A simmering trade dispute between India and Bangladesh has triggered concerns about Dhaka’s ability to sustain economic stability if ties with New Delhi deteriorate further. With yarn imports halted and India suspending a vital transhipment facility, questions are now being raised about whether Bangladesh can afford such a rift, especially given its heavy reliance on Indian goods and the growing trade deficit.
In April, trade between the two neighbours took a significant hit. India suspended its transhipment facility for Bangladesh’s exports, shortly followed by Dhaka pausing yarn imports through key land ports such as Benapole, Bhomra, Sonamasjid, Banglabandha, and Burimari. This escalation has not only disrupted bilateral trade but may also affect landlocked nations like Nepal and Bhutan that use the same transhipment routes for regional commerce.
Tensions Rise as Political Landscape Shifts
The chill in relations stems partly from political shifts in Bangladesh after the exit of Prime Minister Sheikh Hasina. Her departure was followed by rising tensions and communal unrest, particularly against Hindus, which India strongly condemned. A recent meeting between Prime Minister Narendra Modi and Bangladesh’s Chief Adviser Muhammad Yunus failed to ease the situation. Soon after, trade restrictions were enacted, signaling worsening diplomatic ties.
In the backdrop of its strained ties with India, Bangladesh appears to be exploring alternative trade partnerships. Pakistan’s Foreign Secretary, Amna Baloch, recently visited Dhaka for Foreign Office Consultations aimed at strengthening bilateral trade. Bangladesh has already launched direct shipping routes with Pakistan, while Islamabad is eyeing export opportunities in cotton, rice, wheat, and sugar.
India’s Trade Dominance Puts Dhaka in a Tough Spot
Despite warming ties with Pakistan, Bangladesh remains economically tethered to India. Last year, India exported 5,620 types of commodities to Bangladesh, bringing total bilateral trade to $12.9 billion in FY24. In stark contrast, Bangladesh’s exports to India were just $1.8 billion, highlighting a significant trade imbalance.
Crucially, India supplies essential commodities like cotton, food grains, and mineral fuels. Bangladesh’s textile industry, which accounts for 11% of its GDP, depends heavily on Indian cotton—35% of India’s total cotton exports go to Bangladesh. A prolonged trade disruption could deal a severe blow to this vital sector, raising fears of broader economic consequences if tensions aren’t resolved soon.
