Bangladesh-India economic relations

Early stage
After the liberation of Bangladesh in 1971, India contributed to the shaping up of the economy of the newly emerged state. During Banga-bandhu Seikh Mujbur Rahman's regime (1971-75), the effect of Indo-Bangla political relations markedly influenced economic relations of two countries. India's contribution to Bangladesh's economy was substantial. Bangladesh received US$ 275.27 million as grants from India from 1971-76. An India-Bangladesh Trade Agreement was signed on 28th March 1972, based on a friendly and co-operative environment. Following this, a new Trade Agreement (for a period of three years) was signed on 5th July 1972. After the killing of Bangabondhu Sheikh Mujubur Rahman in August1975, Indo-Bangladesh relations deteriorated seriously, so did economic activities.

In the year 1980, the two countries reached a decision to develop their economic relations with a new spirit. In the same year a new trade agreement was signed on the basis of the previous agreement signed by the Mujib government. To strengthen economic relations, a new Joint Economic Commission (JEC) was set up in 1982. Up to 2004 this commission met very infrequently. A Memorandum of Understanding (MoU) was signed during the JEC meeting held in Delhi in 1997. The agreement promised cooperation among the signatories and covered sectors like industry, education and culture, science and technology, agriculture, border trade, transport cooperation, telecommunication etc. The sixth JEC meeting was held between Bangladesh and India at Dhaka in 14-16 July, 2003. Here both countries agreed to start talks about FTA (Free Trade Area) between the two countries. The FTA talks started in mid October, 2003, but some issues like tariff and para-tariff barriers remained unresolved and the agreement left unsigned.

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Trade imbalance
Bangladesh-India economic relation suffers from trade imbalance for Bangladesh. Increasing high trade imbalance is a cause of concern and frustration. In the year 1996-97 the deficit was US$ 891.30 million. In the year 1998 the total amount of deficit reached Tk. 21248 crore, 585 lakh. This is excluding illegal trade or smuggling. In the year 2002-2003 the deficit reached a record high of US$1270.86 million. Bangladeshi products cannot enter India due to policy barriers like tariff, para-tariff, dumping, anti-dumping etc. Bangladeshi jute carpet, industrial and vehicle battery, melamine etc. have a good demand in Indian market. But the Indian authorities are imposing high taxes on these items. As a result these products cannot enter India as cheap imported items. On the other hand, Bangladesh has reduced its taxes imposed on Indian products. In the year 1993-94, Indian products had to face 300 percent import tax while entering the Bangladeshi market. It was reduced in 1994-95 up to 60 percent. A newspaper report said, Indian products could enter Bangladesh's market by paying only 7.5 percent tariff while Bangladeshi products have to pay 45 percent tariff to enter Indian market (Ittefaq: 29 December, 1996). So India has not moved from its position.

In the year 2001-02, Bangladesh pushed India to narrow down the huge trade imbalance. Bangladesh requested India to remove tariff barriers from 191 items, of which India agreed to 40. But the duty-free access to 40 items did not make much difference considering the size of the trade imbalance and the demand for those categories of product in Indian market. In the 6th JEC meeting held at Dhaka in July, 2003, Bangladesh had demanded duty-free entry of 180 items to India. India had reviewed it but no final promise was expressed. The three-day Bangladesh-India Joint Secretary level trade talks ended in Dhaka on October 22, 2003. In that meeting, the Indian side did not respond positively or clearly to the issue of removal of non-tariff barriers imposed by India. Indian negotiators expressed that India could not frame special rules for the interest of Bangladeshi exporters. On the basis of this condition Bangladesh has to think carefully about FTA and its outcomes.

South Asian Preferential Trade Arrangement (SAPTA), which was signed in 1993 by the seven member countries of SAARC (South Asian Association for Regional Co-operation), could be a filter by using which Bangladesh might reduce trade gap with India. SAPTA allowed its member countries to import merchandise from each other at 10 percent lower tariff than those imposed on similar goods from non-SAARC countries. Under the SAPTA arrangement India agreed to reduce tariff on 106 items. Among them Bangladesh is able to produce only 13 items. Moreover, in reality, India has not reduced tariffs and eventually Bangladeshi products like jute carpet, vehicle battery, melamine etc. are facing 20 percent tariff while entering India.

Credit arrangement and joint ventures
Bangladesh has not a good record in spending credits with due timeframe. Bangladesh gets a broader timeline to utilize credits from other donors compared to India. However, some Indian credit arrangements are there for Bangladesh. 'India entered into an agreement with Bangladesh to extend a credit line of Rs. 200 crore to Bangladesh in June 1999.ÊThis credit line is being utilised to import double-decker buses, railway locomotives and other related items.' (Official website, Ministry of External Affairs of Government of India)

'There are 28 Indian joint ventures in Bangladesh with an equity participation of US$ 16.6 million and 7 wholly owned subsidiaries with an equity of US$Ê0.6 million in various areas such as textiles, building industry, chemicals, IT, automobile sector, etc.'(Official website, Ministry of External Affairs of Government of India).

Tata's investment
India's business giant Tata Group signed an Expression of Interest (EoI) with the Board of Investment of Bangladesh (BoI) in October 13, 2004. Tata's interest is expressed mainly in three proposals-- setting up a) a steel industry to produce hot rolled coil and other basic steel products, b) 1000MW gas-fired power station in two phases, and c) a million-ton capacity fertilizer factory. All these three proposals would entail investment of a total of US $2 billion in Bangladesh. If this investment takes place here it will be the single largest investment in the history of Bangladesh. And it will eventually influence various other important things like, future investment prospects in Bangladesh, employment opportunities for Bangladeshis and Bangladesh-India relations.

The World Bank committed $2million for a study on the investment proposals and preparing terms and conditions. Donors have promised to provide technical support and assist the largest single investment plan in Bangladesh. The deputy country representative of the ADB in Bangladesh Hua Du assured support for infrastructure development. B.Muthuraman, MD of Tata Steel pointed out that the proposed investment would create 8000 employment directly and 60,000 indirectly. Bangladesh is suffering from unemployment problem and the proposed projects would undoubtedly create job opportunities.

Like Tata group other Indian MNC's and industrialists can also invest in Bangladesh. Bangladesh government should renew and formulate an enhanced business policy to protect foreign private investment.

Bangladesh's look east policy
The present BNP led four-party alliance government in Bangladesh has decided to open a new dimension in foreign policy. The new policy is called the look east policy. The policy includes strong economic ties with the eastern countries like Myanmar, China, Thailand, Vietnam, Laos, Indonesia etc. One of the background reasons to take this policy is to reduce dependency on India. The increasing trade deficit and India's unwillingness to take sufficient steps to reduce the trade gap has pushed Bangladesh to take a policy like this. Countries like China, Thailand, Vietnam have a proven potentiality and they are applying more soft and wide trade policies while trading with Bangladesh compared to India. However, Bangladesh is not ignoring India while implementing look east policy. Bangladesh's foreign minister M.Morshed Khan said "It will definitely not harm Indo-Bangladesh relations". Moreover, initiatives like SAFTA (South Asian Free Trade Area) and BIMST-EC (Bangladesh, India, Myanmar, Sri Lanka, Thailand Economic Co-operation) can lead Bangladesh and India into closer economic ties.

Things to consider

Yashwant Sinha, who is a former minister of external affairs of India, wished to establish a South Asian Union during his visit to Bangladesh in July, 2003. At that time foreign minister of Bangladesh M.Morshed Khan agreed with him. To establish South Asian Union like European Union, the bilateral relations of the countries of SAARC should be strengthened first and SAARC as a successful regional organisation activated. In January, 2004 the SAFTA agreement was signed at SAARC conference. Effectiveness of agreement like this is very much dependent on the bilateral economic relations like Bangladesh-India economic relation. An FTA (Free Trade Area) talk has already started between Bangladesh and India which might strengthen economic relations between two countries. Unfortunately the postponement of SAARC Conference at Dhaka is a great setback to regional cooperation including trade. The talks on the establishment of a tri-nation gas pipeline which will transfer natural gas from Myanmar to India through Bangladesh are going on.

Although economic relations are improving between the two countries slowly, both countries should be careful about political ramifications. Irresponsible comments from responsible persons sometimes badly affect the friendly relations which in turn may affect economic relations. To strengthen the economic ties both countries should be sincere to solve the prevailing disputes among them. As a big power India should show more responsibility to and respectfulness of its neighbours. Hegemonic attitude can create only misunderstanding and hostility. The agreements and MOU's signed by the two countries should be abided by with appropriate follow-ups. India and Bangladesh, both are highly potential economic partners. More and more mutually beneficial economic activities will not only bring economic profit for them but also act as a role model for other countries of the region.

Dr. Kazi Ihtesham teaches History at Jahangirnagar University.
Mohammad Mahabubur Rahman is a researcher in International Relations.