How the ongoing political crisis impacts India-Bangladesh trade ties

Bangladesh’s political crisis in the aftermath of Prime Minister Sheikh Hasina’s resignation, has grabbed headlines in the past few days. The crisis has sparked concerns pertaining to its impact on bilateral trade, impacting key sectors like agriculture and textiles. Both nations will have to work to ensure stability and protect critical supply lines during this period. IBT takes a look at the impact of the crisis and which sectors could be impacted.

Image source: Shutterstock 

The recent political crisis in Bangladesh, marked by violent protests and the resignation of Prime Minister Sheikh Hasina, has sparked concerns about its impact on India’s trade and business. Bangladesh is experiencing its most severe political crisis since gaining independence in 1971, with PM Sheikh Hasina stepping down in response to widespread anti-government demonstrations and leaving the country. The unrest in Bangladesh has already affected a number of Indian companies, particularly those with significant operations or market presence there. This impact was reflected in the stock market, as shares of Indian firms connected to Bangladesh experienced declines.

Andrew Wood, Director of Sovereign and International Public Finance Ratings (Asia-Pacific) at S&P Global Ratings, stated that S&P expects domestic demand conditions in Bangladesh to be weak during this period, likely resulting in less support for exports from other countries, including India, to Bangladesh. He also noted: “India is a well-diversified exporter to the entire world and its trade profile is significantly larger than bilateral trade relationships with economies like Bangladesh.” Wood further emphasized that the crisis “is really quite unlikely to have a meaningful impact on India’s overall trade position for the fiscal year… its external position is quite strong in the country and is a net creditor to the world by our calculation.”

At the same time, Bangladesh is India’s largest trade partner in South Asia, making up 2.53% of India’s exports. In the fiscal year 2024, bilateral trade between the two countries totaled US$ 12.9 billion. India’s exports to Bangladesh dropped by 9.45% year-over-year to US$ 11.06 billion, while imports from Bangladesh fell by 8.74% year-over-year to US$ 1.84 billion.

The maor commodity groups where Bangladesh has a relatively high share of India’s exports include cotton (34%), animal feed (24%), vegetables (22%), chemicals (21%) and  fabrics (13%). Industry stakeholders in these sectors may face an  immediate impact and may have to secure new markets. In other commodities, the share of Bangladesh is relatively lower.

Mohit Singla, Chairman of the Trade Promotion Council of India, commented to the Economic Times: “With the kharif harvest very near, the agri export basket of over $1.8 billion could be impacted, with soybean, soybean meal, animal feed such as wheat residues, onion, and rapeseed being the worst hit.”

Chandrima Chatterjee, Secretary General, Confederation of Indian Textile Industry commented, “The situation in Bangladesh is indeed concerning, and we are closely monitoring the developments. Bangladesh’s growth in textile sector has been inspiring and has lent strength to the trade flows in the entire subcontinent. While we are concerned about the impact on the supply chain and the potential delays and disruptions it might cause, we are hopeful that the situation will improve soon.”

Major imported commodities from Bangladesh to India include apparel, yarn, textile articles, leather items, and fish. Amidst the political turmoil in Bangladesh, Global Trade Research Initiative (GTRI) emphasized that all political factions must work to protect garments and other factories and keep supply lines open across the border to maintain trade and economic activity.

Most of India’s exports to Bangladesh are subject to full tariffs and are not covered by the South Asian Free Trade Area (SAFTA) agreement. In contrast, Bangladesh’s exports to India are primarily concentrated in a few categories, with textiles, garments, and made-ups accounting for 56% of their exports. These items enjoy zero tariffs under the SAFTA agreement, as extended by India, according to the Global Trade Research Initiative (GTRI).

The current political instability in Bangladesh poses significant challenges to economic ties. While India’s overall trade position remains strong, certain industries may face short term disruptions to trade patterns. Both nations must navigate this uncertainty carefully, ensuring that essential supply chains remain intact and exploring new avenues for trade and cooperation.