Bangladesh and India do have a geographical proximity to each other as well as historical links, cultural similarity, historical heritage and common social formation. Bi-lateral trade has significantly affected their diplomatic and economic ties, importantly. Geographical closeness has put India as one of the major trade partners of Bangladesh and the trade has been growing very fast in recent years. Asymmetric trade relations exist between Bangladesh and India, with India seasonally exporting around $1.76 billion and importing around $9.62 billion, thus creating a trade deficit of around $7.86 billion.
There are numerous reasons behind this imbalanced trading, to talk about. Firstly, overvaluation of the Bangladeshi taka reduces the export and increases import. Secondly, tariffs, para-tariffs and other charges in India on Bangladeshi exports increase the import costs thereby creating a trade deficit for Bangladesh. Thirdly, there are non-tariff barriers, such as strict customs verification, frequent laboratory testing, and complex certification requirements of Bangladeshi products which increase the costs and disrupt the supply, which ultimately limit export rates. Fourthly, the downgrade in the industrial diversification rate and reduced ability of the industries to produce market standard, high value export products have restricted the export increment. Fifthly, there is a significant increase in the trade deficit with India due to informal trade, which increased to $11 billion in 2026. Sixthly, the sudden withdrawal of the transshipment mechanism, which was introduced in 2020 for the exportation of Bangladesh products, particularly garments, to third countries through Indian ports on a fee basis, is adding Tk 20 billion to the export cost. Seventhly, Bangladesh’s uneven agreement, especially the Adani Power Deal, has widened the trade deficit, with the cost of imported electricity estimated at around $1.5 billion. Finally, Bangladesh’s huge trade gap with India forces it to use US dollars, which puts pressure on reserves as dollar outflows increase.
A number of positive strategic priorities are needed to reduce the trade gap. Bangladesh should, first, bolster its diplomatic and negotiation muscle to get better terms of market access, especially overcome the non-barriers from India, and make the visa process easier for business mobility.
Secondly, the state should focus on ensuring continued availability of energy and infrastructure that will improve industrial competitiveness, not simply provide incentives. A reliable supply of gas and electricity would allow for industrial diversification and increase in exports because this manufacturing sector contributes around 23% of Bangladesh’s GDP while for India it is around 17%.
Thirdly, the lack or limited availability of transshipment facilities curtails efficiency of regional trade. The revival and improvement of the mechanisms can improve connectivity between Bangladesh and the northeastern states of India, thus creating economic benefits and transit
income for both countries. According to W/orld Bank estimation, seamless transport facilities can boost up the national income of Bangladesh upto 17% while for India it is 8%.
Fourth, there is also a need to review the energy trade dynamics. Government-to-government electricity imports with multiple suppliers connectivity can be comparatively better than that of uneven Adani Power Deal because Bangladesh Power Development Board paid Tk. 14.87 per kWh to Adani for electricity imports while other Indian suppliers like NVVN Ltd and PTC India are paid Tk. 8.07 and Tk. 9.28 per kWh respectively.
Fifth, informal trade, which causes a significant loss of revenue amounting about 69% of the value of formal trade, requires strict enforcement of Intellectual Property Rights and effective trade licensing to formalize trade flows.
Sixth, Bangladesh’s dependence on imports from India for both consumption and industrial inputs is economically practical and relevant because goods can be imported from neighboring India at comparatively lower costs and with shorter lead times, and these goods are also used as raw materials for further production, which plays an important role in export earnings, but its sudden reduction is no longer feasible or desirable. On the contrary, the Bangladesh market is highly important for India because it serves as a top export destination and geo-strategic gateway to North-East India. Moreover, diversification toward non-traditional markets such as South America, Africa, and Oceania is necessary and can serve as an alternative, given Bangladesh’s persistent trade gaps.
Seventh, Bangladesh and India can reach an agreement to use local currencies (rupee-taka arrangement) for bilateral trade to reduce their slight dependence on the US dollar. Besides, Bangladesh can use export earnings from India to finance imports from India, thereby reducing the dollar drain and dependency.
Eighth, promotion of foreign direct investment in the sub-region from sources within the sub-region, through, among others, framing of necessary regulations; tracking and promoting deployment of proper infrastructure at and around Land Customs Stations (LCS) to facilitate easy movement across borders, and simplification of visa norms can reduce the trade gaps to some extent. Finally, both countries can benefit from the negotiation of a Comprehensive Economic Partnership Agreement (CEPA) for the creation of a structured institutional framework, furthering the process of trade, investment and supply chain integration.
Chandon Kumar Roy
Department of International Relations
Jahangirnagar University.
