billion in clothing last year. Over $1 billion of this moved via the India land-air route, which, according to Anis Ahmed, head of supply chain firm MGH group (which ships for European fast-fashion brands), was thriving. Limited air freight capacity and under-equipped airports hamper direct exports from Bangladesh. “It's a blow (to Bangladesh's fast-fashion export industry),” adds Ahmed. “The India route got cargo to Western countries in a week. By sea, it would have taken up to eight weeks”.
Call for import ban
Amid rising tensions, India's Clothing Manufacturers' Association has called for a ban on Bangladeshi garment imports via land. Bangladeshi analysts warn that more trade barriers would be counter-productive. “I think there is a strong view nowadays in Bangladesh that we should also reassess the other transit and transhipment facilities given to India (for its north-eastern states) by the earlier (Hasina) government,” says a senior economist with the Centre for Policy Dialogue in Dhaka.
India uses Bangladeshi ports, roads and waterways to transport goods to its landlocked north-east, cutting distance, time and costs. However, officials say transit volumes haven't reached expected levels.
Hasina's stay in India and the extradition demand remains a big irritant. “They should realise that there is no way that we can just hand Hasina to them,” says Shyam Saran, former Indian foreign secretary. “We know what will happen to her, if she's handed over. I think public opinion in India would not countenance that.”
To sum up, Delhi-Dhaka tensions are rising amid growing ties between Bangladesh and Pakistan. In contrast, Hasina had distanced herself from Pakistan during her 15-year rule. Pakistan's Foreign Secretary Amna Baloch visited Dhaka last month, the first such visit in 15 years. A planned visit by Pakistan Deputy PM Ishaq Dar was postponed due to tensions between Delhi and Islamabad and the four-day war which broke out in May.
In recent weeks, sharp official reactions from both sides are also influencing public opinion in India and Bangladesh. There is a growing anti-India sentiment in Bangladesh, with Indian media accused of exaggerating the attacks on minorities and Islamist threats. The people-to-people ties built over the years seem to be on the retreat and analysts point out that if both sides fail to stay calm, their actions could harm trade and economic relations.