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The recent developments in Bangladesh have implications for India not only in the political sphere but also in economic arena. Because of its fast pace economic growth over last decade Bangladesh has emerged as one of India’s leading export destinations in the world and the largest in the South Asian region in the recent years. In fact, in 2023-24, India’s exports to Bangladesh were higher than many of the world’s leading economies like Japan, Germany and France. However, the ongoing socio-political turmoil has impacted economic activities in Bangladesh and is very likely to adversely affect its bilateral trade relations with India.
One of the biggest achievements of former Bangladesh Prime Minister Sheikh Hasina has been the impressive economic progress over the last decade or so. During her tenure from 2009-2024, Bangladesh’s economy had grown at an average rate of 6.3 per cent per annum, which is among the highest in the world. The size of its gross domestic product (GDP) has more than trebled increasing from US$ 123 billion to US$ 455 billion. The per capita GDP has also increased from US$ 841 in 2009 to US$ 2,650 in 2024.
Propelled by a robust economic growth Bangladesh has moved up from being a low-income country to a low middle income country in 2015. The youngest South Asian nation has also been able to make a big dent on its poverty. As per the World Bank estimate, the proportion of population living in extreme poverty has declined from about 12 per cent in 2010 to 5.00 per cent in 2022. Additionally, the country has witnessed a significant improvement in its human development index (HDI) over the last decade. As per the United Nations Development Programme (UNDP), Bangladesh’s HDI value was 0.67 in 2022 compared to 0.56 in 2010.
The rising economic prosperity in Bangladesh has been accompanied, rather driven, by an impressive growth in country’s international trade profile. While its merchandise exports have increased from US$ 15 billion in 2009 to US$ 56 billion in 2023 the imports have grown even faster increasing from US$ 22 billion in 2009 to more than US$ 88 billion in 2022 before shrinking to US$ 67 billion in 2023. Increasing demand for imports of a variety of goods in Bangladesh has driven its trade with India. The bilateral trade between the two countries has surged remarkably over last one and half decades. The rise in bilateral trade has also been driven by intra-industry, especially in textile and clothing sector.
India-Bangladesh two-way trade in goods has grown faster than that of India’s total merchandise trade with rest of the world. While the value of India’s global merchandise trade in 2023 was 2.5 times the value in 2009, the size of bilateral trade was 5.5 times. Between 2009-2023, the size of bilateral merchandise trade has increased from US$ 2.4 billion to US$ 13.1 billion. India’s exports to Bangladesh have also grown faster than that of its total exports to rest of the world. As a result, the share of Bangladesh in India’s merchandise exports has increased from 1.2 per cent in 2009 to 2.6 per cent in 2023. Share of Bangladesh in India’s merchandise exports was higher than several big economies like Japan (1.2%), South Korea (1.5%), France (1.7%) and Germany (2.2%) in 2023.
India’s export to Bangladesh reached to a record level of US$ 14 billion in 2021 before declining to US$ 13.8 billion in 2022 and US$ 11.3 billion in 2023. The decline in Indian exports was mainly due to overall decrease in demand for imports in Bangladesh which has been caused by multiple challenges, like high inflation, Russia – Ukraine war induced supply chain disruptions, the Bangladesh economy has been facing during the post Covid period. The ongoing socio-political turbulence is likely to further deteriorate economic environment in Bangladesh and adversely affect its demand for imports from India.
The Indian export basket to Bangladesh consists of a variety of products and is substantially diversified and includes cotton, fuel products, vegetables, coffee and tea, automobile goods, machinery and electrical equipment, metal products. India’s imports from Bangladesh, on the other hand, are highly concentrated in few sectors. For instance, in 2023, more than 59 per cent of Indian imports consisted of textile and clothing products. Other items of import include fish, leather products and footwear.
Since a substantial proportion of Indian merchandise exports to Bangladesh consists of labour-intensive products an adverse impact on their demand would lead not only to loss of export earnings but also reduced jobs for the Indian workers. The industry that is likely to be the most affected in India is textile and clothing which is labour intensive and constitutes about 24 per cent of India’s total merchandise exports to Bangladesh. However, given that Bangladesh is also India’s competitor in textiles and clothing sector, especially in clothing segment, the overall effect is likely to be mix.
The disruption in Bangladesh economic activities would lead to reduction in demand for import of cotton, which is a major constituent of Indian exports to Bangladesh. Since Bangladesh is the largest market for Indian cotton, constituting about 35% of India’s global export of cotton, disruption in its demand will have an adverse impact on all the Indian stakeholders, including the farmers, involved in production and supply of cotton.
However, decline in demand for imports in Bangladesh could also lead to decrease in cotton prices in India which will help improving the cost competitiveness of Indian garment sector. Additionally, given that Bangladesh is one of India’s biggest competitors in the world market, supply disruptions in that country could lead to increase in demand for Indian garment products in the global market. However, it would be difficult for Indian exports to substitute the Bangladesh supplies in a major way as their capacity to fulfil the global demand in a longer term is less than adequate.
India also exports a number of agricultural products to Bangladesh. Edible vegetables are one the biggest items of agricultural exports and Bangladesh constitutes more than 20 per cent of India’s global exports of that group of products. The ongoing strife is likely to affect its demand and all the stakeholders, including farmers, involved in supply of vegetables will likely get the hit. Bangladesh is also a major market for Indian tea & coffee and likely to be impacted by the crisis. Although rice is also a major item of export from India to Bangladesh its demand may not be affected in a big way given that it is an essential part of their staple food. Another important sector that could receive negative effect is India’s energy sector as Bangladesh constitutes 2.6 per cent of India’s fuels export to the world market. Other key sectors that are likely to come under stress due to crisis in India’s eastern neighbour include metals products, mechanical and electrical appliances and transportation goods would.
Given that Bangladesh has emerged as an important destination for several Indian goods, the ongoing socio-political turmoil is likely to affect economic activities in that country and, consequently, dampen the demand for those goods from India. Although the crisis could present an opportunity for India in the global clothing market, Indian exports are unlikely to replace Bangladesh in a significant way due to the inadequate supply capacity of Indian exporters.