The sudden fall out of Sheikh Hasina’s government has undoubtedly thrown Bangladesh into a period of chaos; however, trade and commerce with India, China and traditional partners will remain unaffected, speaking to COGGS Bangladeshi economists and trade experts remarked.
Amid ongoing discussions on Comprehensive Economic Partnership Agreements (CEPAs), and following the finalization of infrastructure projects such as the establishment of several new railway lines, bus services and connectivity projects, India and Bangladesh now face an unexpected challenge due to political turmoil in Bangladesh.
In an interview with COGGS, Dr. Fahmida Khatun, Executive Director of Centre for Policy Dialogue, opined, “With change of government there is no risk of trade relations. Because, trade happens among countries based on comparative advantage. So, I do not see any reason for any change in trade relations with our trading partners.”
Parvez Karim Abbasi, Assistant Professor at the Department of Economics of Dhaka based East West University opined, “If Delhi truly values friendship or it really has strategic interests, it should not limit its relations to just one political party. The primary source of anti-Indian sentiment stems from India’s support of the Awami League in the 2014, 2018, and 2023 elections. The Hasina government largely ignored the economic struggles and sentiments of the Bangladeshi people.
According to the experts, the export from India, China and several other countries are halted for the time being but supply of vegetables, electricity and other essentials from India as well as traditional partners will not be hampered.
In an interview on August 7, Abbasi further stated, “India remains “the country of choice for Bangladeshis” for several reasons from culture to tourism to business. India should consider public opinion in Bangladesh and respect their choice of leadership.”
According to the economist, informal trade volume makes the trade figure higher than estimated bilateral trade (about $12-15 billion), with smuggling occurring.
Lag Period Effect
Trade, after all, is driven by fundamental needs and requirements, rather than the nature of government-to-government relations, Sajjadur Rahman, Deputy Editor of Bangladeshi financial daily The Business Standard remarked.
Surrounded almost entirely by India, the delta nation benefits from a network of efficient connectivity that serves as the backbone of its economic progress. This intricate web of transportation and communication infrastructure between districts of Bangladesh and states of India is meticulously designed to facilitate trade, ensuring that economic flows remain steady.
On a typical day, around 4,500 twenty-foot cargo containers would flow through the ports of Bangladesh. Today, however, only 500 containers sit idle at the ports, Rahman said. This dramatic drop in daily cargo shipment is due to security situation as there is no police presence on the road following recent agitation in the country.
The lag period will have effects of up to one to two months, Abbasi remarked. Europe and North America account for about 60-70 percent of Bangladesh’s total exports, whereas India and China are the largest sources of imports.
India-Bangladesh Trade After Hasina
The well-established connectivity between Bangladesh and India is not merely a convenience but a critical element of Bangladesh’s economic strategy. Without such a comprehensive and strategically placed network, the nation’s ability to meet its economic objectives would be significantly hampered, Rahman remarked.
In the views of Abbasi, despite widespread claims of economic progress, banks were looted, many people were experiencing minimal income growth. The government was highlighting a rise in per capita income, but this figure often masked the true economic conditions faced by the people. This disparity between reported income growth and actual earnings suggested that the reported statistics might not fully reflect the economic hardships of the common. Furthermore, the country’s GDP-Tax ratio was among the lowest in the world. But as Bangladesh will be exploring opportunities of boosting trade, still there are chances of signing Comprehensive Economic Partnership Agreement with India.
In the views of Dr. Khatun, “the so called economic growth projected by the Hasina government was not inclusive and did not benefit the majority of the population as the nexus among corrupt politicians, bureaucrats and businessmen have weakened the economic fundamentals and increased inequality in the country.”
“All major economic indicators are on a downward fall and macroeconomic stability is broken. So, the interim government has a lot of challenges on economic fronts. But hopefully, with correct policies and enabling environment the economy will turnaround,” she added.
In recent years, Bangladesh has developed several facilities and mega projects, despite economic challenges. According to Asst. Prof. Abbasi, massive corruption, capital flight, and non-performing loans have significantly impacted the economy. Financial institutions ceased reporting the inflation rate monthly and instead began reporting it quarterly. Additionally, some of the formerly high-performing banks, such as Islami Bank and Sonali Bank, have seen a notable decline in their operations.
Bangladesh annually receives formal remittances amounting to approximately $25 to $26 billion as Asst. Prof. Abbasi said. Informal remittances are estimated to contribute an additional $10 to $12 billion each year in Bangladesh.