India Bangladesh Economic Relations


  • Bangladesh’s PM Sheikh Hasina during her visit to India has showed confidence in the huge potential that exist between India and Bangladesh in the arena of trade and investment.
  • She said that the strategic location of Bangladesh provides tremendous potential for becoming the economic hub of the region.
  • With India on the west, China on the north and Southeast Asia on the east, Bangladesh is geographically positioned to create a bridge between Asian countries.


  • Economics has served as a significant platform in strengthening the bilateral relations between India and Bangladesh. The economic relations between the two countries have been multifaceted, embracing trade transactions, credit arrangements, joint ventures, transit facilities and transport development.
  • The first Trade Agreement between India and Bangladesh was signed in 1972. The India-Bangladesh Trade Agreement was last renewed in PM’s visit in June 2015 for a period of 5 years with a provision for auto renewal.
  • Bilateral trade between India and Bangladesh has grown steadily over the last decade. In the five years, total trade between the two countries has grown by more than 17%.
  • India has provided duty free quota free access to Bangladesh on all tariff lines except tobacco and alcohol under South Asian Free Trade Area (SAFTA) since 2011.
  • The two countries have numerous similarities which makes the integration of these two countries economically not just viable but also essential and beneficial for the two. These include-
  1. A common historical past that has shaped a large part of their economic and political sphere.
  2. Both face common economic as well as social problems of poverty, hunger, malnutrition, etc.
  3. Both endow vast natural resources yet have not been able to utilize it fully.
  4. Both the countries boast a vast population and a rapid economic growth in recent years.
  • Despite having complimentary economies and high chances of being benefitted from the economic integration, both the countries have not been able to utilise the situation to the extent as it can be.

What needs to be done?

India and Bangladesh can mutually reinforce  one  another’s  economic  strengths  by  synergizing  their complementarities in the areas of industry, services, trade, and technology, provided  these  economies  put  in  place  adequate infrastructure  facilities. Various important aspects of improving the same include-

  • Improve Road Connectivity: To date, no expressway immediately starts from or finishes at the border customs points between India and Bangladesh. Goods have to travel extra miles and people have to expend time, expense, and effort to get access to highways. The road condition (NH35) between Kolkata and Petrapole is very poor.
  • Railway link: In general, the India–Bangladesh border trade occurs through roadways, and very negligible freight is carried by railways. A cross-country railway network is completely missing between India and Bangladesh, though it was fairly established before 1947. South Asian countries may follow the EU model in setting up a uniform railway network.
  • Liberalizing maritime facilities: Because of the absence of direct calls between the ports of India and Bangladesh, containers shipped to Bangladesh from the West Indian ports are normally trans-shipped at Colombo and/or Singapore thereby imposing additional costs to the users and hampering intra-regional trade growth. Sharing the Jawaharlal Nehru Port could be a way of encouraging private–public partnership for developing an efficient port network in Bangladesh.
  • Transit issue: One of the most crucial non-physical barriers is appeared to be the lack of a bilateral transport agreement to facilitate uninterrupted movement of goods and vehicles across the borders between the two countries. As a result, goods are required to be trans-shipped at the border between the trucks of neighbouring countries due to which transaction costs at border are very high.
  • Renovating Land Custom Services (LCS): Not a single LCS between India and Bangladesh offers services that are of international standard. The physical environment at LCSs is anything but conducive for trade and services. Several measures have already been taken for upgrading LCSs, but effects are still limited.
  • Administrative Reforms: Since both the countries are running with “top down” approach, rather than “bottom up”, only a speedy administrative reforms from top to bottom would pave the way in strengthening economic cooperation between India and Bangladesh.

Improvement in the bilateral economic cooperation and integration between India and Bangladesh will also provide for more effective foundations for a more effective SAARC (and other regional organizations which the two are member of) in moving towards a free market and trade oriented policies.

Some progress has already been made in the direction of developing a viable transit agreement or arrangement.

Way Forward

Apart from focusing on above mentioned concerns, both the countries may also focus on associated soft infrastructure to support trade and investment should be in place.  These include:

  • approval and implementation of required legal and policy reforms;
  • implementation of effective border crossing and transport services;
  • effective agreement on trade and transit treaties between participating countries in the context of the SAARC, and BIMSTEC;
  • establishment of a facility to encourage investments in small and medium enterprise exporters and to improve their market access; and
  • promotion of human resource development, better education, and appropriate technology transfer.
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