India-Bangladesh trade frictions demand urgent reset

ECONOMIC relations between India and Bangladesh are wide-ranging and deep. But recent developments have cast a shadow on the biggest bilateral economic partnership in South Asia. A serious bilateral conversation is essential to arrest the downward spiral.

India and Bangladesh are deeply intertwined, with large flows of goods, capital, energy and people. India is Bangladesh's second-largest source of imports and its eighth largest source of foreign direct investment, while Bangladesh was India's eighth-largest export market in FY25. Indian firms invest across sectors, building supply chain linkages, while Bangladeshi businesses have also expanded their investments in Indian markets.

Bangladesh is the largest recipient of Indian concessional financing, with about $8 billion committed for infrastructure, energy and connectivity projects. It currently imports more than 2000 megawatts of electricity from India. These connections have been deeply beneficial for the people of both countries.

The strongest ties have been cemented by people-to-people connections. Until FY24, Bangladesh was the largest source of foreign tourists into India, both for leisure and medical purposes. This changed after the July 2024 "Monsoon Revolution" in Bangladesh that led to the ouster of the Prime Minister Sheikh Hasina and the Awami League.

Over the past year, since Professor Muhammad Yunus took over as the de facto head of government in Bangladesh, ties have soured. India's issuance of visas has reportedly dropped from about 5,000-7,000 per day prior to July 2024, to fewer than 1,000 per day currently.

In April 2025, Bangladesh restricted imports of Indian yarn and some other products through land ports, revising an earlier order of August 2024. The same month, India pulled the plug on a transshipment facility that had allowed Bangladeshi firms to export their goods more cheaply via airports such as Delhi and Kolkata.

In May, June and August, India banned imports of specific Bangladeshi goods —including their biggest export items — garments and jute —through land ports, allowing such imports only via seaports of Kolkata and Nhava Sheva. Bangladesh, in turn, has decided to shut down three land ports and suspend another, finding them "unprofitable" or "inactive."

These actions and counter-actions amount to "non-tariff barriers" that, while not banning trade, create deliberate inefficiencies and raise costs for both sides.

Such retaliatory measures help neither country. Instead, Bangladesh should make full use of its location next to the world's fastest-growing large economy. Its exports to India could grow by almost 300 per cent if trade were free and efficient. It could also play a much bigger role in India's supply chains, including by aggressively courting foreign direct investment (FDI) from India.

For India, Bangladesh remains the most efficient connector to its isolated Northeast, provided an effective transit agreement can be implemented. Bangladeshi firms are also best placed to invest in India's Northeast, and help upgrade supply capabilities, especially in processing agriculture and primary products.

There are also huge mutual gains in connectivity and logistics, as envisaged in earlier cooperation agreements. These gains are best visualised by viewing Bangladesh, Bhutan, Nepal and Northeast India (including West Bengal) as a seamless economic space.

Bangladesh and India can cooperate in improving transit access for landlocked Bhutan and Nepal, and for India's own Northeast. India, with its rapidly improving infrastructure and ports, can help make Bangladeshi goods more efficiently accessible to wider markets.

In a fraught global environment, India and Bangladesh should be engaging more, not less. With India facing tariffs of 50 per cent on its exports to the US, Bangladesh could proactively invite Indian FDI in garments — accelerating an ongoing process. Both sides should roll back non-tariff barriers.

India could also revert to its earlier visa policy, which would likely restore Bangladesh's position as the largest source of leisure and medical tourists for India. Energy trade can become much larger, including India acting as a connector between Nepal and Bangladesh — a process already underway, but one that has far greater potential.

The interests of both countries lie in deepening economic interdependence. Based on a foundation of strong people-to-people ties, the opportunities in trade in goods and services, private investment, connectivity, bilateral and multi-country energy trade, the possibilities are vast — and will only grow as both countries expand.

For its own economic prosperity, Bangladesh cannot afford to neglect economic ties with India, which should be among its highest priorities. Likewise, India cannot underplay the benefits of trade, tourism and connectivity with Bangladesh. India also has major strategic interests in remaining a key economic player in Bangladesh, particularly in light of growing Chinese inroads in the country.

Both sides should resume a comprehensive economic dialogue.

Views are personal

Sanjay Kathuria is Co-founder, Trade Sentinel and Visiting Senior Fellow, Centre for Social and Economic Progress.