India – Bangladesh Trade Relations

A Report On
India – Bangladesh
Trade Relations

Prepared By:-

Manoj Kumar Singh

Mob. No. : 9910845011
mkumarsingh@hotmail.com

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India – Bangladesh Trade Relations

Introduction

Both Bangladesh and India are two major countries of the SAARC and have a long common
historical past and similar cultural and social evolution. There is much that unites the two
countries – a shared history and common heritage, linguistic and cultural ties, passion for music,
literature and the arts; with Bangladesh, India shares not only a common history of struggle for
freedom and liberation but also enduring feelings of both fraternal as well as familial ties. This
commonality is reflected in multi-dimensional relations with Bangladesh at several levels of
interaction. High-level exchanges, visits and meetings take place regularly alongside the wide-
ranging people-to-people interaction. India’s Missions in Bangladesh issue about half a million
visas every year and thousands of Bangladeshi students study in India on self-financing basis and
over 100 annual GOI scholarships. These exchanges and interactions serve as an important
adjunct to the official-level interaction. India’s land border with Bangladesh – nearly 4,096 km –
is the longest that India has with any of its neighbours.

Historical Development of India-Bangladesh Trade Relations

 Bangladesh and India signed the “Treaty of Friendship, Cooperation and Peace” on
March 19, 1972 in Dhaka for 25 years. Owing to this treaty, both countries signed the
first one-year trade agreement on March 28, 1972.In the agreement, fish, raw jute,
newsprint and naphtha were identified as the principle exports of Bangladesh to India.
India’s major export items to Bangladesh, on the other hand, were cement, coal,
machinery and unmanufactured tobacco. The trade between the nations was limited to
government level. This agreement also provided border trade between Bangladesh and
Neighboring Indian states; and within 16 kilometers of both countries’ border, free trade
was allowed for certain commodities.

 The expected level of trade was not achieved under the first trade agreement. Also free
border trade between Bangladesh and India led to some illegal trade and hence was
abolished in October 1972 by mutual consent of the both governments. However, to
attain the desired level of trade, the first trade agreement was further extended up to
September 27, 1973.

 The first trade agreement of 1972 was replaced by another trade agreement for three
years. This agreement was signed on 5 July 1973 and became effective from 28
September 1973. Raw jute, fish, newsprint, etc were identified as major exportable items
of Bangladesh to India. On the other hand, major exports of India to Bangladesh were
unmanufactured tobacco, cement, coal, raw cotton, cotton yarn, cotton textiles and books.
This agreement provided for a system of Balanced Trade and payment Arrangement

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India – Bangladesh Trade Relations

(BTPA) and ‘most favored nations treatment’ to each other. The desired level of trade
between the two nations was not achieved by the agreement of 1973, and trade imbalance
increased in the very first year. Rupee trade was found to be a barrier in the bilateral
trade, and thus abolished rupee trade from 1 January 1975 by a Protocol signed on 17
December 1974. It was decided that trade would be conducted in free convertible
currency.

 India and Bangladesh signed another trade Protocol on 12 January 1976 for higher
volume of trade and long-term arrangements for trade of coal and newsprint. BTPA 4
between Bangladesh and India was extended for another three years till 27 September
1979 on 5 October 1976.

 On 4 October 1980, the third trade agreement was signed between these two nations
initially for three years. By mutual consent, this agreement was extendable for another 3
years.

 On 8 November 1983, Bangladesh and India renewed a Protocol on trade of 1980 for
further three years. In May 1986, the trade agreement of 1983 was extended for another
three years till 3 October 1989. Subsequently this agreement was renewed a number of
times. Based on available information, this agreement was valid up to 31st March 2009.

Problems Causing Indo-Bangladesh Trade Imbalance

Although the trade deficit with a particular country is not bad if the overall trade balance is
satisfactory, yet from the distribution aspect of trade policies (the distribution of benefits and cots
among groups of producers and groups of consumers) the growing trade deficit with India is a
great concern for Bangladesh. Bangladesh’s fear is that if this deficit continues, Bangladesh will
be dependent only on a few products for its exports, and imports from India displace domestic
production to such an extent as to deindustrialize Bangladesh. As a result, it is argued, a severe
polarization in Bangladesh and high levels of unemployment will occur. Therefore, increasing
trade deficit with India is a problem, and attempts are made here to find out the causes of this
problem.

Productivity Issues and Structural Factors

The productivity differences can also best explain trade patterns between countries. India has
productive advantages both in agriculture and industry compared to Bangladesh because of scale
economies (Eusufzai 2000). Structurally Indian economy is much larger, more diversified and
technologically advanced. Indian products now have become globally competitive both in terms
of price and quality. Also geographically India is very closed to Bangladesh, and Bangladesh’s
importers are very familiar with Indian products and production capacities. All these factors have
made Indian products very competitive in Bangladesh’s market (Hassan 2002). As a result,
India’s exports to Bangladesh are more diversified and consists of high value added
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India – Bangladesh Trade Relations

manufactured goods. On the other hand, India’s imports from Bangladesh are limited to a few
items, as Bangladesh does not have a large supply base to offer a wide variety of products to
India. The obvious result is an increase of trade imbalance between the two nations.

Recent High Level Contacts

 On 9th Feb 2009, India and Bangladesh inked two trade deals to further strengthen
economic ties between the two South Asian neighbours. Indian External Affairs Minister
Pranab Mukherjee, who was on a daylong visit in Dhaka, signed the Bangladesh India
Trade Agreement and the Bilateral Investment Promotion and Protection Agreement after
official talks with his Bangladesh counterpart Dipu Moni. Commerce Minister Faruk
Khan and Industries Minister Dilip Barua signed the two deals on Bangladesh's behalf.
The deals would help the two neighbours bridge the existing huge trade imbalance in
favour of India and encourage fresh investment in both countries. Once the agreement
comes into being, India and Bangladesh will be allowed to transport their goods using
their water, rail and road routes for transportation of goods. India has been enjoying
limited transit facilities only on water routes through Bangladesh. The agreement on
mutual investment promotion and protection will give most-favoured-nation status to
each other.

 India has continued to constructively engage the Caretaker Government in Bangladesh

that assumed office after the imposition of emergency in the country on January 11, 2007.
The External Affairs Minister (EAM), Shri Pranab Mukherjee, visited Bangladesh on
February 19, 2007 and extended an invitation to Bangladesh to participate in the 14th
SAARC Summit in New Delhi. During the visit, he held detailed discussions with
President Dr. Iajuddin Ahmed, the Chief Adviser of the Caretaker Government, Dr
Fakhruddin Ahmed and Foreign Affairs Advisor Dr. Iftekhar Ahmed Chowdhury. In the
context of bilateral relations, both sides agreed to take steps to place bilateral relations on
an “irreversible higher trajectory”.

 Prime Minister Dr. Manmohan Singh met Bangladesh Chief Adviser Dr Fakhruddin
Ahmed on April 2, 2007 in New Delhi during the 14th SAARC Summit. During the
meeting, the two leaders held discussions on all major bilateral issues.

 EAM, Shri Pranab Mukherjee, again visited Bangladesh on December 1, 2007 to

announce India’s support to Bangladesh in the wake of Cyclone Sidr, as also to undertake
a tour of cyclone-affected area. During his visit, EAM announced India’s decision to
waive ban on export of five lakh tonnes of rice to Bangladesh and proposal to adopt ten
severely affected villages for rehabilitation.

Bilateral Trade
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India – Bangladesh Trade Relations

Bangladesh is an important trading partner for India. Bilateral merchandise trade has been
growing steadily over the last few years. It grew by 145 % in the last five years from about US $
1 billion in 2001-02 to US $ 2.55 billion in 2006-07. While Bangladesh’s imports from India
grew by 124 % in the last five years (2001-2007), its exports to India grew by 480 % in the
corresponding period. India is the 10th largest export destination for Bangladesh, and the largest
export destination among the developing world.

Zero Duty Access/Tariff Concessions Granted by India to Bangladesh

Substantial duty concessions have been extended to Bangladesh under SAFTA, SAPTA and
APTA. Pursuant to announcement made by the Prime Minister at the 14th SAARC Summit held
in New Delhi in April 2007, there is zero duty market access wef January 1, 2008 for products
originating from SAARC LDCs, including Bangladesh, except for some items in the sensitive
list. The sensitive list is also being pruned. Furthermore, with a view to, inter-alia, addressing
trade imbalance, India has agreed to extend duty-free access to eight million pieces of readymade
garments from Bangladesh every year under SAFTA. An MOU on Procedural Arrangements was
signed in Dhaka in September 2007, and customs notification issued by Indian Department of
Revenue on April 21, 2008.

Institutional Framework for Facilitating Trade and Economic Cooperation

The first Trade Agreement between India and Bangladesh was signed in 1972. The revised India-
Bangladesh Trade Agreement signed in March 2006 governs the present trading arrangements
between the two countries. Other Agreements/MOUs for facilitating trade and economic linkages
include: (i) Protocol on Inland Water Transit and Trade (IWTT); (ii) Bilateral Air Services
Agreement between India and Bangladesh; (iii) Bilateral Agreement on the Establishment of
Joint Economic Commission (JEC); (iv) India-Bangladesh Convention for the Avoidance of
Double Taxation; (v) India-Bangladesh Agreement for the Regulation of Motorvehicle passenger
traffic; (vi) Agreement on Revised Travel Arrangements between India and Bangladesh; (vii)
Rules for Interchange of Traffic between India and Bangladesh; (viii) MOU between BIS and
BSTI for cooperation in the area of standards; (ix) MOU for cooperation in the field of
agriculture; (x) MOU for cooperation in the field of science and technology; (x) Protocols for
operation of passenger bus service between Dhaka & Kolkata, and Dhaka and Agartala.
Discussions are also underway for concluding revised agreement on regulation of passenger and
cargo vehicular traffic.

Trade Related Bilateral Forum

Trade related issues are discussed between the two Governments under following main bilateral
mechanisms, which meet periodically: (i) Joint Working Group on Trade (JWG); (ii) Joint Group
of Customs Officials (JGC); (iii) Protocol Renewal Committee and Standing Committee to
review implementation of Protocol on Inland Water Transit and Trade; (iv) Inter- Governmental

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India – Bangladesh Trade Relations

Railway Meeting; (v) Commerce Secretary Level Talks; (vi) Foreign Office Consultations; and
(vi) Joint Economic Commission (JEC) at the Ministerial level.

Mutual Investments

Besides merchandise trade, efforts are underway to promote mutual investments and technology
collaborations. There are significant proposals from large Indian industrial groups (Tata, Essar
etc.) to invest in Bangladesh. There are other Indian small and medium sized firms, who are
interested in investing in Bangladesh. A large number of Indian firms from both public and
private sector have been working on different turn key projects in Bangladesh in sectors such as
power, transmission lines, textiles, chemicals and pharmaceutical, glass and plastics, engineering.
To encourage increased investment flows, discussions on bilateral investment protection and
promotion agreement (BIPPA) have almost been completed, and the agreement is expected to be
signed shortly. In November 2007, Government of India has removed the prohibition on
investment into India by citizens of Bangladesh or entities incorporated in Bangladesh, allowing
investments that have prior approval of the foreign investment policy board of the government of
India. A total 181 FDI and joint venture investment proposals from India worth over us $ 435
million have been registered with the Board of Investment, Govt. of Bangladesh in sectors such
as agro industry, textiles, chemicals and engineering industries. Out of 181 projects, more than
57 are already in production stage.

Trade Infrastructure and Connectivity

• The movement of goods by road is through more than 20 operational land customs
stations (LCSs) along the border. Government of India has taken up upgradation of seven
LCSs in two phases, and their development as integrated check-posts (ICPs). These ICPs
include Petrapole, Hili, Changrabandha, Agartala, Dawki, Sutarkandi and Demagiri.
Petrapole, which accounts for more than two-thirds of Bangladesh-India trade, will be
developed in the first phase. A Sub-Group under the Joint Working Group on Trade has
been set up in November 2007 to look into ways and means of strengthening border trade
infrastructure in a more coordinated way.

• The Protocol on Inland Water Trade and Transit (IWTT) has been operational since 1972.
It permits movement of goods over barges/vessels through the river systems of
Bangladesh on eight specific routes between points in West Bengal & Bangladesh;
Kolkata and points in Assam (Dhubri, Karimganj) and between points in Assam. The
protocol was renewed in 2007 for period up to March 2009.

• There are four points along border for movement of goods by train. Forty-three years
after a similar train service was discontinued in March 1965, direct passenger train
service between Kolkata and Dhaka commenced its operation on April 14, 2008 (Bi
weekly) following the signing of the Inter-Governmental Agreement in Dhaka on April
10, 2008. There is direct bus service between Dhaka and Kolkata (started in 1999) and
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India – Bangladesh Trade Relations

Dhaka - Agartala (since 2003). India has requested for a direct bus service between
Agartala and Kolkata via Dhaka.

• Under the bilateral India-Bangladesh Air Services agreement, a total 61 flights per week
are permitted to operate by designated carriers from both sides. Bangladesh Biman, Air
India, Indian, GMG Airlines, Jet Airways are operating services on Kolkata-Dhaka, and
Delhi-Dhaka sectors. Airlines from both sides have plans to expand their operations on
these sectors as well as include new destinations. Besides 61 flights per week to
metropolitan cities, since 2006 India
• has offered an open sky policy to SAARC member states to 18 tourist destinations in
India.

• A number of proposals for improving trade infrastructure and boosting connectivity

(between India and Bangladesh and North-East states of India) are at various stages of
discussion between the two governments. For example, India has proposed movement of
containers through riverine route and rail; access to Chittagong Port for use by North East
States of India, development of Akhaura-Agartala rail link, declaration of Ashuganj as
new Port of Call under IWTT, and opening of new trade routes including
Kawrapuchchiah/Demagiri (India) – Thegamukh (Bangladesh) and Sabroom (India) –
Ramgarh (Bangladesh). The response from Government of Bangladesh is awaited on
these proposals.

Technical Cooperation

Bangladesh is an important ITEC partner country, and a number of participants from Bangladesh
have availed of training courses under the ITEC programme. In the last three years, more than
400 participants from Bangladesh have undergone training in India under ITEC programme and
Tata Consultancy Services (TCS) under Colombo Plan. Under a special “Train the Trainer
Programme in Information Technology” sponsored by the Government of India, about 500
participants from Bangladesh have visited India in the past two years for the six weeks long
training courses conducted by TCS.

ICC Offers SEZ to Bangladesh

On 6th April 2009 in Dhaka, the Indian Chamber of Commerce delegation from India offered to
set up a Special Economic Zone to attract investments from India and assured an investment
worth $5 billion from India towards developing the proposed SEZ and has requested a suitable
plot of 150 acres of land for this purpose. The ICC also suggested opening of a Deputy High
Commission office at Guwahati or Shillong. The suggestion was received positively by Prime
Minister Sheikh Hasina, who felt that opening of a Consulate or Deputy High Commission office
in North-East would significantly contribute towards improving trade and tourism relations
between the two countriesSectors such as energy, power, steel, telecommunications, healthcare,
fertiliser, oil and gas, limestone and forest-based industries such as paper, export of plantation
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India – Bangladesh Trade Relations

crops were some of the areas that could drive strong bilateral economic relationship between the
two countries, the ICC team observed.

BIMSTEC

The Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation
(BIMSTEC) comprising Bangladesh, Bhutan, India, Myanmar, Nepal, Sri Lanka and Thailand
established in 1997 is a $810 billion economy, sharing about 22% of world population and
3.64% of surface area. The seven-country forum aims to achieve its own free trade area by 2017.
BIMSTEC is largely free from any security or political baggage of the past like South Asia
Association of Regional Cooperation (Saarc). On the contrary, it gives an excellent opportunity
to provide a bridge between SAARC and Association of South East Asian Nations (Asean). The
progress in BIMSTEC has great positive implications for development of India’s northeastern
region transforming it from a security dilemma to India’s gateway to the East. India needs to take
lead in making BIMSTEC a prosperous region by promoting integration within the region and
thus having a greater say, both regionally and globally.

Trade and Transaction Costs

The Petrapole crossing in India handles by far the largest share of the recorded India-Bangladesh
land border trade. Petrapole is on a major road 95 kilometres from Kolkata. The neighbouring
town on the Bangladesh side of the border is Benapole, which in turn is linked by a highway to
Jessore and Dhaka. The infrastructure deficiencies and procedural hazards at Petrapole include
inadequate and congested roads, absence of government bonded warehouses, irregular power
supplies, inadequate sanitary facilities and drinking water, prevalence of theft and other crimes,
frequent strikes, prevalence of speed money, a single border gate which handles all truck and
other traffic as well as individual travelers and which is wide enough for only one truck at a time
to pass through.
Investments need to be made for improving the infrastructure and facilities at
Petrapole and at the other land border Customs stations. For Bangladesh the present system
involves substantial terms of trade losses, since the landed costs of imports from India of
products such as wheat, rice, fruit, cattle feed, bauxite and other products appear to be much
higher than they would be if the congestion were removed. Bangladesh exporters and potential
exporters also have an obvious interest in faster and less expensive commodity movements
across the border. If the required investments are not made, congestion will increase with the
general growth of trade, and would largely cancel or offset economic benefits that would
otherwise occur if tariffs or other trade barriers were to be reduced. Without very substantial
investments in infrastructure and administrative capabilities, increases in trade would be slowed
down or blocked by increases in congestion and the associated increases in economic rents, and
an FTA would become ineffective.
Hence, both countries will need to improve the infrastructure – physical and
administrative-at their land border Customs posts. This would need to be done in a coordinated
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way-there would no point if the infrastructure were improved on one side of the border but
bottlenecks were to remain or even increase on the other side of the border.

Energy Cooperation

The last caretaker government had decided to initiate talks with India on interconnecting the
national power grid of Bangladesh with the north-eastern power grid in India based on the
feasibility study of the USAID, Asian Development Bank (ADB) and SARI Energy co-operation.
Bangladesh could bring 200 MW of electricity from Tripura or Assam, where India has
hydroelectric plants.
India has also offered to link Bangladesh to its electricity grid and sell it power to help it
overcome persistent shortages in peak demand periods. At the DCCI 50th Anniversary
conference held in November, Indian State Minister for Power, HE Jai Ram Ramesh stated that
Bangladesh could buy electricity from plants in Tripura, where generation capacity exceeds
demand, and other north-eastern Indian states bordering Bangladesh. "India is ready to pen a deal
with Bangladesh to sell up to 1,000 MW of electricity."

“India+1”: Bangladesh attracting diversification investment from India

Another major opportunity for Bangladesh is to pursue an “India+1” strategy in the same way
that Vietnam has attracted $40bn of FDI in 2008, in part by being an effective “China+1”. By
this, we mean that Bangladesh can be an alternative manufacturing hub for global companies and
investors who already have overreliance on India for a wide range of services and products, from
IT outsourcing to truck assembly and auto parts. The government should commission a detailed
analysis of which companies and investors have entered India in the past 5 years and then have a
targeted strategy to persuade them to consider setting up similar facilities in Bangladesh in
industries where we have, or can develop, a competitive advantage.

References:-

 http://commerce.nic.in/eidb/default.asp
 http://www.wto.org/english/tratop_e/region_e/region_areagroup_e.htm
 http://www.thefinancialexpress-
bd.com/search_index.php?page=detail_news&news_id=21355
 http://www.hcidhaka.org/pdf/Political%20and%20Economic%20relations.pdf
 http://www.hcidhaka.org/indbangla/index.html
 http://www.observerindia.com/cms/export/orfonline/modules/orfdiscourse/attachments/ba
ngla_1210851392822.pdf
 http://www.iioa.org/pdf/15th%20Conf/sikdar_chakraborty.pdf
 http://www.bilaterals.org/article.php3?id_article=13682
 http://www.blonnet.com/2009/04/04/stories/2009040451301000.htm
 http://www.mincom.gov.bd/

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India – Bangladesh Trade Relations

 http://www.imf.org/external/country/BGD/index.htm

10 | M a n o j K u m a r S i n g h @ F o r t u n e I n s t i t u t e o f
International Business