There is an uprising in neighboring Bangladesh. Prime Minister Sheikh Hasina has been forced to resign and is now in India. On the other hand, in Bangladesh, the army has taken over and announced the formation of an interim government, while in India, an all-party meeting is looking for ways to tackle the crisis. In such a scenario, a big question is whether this crisis in Bangladesh is detrimental to the Indian economy or can it be beneficial?
India and Bangladesh are known as the strongest allies in the entire South Asia. In the last 10 years, the relations between the two countries have reached new heights. Bilateral trade between the two is estimated to be around $13 billion in the financial year 2023-24. In such a situation, it is inevitable that the coup in Bangladesh will have an impact on the business.
How much difference will there be in the business of both?
India had invited Bangladesh as an observer country in the G-20 summit last year. After this, talks on Free Trade Agreement (FTA) between the two started in October 2023. According to the World Bank, this FTA would have benefited both countries. With this, Bangladesh’s exports to India will increase by 297%, while India’s FTA will also increase by 172%. However, what will be the contours of this agreement in the new circumstances will be known only in the future.
If we talk about India’s imports and exports, the biggest blow could be India’s cotton business and its exports. India exports about $2.4 billion worth of cotton to Bangladesh every year. Bangladesh accounted for only 16.8% of India’s total cotton exports in FY 2012-13, according to commerce ministry data. Bangladesh’s share will increase to 34.9% by FY 2023-24.
Apart from cotton, India supplies fuel to Bangladesh. It accounts for the second largest share of India’s exports to Bangladesh. Apart from this, there is a large presence of Indian companies in the market of Bangladesh. Adani Wilmar, an Adani Group company, owns the largest cooking oil brand in Bangladesh. Indian auto companies also export there on a large scale.
The trade market was collapsing even before the coup
India-Bangladesh can become the strongest business and political partners. However, the trade between the two countries has been declining for some time now. A major reason for this is the economic crisis in Bangladesh, which is one of the many causes of the insurgency there. Bangladesh is the 8th largest export partner for India, but India’s exports to Bangladesh fell by around 9.5 percent in FY 2023-24.
While the import from Bangladesh has also decreased by 8.7%. Not only this, Bangladesh saw a 24.4% year-on-year decline in exports to India in FY 2022-23. Perhaps that is why experts are calling for an FTA between the two countries.
What will happen to Zara and H&M, will India benefit?
It cannot be said that only India will suffer from the current situation in Bangladesh. This is due to India’s significant participation in the garment industry. Bangladesh is currently one of the world’s largest garment exporters. Clothing from big popular fashion brands like Zara and H&M are mostly manufactured in Bangladesh. The garment or apparel industry accounts for 83% of Bangladesh’s total exports.
Bangladesh is the third largest garment exporter in the world. But Bangladesh’s apparel industry may be adversely affected by the current unrest. It may benefit China, but it is also a big opportunity for India. India is the 6th largest apparel exporter in the world. In such a situation, India can take advantage of this opportunity to strengthen its position.