Bangladesh-India trade: Tips from my travels

I recall that, a few years back, SEDF for the first time initiated a study on the prospects and problems of trade between Bangladesh and Northeast India (NEI). The seminal study seemingly served as an eye opener to the opportunities for Bangladeshi exports to NEI. It also went a long way in reshaping the perception of policy makers on both sides of the fence about increased trade between these two regions. I am given the impression that cement and battery exports to India are rooted in the realization raised by the research conducted by SEDF.

In the following paragraphs today, I shall attempt to highlight some of the non-border barriers that allegedly constrain increased trade flows between the two countries. Quite obviously, the presentation is going to reflect purely my personal impressions -- heavily drawing upon a recent travel to some of the trading points in Bangladesh and India.

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Facts and fictions
But first, let us take up some facts and some fictions. Available studies show that, in 2004, Bangladesh imported $1.7 billion worth of goods from India through the official channels. The average is $2 billion and amounts to about 15 per cent of Bangladesh's total imports from the world. Since 1995-96, Indian exports to Bangladesh (in nominal US$ terms) had been rising at 9.1 per cent per annum, just above the rate of its total merchandise exports to the world (8.4 per cent). Reportedly, significant imports also flow in through unofficial channels, although the magnitude of illegal trade declined and the composition changed with the pace and passage of trade liberalization over the years. On the other hand, exports from Bangladesh to India during the same year amounted to $78 million or so and illegal outflow from the country remained very low. India's imports from Bangladesh grew at 3 per cent per annum. Consequently, Bangladesh's trade deficit with India has been growing at a rapid rate of roughly 9 per cent per annum.

If high tariff levels are causes of smuggling -- as trade theorist tend to argue and Bangladesh has also acutely faced flood of Indian goods over the years -- one fails to grasp as to why illegal outflow from Bangladesh is not taking place on the heels of high tariff barriers in India. Quite obviously then the question of Bangladesh's capacity to meet demands in the Indian market or the extent of her comparative advantage is a potential concern.

Huge trade imbalance with India assumes both economic and political stings in Bangladesh. Economists, however, would argue that what matters for a country is her overall balance and not the bilateral balance alone. Thus, Bangladesh has trade deficit with India (also with China of almost similar magnitude but rarely invokes interest) but manages to reap surplus from US or EU. Again, the import basket consists of important raw materials and intermediate products (roughly 75 per cent) that go to add value to domestic industries eyeing export markets elsewhere. One needs to understand the fact that the dollar out to India is the dollar coming into Bangladesh from some other countries.

We should always bear in mind that India is a huge market. Indian imports are growing roughly at 9 per cent per annum to average $80 billion a year! Once known as one of the most protected economies of the world, India now poses to be widely open: customs duty averaging 15 per cent and many of the erstwhile non-tariff barriers on the back burner. Most of the imports enter into the Indian market at a much higher tariff rate than some of the Bangladeshi exports. Bangladesh, therefore, should seize upon the market size through judicious policy changes, creating sound foundations for attaining comparative advantages and delving on deep rooted trade diplomacy. Missing Indian market -- living so close -- would mean like missing the holy Hajj while living in Mecca.

The lords of land
Most of the trade between the two countries takes place through land routes. According to available information, three quarters of the total transactions flow through land customs. Therefore, unless land customs are upgraded through infrastructural and other facilities, the loss of trade might harm Bangladesh more than India. Mind that India's export to Bangladesh is less than one per cent of her total exports to the world. Whereas if Bangladesh could raise her export to India to around $500-600 million per year, she would be in a comfortable situation.

We are astonished to note that despite roughly $2 billion exports to Bangladesh every year, India has not made its Petrapole port capable of handling the cargoes. From Kolkata to Petrapole, the road and the bridges are narrow to slow down the movements of vehicles. I noticed that in Bonga, a mafia group controls the incoming and outgoing trucks. They charge "private tolls" from the parties first, by forcing them to pay Rs 30 per truck for passing through and another Rs100 for parking the trucks in their so-called premises. In fact, the mafias create a situation whereby the loaded trucks are forced to stay there for a few nights. Thus, on average, Indian trucks carrying goods to Bangladesh are forced to spend 10-15 days on those private parks and count an additional Rs 1300 -2000 per truck that is indirectly paid by Bangladeshi customers. This is over and above the 10 per cent logistic costs as estimated by some of the Indian studies. The same happens when a truck tries to take Bangladeshi goods to India. I think the West Bengal state government

should take the matter into serious cognizance and take the mafias to task for hindering trade between the two countries.

Petrapole does not have good warehouses either. For example, PRAN products from Bangladesh (drinks or juice) destined for Kolkata and beyond have to wait in trucks for at least 10-15 days before the test results from the Central Food Laboratory (CFL based in Kolkata) come to clear them off. The additional cost of one night is Rs 500 plus the food value lost plus theft. Similar is the case with vegetable oil. Indian importers informed me that they would very much like to import vegetable oil from Bangladesh but for delays in delivery in due time. A quick notice to this side would enhance exports from Bangladesh by a reasonable margin. I think the Bangladesh government should take up the matter with the Indian government.

Failing finance?
Indian exporters complained to me that many of their LCs are not being honoured by Bangladeshi banks. I personally examined some of the documents and found the allegations to be true. Of late, the cases of such non-compliance have been rising. The lack of trust on the financial institutions would be the greatest hurdles on the way to increasing Bangladeshi exports to India. In fact, the traders I met are keen to import commodities from Bangladesh as, reportedly; Bangladesh has low cost products like ceramics, melamine, drinks, juice, vegetable oil, etc that can fetch good fortunes in West Bengal and other states. I was amazed to know that PRAN products have distributors in 6 Indian states, excluding the Northeast. One of the important steps in harnessing the potentials in the Indian market is to develop the credibility of the financial institutions.

On both the sides of the fence, barring Benapole and Petrapole, the infrastructure is outmoded and under-developed. Warehouses and weigh bridges are not available in most of the posts. In fact out of 40 or so customs posts, 38 are the harbours of illegal smuggling, technical smuggling, and unless both the governments jointly take up the task of developing the infrastructure soon, expansion of trade might remain a forlorn hope.

Technical smuggling
While the extent of "bootleg smuggling" seems to have declined over time due to trade liberalization, the extent of "technical smuggling" -- meaning illegal trade through legal channels and embracing under-invoicing, misdeclarations, etc -- went up significantly. In fact, a recent World Bank study posits that about 30 per cent of the total imports from Bangladesh constitute technical smuggling. And all that we call technical smuggling or bootleg smuggling owe most to under-developed customs posts.

Conclusions
Increased trade flows between Bangladesh and India call for both preventive and curative measures. The customs posts and the mafias reining over them constitute the single toughest barrier to the expansion of trade. For Bangladesh to seize upon the huge Indian market, credible financial institutions, confidence in building comparative advantage, and other facilities should be available to exporters. From the Indian side, the non-tariff barriers should be buried to enable Bangladesh to reap home the harvest of open Indian market. And both the countries should part with the traditional tone of business management and take lessons from other free trade areas.

Abdul Bayes is a Professor of Economics at Jahangirnagar University.