Explained: How Bangladesh crisis is disrupting trade with India; exporters shed light on future implications

Domestic exporters have voiced growing concerns about the ongoing crisis in Bangladesh and its potential repercussions on trade between the neighboring countries. The unrest, which has led to significant disruptions, could affect bilateral trade dynamics in the near future. The current situation in Bangladesh has been exacerbated by a severe shortage of foreign exchange, impacting the smooth flow of exports from India. Perishable goods, in particular, are facing logistical challenges at the border, further complicating trade operations.

The crisis escalated on Monday following the resignation of Bangladesh Prime Minister Sheikh Hasina and her departure from violence-hit Dhaka. An interim government has been established as the country grapples with widespread protests. The demonstrations are fueled by discontent over a controversial quota system that allocates 30 percent of jobs to the families of veterans from the 1971 liberation war.

The violent protests have claimed over 100 lives in the past two days, adding to the instability and raising alarms about the future of trade relations. Despite the ongoing turmoil, exporters remain hopeful that the situation will stabilize soon, allowing trade between India and Bangladesh to return to normalcy.

Also read: Bangladesh unrest: Violent protesters occupy Parliament, smoke inside after Sheikh Hasina flees Dhaka (WATCH)

Trade disruptions and Forex shortage

The Federation of Indian Export Organisations (FIEO) has reported that Indian exporters are already experiencing disruptions in their trade with Bangladesh, primarily due to a shortage of foreign exchange in the latter country. This shortage has particularly impacted exports of perishable goods at the border.

Ajay Sahai, Director General of FIEO, was quoted as saying in a PTI report, "We were facing some disruptions due to the issues in Bangladesh, but we are expecting that the situation will be restored soon and trade will not face any challenge."

Sanjay Budhia, Managing Director of PATTON and an exporter based in West Bengal, noted the potential for significant repercussions given the close economic and geographic ties between India and Bangladesh.

"While the crisis in Bangladesh poses several risks to India's trade, proactive measures and regional cooperation can help mitigate these impacts and ensure continued economic stability and growth. The need of the hour is to have a balanced approach, keeping the geopolitical and economic considerations in mind," he told PTI.

Budhia further noted that while the current situation is challenging for Indian exporters, "we must continue to focus on our own competitiveness development to achieve the target of USD 1 trillion merchandise exports by 2030".

Implications for Export and Import Sectors

India’s trade with Bangladesh encompasses a broad range of goods. India exports cotton, machinery, food products, and other items while importing jute and fish from Bangladesh. The current crisis has the potential to affect these sectors, particularly if it leads to prolonged disruptions or border security issues.

Pravin Saraf, owner of PSY Ltd, expressed concerns about long-term implications. "We were already facing payment delay issues in that country because of forex shortage there, and now this development would further hurt the bilateral trade. We do not know when the situation will be normalised," Saraf was quoted as saying in a PTI report. His company exports spices, food grains, and chemicals to Bangladesh.

Economic and Trade Impact

The Global Trade Research Initiative (GTRI) has highlighted that Bangladesh’s severe dollar shortage has limited its ability to import goods, including those from India. Rising inflation in Bangladesh has further reduced domestic demand, affecting both local and imported products.

Ajay Srivastava, founder of GTRI, stressed the importance of maintaining open supply lines despite the political turmoil. "As Bangladesh experiences political turmoil, it is essential for all political factions to protect garment and other factories and keep supply lines open across the border to sustain trade and economic activity," he told the news agency.

Bangladesh, which is India’s largest trade partner in South Asia, has seen a decline in bilateral trade over recent years. In the fiscal year 2023-24, India’s exports to Bangladesh dropped to USD 11 billion from USD 12.21 billion in 2022-23. Imports also fell to USD 1.84 billion from USD 2 billion during the same period.

Also read: Bangladesh unrest: Rioters destroy, loot Sheikh Hasina's residence; vandalize Mujibur Rehman's statue (WATCH)

Diverse Trade Sectors and Tariff Implications

India’s exports to Bangladesh cover a wide range of sectors, including agriculture, textiles, machinery, electronics, and more. Notably, many of these exports are subject to full tariffs and do not benefit from the South Asian Free Trade Area (SAFTA) agreement. In contrast, Bangladesh’s exports to India are concentrated in textiles, garments, and made-ups, which benefit from zero tariffs under SAFTA.

Despite the challenges posed by the current crisis, experts believe that proactive measures and regional cooperation could help mitigate the impacts and maintain economic stability. The focus remains on enhancing competitiveness and fostering trade resilience to achieve long-term economic goals, such as India's target of USD 1 trillion in merchandise exports by 2030.

As the situation in Bangladesh evolves, both Indian and Bangladeshi stakeholders will need to navigate the complexities of this crisis while striving to sustain and strengthen their bilateral trade relationship.