FDI, energy biz to boost Indo-Bangla trade

Although economic ties between India and Bangladesh are far below potential, greater access to each other’s markets, improvements in physical connectivity and transit, besides energy trade between the two countries could help unlock this trade potential, says a new World Bank study.

The study titled “The Unlocking Bangladesh-India Trade: Emerging Potential and the Way Forward” says greater engagement in these areas can also stimulate employment and other economic and social activities, which in turn would help reduce poverty (particularly in the border areas), enhance foreign direct investment (FDI) flows, and generate new business opportunities for the private sector. 

The study observes that inflow of direct investment from India would stimulate Bangladesh’s exports, facilitate technology transfer, and generate employment in Bangladesh. Such investment can also help India gain access to Bangladesh’s market; provide it with a competitive production base; and help India link better with its North-eastern states, it noted. 

The energy sector, the Study continues, too offers enormous investment and trade opportunities for both countries, particularly in a sub-regional context that includes Bhutan and Nepal.

It points to the very significant potential of trade facilitation. A 10 percent improvement in the efficiency of clearance processes by border control agencies, including customs, can lead to a 3.9 percent increase in bilateral trade, while a 10 percent reduction in trade-related documentation can result in a 7.3 percent increase in bilateral trade, it noted. "A one percent improvement in overall trade facilitation would result in an almost 4 percent increase in Bangladesh‘s exports.”

“Both governments need to facilitate trade by improving infrastructure at border trading posts, harmonizing trade-related documentation, and minimizing the restrictive element of non-tariff measures. 

With the general decline in tariff barriers, addressing such costs of trading becomes paramount to ensure continued growth of trade that could, in turn, be a major force in poverty reduction, especially in border areas,” added Sanjay Kathuria, one of the authors of the study and Lead Economist, Regional Integration, South Asia region.

It points out that “South Asia is one of the least integrated regions in the world today. Greater bilateral economic cooperation between India and Bangladesh can serve as a critical step for an integrated South Asia,” said Isabel Guerrero, World Bank’s Vice-President for the South Asia region. 

Even as India is one of Bangladesh‘s primary trading partners, the latter has a high trade deficit with the former, the study said.  For one, India’s imports from Bangladesh have grown over seven fold between FY ’01 and FY ’12, while India’s exports to Bangladesh have grown four fold.  This notwithstanding, Bangladesh accounts for less than one percent of India‘s total imports with a small range of items, mostly fertilizers and jute products.

Simulations in the World Bank study indicate that a bilateral Free Trade Agreement (FTA) between the two countries could increase Bangladesh’s exports to India by 182 percent, and that of India’s to Bangladesh by 126 percent. For India, closer economic cooperation with Bangladesh can be an important stepping-stone to reduce the economic isolation of its north-eastern states.