External Affairs Minister Natwar Singh led the first ministerial-level delegation to Bangladesh since the United Progressive Alliance government assumed office in May 2004. During the visit, Natwar Singh declared, "Where there are joint projects of mutual advantage, we should not allow politics to triumph sound economics. We must make a good faith endeavour to avoid any provocative words or deeds that would inevitably make our bilateral relations and mutual dialogue needlessly more difficult." A process of renewed bilateral economic engagement between the two nations seems to have begun. The visit was expected to break fresh grounds in not-so-warm bilateral relations. Thus, while the Indian side was careful enough not to highlight the differences and problem areas, Bangladesh too avoided raking the issues that has divided both the countries so far. The visit, overall, created a right atmosphere for further dialogue.

Relations between both countries have suffered in spite of a steady process of negotiations at various levels. Ministers from both countries exchanged regular visits. The Indo-Bangladesh Joint Working Group on Trade Issues met regularly since October 2003, but achieved only modest results. Issues like trade deficit, the free trade agreement and the operationalising of the South Asia Free Trade Agreement (SAFTA) in the beginning of 2006 remained inconclusive. During the foreign office level meeting held at New Delhi in June, both countries had agreed to activate bilateral mechanisms to enhance cooperation. However, a range of security related concerns such as killings in the border areas, barbed-wire fencing, India's allegation of northeastern rebels operating from Bangladeshi territory, and illegal migration from Bangladesh affected cooperation.

Indo-Bangladesh bilateral trade in 2004 stood at $1.6 billion. Although this amount is substantial; it does not fully exploit the potential existing between the two countries. A huge volume of trade still takes place through the informal or illegal sector. Free Trade Agreement (FTA) between both countries remains a non-starter, tangled over the issue of non-tariff barriers to the Indian markets. India remains sceptical of the efficacy of Bangladesh's testing institutions and procedures. India's move is perceived as protectionist. Bangladesh claims that because of their export to other countries, they have their own incentives to ensure that products meet international standards. During his visit, Natwar Singh suggested that both countries should sign a Dhaka-Delhi Trade Agreement and work towards a quick conclusion of bilateral FTA deal, improving multi-modal communications, bilateral Investment Protection and Promotion Agreement.

The $2.5 billion Myanmar-Bangladesh-India pipeline project is another area of contention between the two countries. Dhaka wants transit facility through India for hydroelectric power from Nepal and Bhutan to Bangladesh, a corridor for trade between the two Himalayan kingdoms, and measures to reduce the $2 billion bilateral trade imbalance before signing this agreement. For India, these issues are bilateral matters and it considers the preconditions unreasonable for the "commercial" pipeline project, especially, when India is ready to pay an expected transit fee of $125 million to Bangladesh.

Sharing of Waters of the Common Rivers (SWCR) and Bangladesh's concerns about the Indian River Linking Project (IRLP) also came up for discussion. Bangladesh has been opposed to India's plan of river networking due to a fear that it will be deprived of its share of the water. Natwar Singh assured the Bangladesh government that India would not take a unilateral decision in the river linking issue. India's Water Resources minister is scheduled to tour Bangladesh in August to initiate discussions on both the SWCR and IRLP issues. In addition, the Indian Commerce Minister will also tour to further the dialogue on the free trade agreement.

Security issues have dampened the relations between both the countries and it is difficult to imagine that economic relations would improve unless security issues are addressed and resolved. Natwar Singh stated that, "(We would) try and be as flexible as we can on all these issues subject to our responsibility to safeguard India's national sovereignty and territorial integrity." However, at the same time in Kolkota, Defence Minister Pranab Mukerjee, in a reaction to the recent spate of explosions by ULFA in Assam remarked that, "Diplomatic efforts are on to apprise the Bangladesh government of our concerns, though no government would admit that their soil was used for activities against another country. Following our efforts, there are some results but we do not expect dramatic changes in their attitude overnight." India has proposed an intense engagement process and continuation of constructive dialogue to remove the irritants. Whether the zeal to improve economic ties triumphs over security contentions is still an open question.