Bangladesh and India discussed ways of strengthening partnership and greater momentum in development cooperation between the countries as the new government, led by Prime Minister Sheikh Hasina has sworn in.

In a courtesy call on Hasan Mahmud, the foreign minister of Bangladesh, Indian High Commissioner to Dhaka Pranay Verma discussed how the relationship has achieved “unprecedented momentum and growth” under the leadership of Hasina and Indian Prime Minister Narendra Modi over the last decade.

Speaking to journalists after the meeting on Monday (January 15), Verma said they also discussed many “positive developments” in 2023 when we saw a number of large projects, including those involving railways, power, mechanism for trade in Indian rupees, linking the digital payment systems, and partnerships in startups.

He said India was exploring some of the things that it would like to work for the future, including areas like climate change and digital economy to support Sheikh Hasina’s vision of a Smart Bangladesh by 2041.

They also discussed to broaden the scope of local currency-based bilateral trade. This strategic step is seen as a measure to reduce dependency on the dollar, enhancing economic resilience for both nations.

“The payment system through local currency for bilateral trade started on a pilot basis recently. But now we have discussed how to expand it and how to make it more popular," Verma said.

"It will help us reduce our dependency on the dollar," Pranay Verma added. 

This was the first call by a foreign envoy to Hasan Mahmud since taking office as foreign minister.

Terming India as the most important and closest neighbor, Hasan Mahmud mentioned that Bangladesh wants to work closely with India to promote bilateral relations.

He cited a few areas of engagement, like connectivity, water, coastal shipping, trade and investment. He emphasized the need to start working on the renewal of the Ganges Water Sharing Treaty, which will expire in 2026.

He also emphasized the importance of resolving the pending issues amicably.

The Foreign Minister thanked the Indian government and External Affairs Minister Dr S Jaisankar for sending a message of congratulations.

Bangladesh-India Trade Cooperation 

Bangladesh and India have developed a strong bilateral trade relationship in recent years. Despite global disruptions like the Covid-19 pandemic and the Russia-Ukraine war affecting supply chains, trade between the two countries has thrived. India has become a key trading partner for Bangladesh due to the advantages of cost and time efficiency in importing and exporting goods.

Bangladesh has successfully increased its exports to India, surpassing $2 billion. In November 2011, the then Prime Minister of India, Manmohan Singh, announced a reduction in India's sensitive goods list from 480 tariff lines to only 25 for the less developed countries under the South Asian Free Trade Area Agreement. 

As a result, Bangladesh has access to almost 100% duty-free facilities on all goods except arms and drugs in the Indian market. Since 2011, the export of Bangladeshi products to the country has been increasing.

While Bangladesh faces a trade deficit with India, experts aren't overly concerned, as the country maintains a trade surplus with the European Union and the United States. India has become Bangladesh's second-largest import market, with goods worth $16.16 billion imported in the last fiscal year. Although trade imbalances exist, the focus has shifted from primarily importing food and essential commodities to importing raw materials and capital equipment, supporting Bangladesh's industrialization and export sectors.

It is important to note that the composition of the products Bangladesh imports from India has changed dramatically over the past few years. While Dhaka was heavily dependent on imports of food and essential commodities in the beginning, imports have now shifted towards goods like raw materials and capital equipment required for industrialization. 

It means that Bangladesh has been able to generate foreign currency by using the raw materials or machinery imported from India in the export sector, especially in the garment sector, and its domestic industries. Macroeconomic experts see the compositional shift in imports from India as a very positive change to the economic scope of Bangladesh.

Such structural and material transformation has not been observed in other neighboring countries that trade with India. Sri Lanka has seen some progress. While Nepal and Bhutan have not had any, and in fact, they have an over-dependence on India for basic commodities. From that perspective, Bangladesh has increased its capacity to import from India and has used its capabilities more appropriately than many others.

Key Milestones in Bilateral Trade Cooperation In 2023

Comprehensive Economic Partnership Agreement (CEPA)

India and Bangladesh discussed for forming a Comprehensive Economic Partnership Agreement (CEPA) in 2023. This initiative aims to strengthen economic ties, promote trade, generate job opportunities, and improve living standards in both countries. The agreement underscores a shared commitment to mutual growth, expanding markets, and fostering overall economic development.

Swadhinata Sarak and Maitree Thermal Power Project

The Swadhinata Sarak, a road project, symbolizes the deepening friendship between India and Bangladesh. It prioritizes connectivity to boost trade, and the joint inauguration of the Maitree Thermal Power project adds to their extensive cooperation in areas like trade, connectivity, and water sharing.

Currency Diversification in Bilateral Trade

In April 2023, India and Bangladesh decided to use their local currencies for part of their bilateral trade, aiming to reduce dependence on the US dollar. This move streamlines trade, aligns with global currency diversification trends, and enhances economic cooperation.

Infrastructure and Connectivity Improvements

Both nations are enhancing infrastructure and connectivity for trade, including the Japanese-funded Matabari Port in Bangladesh by 2027. This improved infrastructure aims to streamline trade from India to Bangladesh and onward to Asian markets. Collaborative projects, like the "Bay of Bengal Northeast Industrial Value Chain Concept," underscore their commitment to strengthening economic ties.

Other developments 

In 2023, India and Bangladesh strengthened their economic partnership with key Memoranda of Understanding (MoUs). Covering water management, railways, scientific research, space technology, broadcasting, and judiciary, these agreements represent a comprehensive approach. This holistic strategy aims to enhance the foundation for increased trade and mutual economic benefits between the two nations.

Navigating Challenges and Building Collaborations

The future of Bangladesh-India trade cooperation faces challenges, notably potential migration due to climate change. However, a shared commitment to securing Bangladesh politically, socially, and economically can prevent undesirable scenarios. Emphasizing inclusive policies and sustainable development is crucial for proactive challenge resolution.

The historical and geographical ties between India and Bangladesh highlight a distinct imperative for collaboration. India's strategic importance cannot be overlooked, emphasizing a nuanced and Bangladesh-friendly diplomatic approach.

The potential for a Free Trade Agreement (FTA) adds positivity to Bangladesh-India trade. Projections show significant growth with an FTA, offering both nations opportunities to capitalize on strengths. Initiatives like the "Bay of Bengal Northeast Industrial Value Chain Concept" underline the commitment to attracting manufacturing and increasing trade.