Indo-Bangla trade: Closer ties, but discomfort lingers

At one level, relations between India and Bangladesh have been becoming healthier. Economic and political ties between the two countries have become stronger.

There is greater co-operation in terms of discussions over water sharing, security matters (including the repatriation of terrorists who had earlier sought refuge in Bangladesh) and trade.

Most Bangladesh businessmen and common folk look to India with a sense of both warmth and gratitude (India had helped this country in its independence struggle).

But at another level, there is growing unease. Bangladesh believes that India is not doing enough to encourage its own exports to India. It has watched how the trade gap has kept on soaring in favour of India, and chafes at the tariff and non-tariff barriers imposed by India on its most important exports — garments.

In fact, Bangladesh’s rise in the export of garments has been quite impressive. Today, this sector alone accounts for almost 80% of export earnings of that country. And while a great part of the success owes tremendously to the innovativeness of Bangladesh’s businessmen, it is also because of two other reasons.

The first is the preferential status it enjoys in respect of duty-free exports to many developed countries (including the US and the EU) which is granted to less-developed economies. This is often referred to as the EBA status — everything but arms.

The second is its low labour costs that have allowed it to compete very effectively in global markets, making it the second-largest apparel exporter in the world. And today, almost everyone acknowledges that it could soon become the largest exporter of apparels globally, as China’s own labour costs continue to soar, making its own exports that much less attractive.

There is a third reason as well. Had India pursued the path of labour law reforms, it is quite possible that India would have been a significant player in the export of garments. But outdated labour laws and a government unwilling to unshackle its own industry from such laws have automatically resulted in much of the labour-intensive export-oriented industries to migrate to countries like Sri Lanka and Bangladesh.

That could explain why India continues to dither. It knows only too well that the best way to reduce the trade deficit with Bangladesh is by allowing garments from this country into India.

Currently, more garments from China come into India than from Bangladesh, even though its products sell at a fraction of the costs at which they are available in India. Instead, the government of India has put a quota barrier of 10 million pieces a year (though up from 8 million the previous year).

“This is absurd”, says Md Shafiul Islam (Mohiuddin), president of the Bangladesh Garment Manufacturers & Exporters Association.

“This is the volume made by a single plant in this country. Many of our manufacturers have around 15,000-18,000 workers under one roof, and India should not keep a non-tariff barrier that is so law”.
Efforts to strengthen ties

There are two developments that could change the way trade ties between the two countries have been going on for the past four decades.

The first involves the creation of a 100 acre special economic zone (SEZ) at Sunanganj, close to the Indian border. It enjoys access to the north-eastern regions of India and is well connected by navigable waterways, roads, and railways.

It even has clearances for setting up a 50 mw captive gas-based power generation unit. The region boasts of rich gas reserves, and allocation of gas for power generation has already been made. Even the airport is just an hour away.

“What we want is for Indians to invest in this SEZ,” says Abdul Matlub Ahmed, president, India-Bangladesh Chambers of Commerce and Industry, Dhaka.

Discussions are underway to permit duty-free import of raw materials from India in Bangladesh, and duty-free export of finished goods back into India from this SEZ. If the discussions are successful, it could pave a new wave of Indian investments in Bangadesh, as joint ventures, to mutual advantage.

Even without such an SEZ coming up, Indian industrialists have begun looking to Bangadesh as a good investment decision, partly because of cheaper labour, excellent skills, and its privileged status as far as exports to developed countries are concerned.

The Sriram group is planning big investments in Bangladesh, and the Arvind Lalbhai group is planning investments of around Rs500 crore in this country (as labour costs in Gujarat continue to soar). This is in addition to join ventures already in Bangladesh — like those of the TVS group and the Tatas.

The second strategy that is being followed is to set up a manufacturing hub in Mizoram to manufacture garment parts. “Button-making, sleeves and such items will be made by girls in Mizoram which we will import duty free to Bangladesh, and assemble them in this country,” says Matlub Ahmed.

The Mizoram government and the government of Bangladesh have warmed up to this proposal. Under this scheme, the Bangladesh ‘garment assembly’ unit will be eligible to send the readymade garments back to Mizoram for sale and distribution in the northeastern regions of India. 

Mizoram is thrilled, because it will help create job opportunities for its girls, and gradually make them develop skills that could be used to climb up the value chain in the future. Bangladesh is happy because it would allow its garments to go into India through the north eastern route.

Meanwhile, the Confederation of Indian Industry (CII) has plans to promote a “produced in Bangladesh” centre in India to increase the awareness of goods from this country which are available all over the world, but not that easily in India. “It is imperative for both countries to become more trade-friendly,” says Shyamal Gupta, special advisor to Tata International Ltd, and leader of a CII delegation which is currently in Bangadesh to promote business ties.

In addition to all these developments, NTPC is planning to supply power-starved Bangladesh 250 Mw of power and negotiations are on to improve transmission and distribution facilities. In a bid to improve gas availability, Bangladesh has signed a deal with the Russians for drilling five more holes for recovery of gas. If it has more power, it can proceed further with industrialisation. Not having much access to coal reserves, it plans using the gas route for power generation. Some of the power will be imported from India. And plans are afoot to look at solar power generation as well.