India-Bangladesh Economic Ties: A Positive Beginning

31 Jan, 2016    ·   4977

Dr Saumitra Mohan analyses the developments in New Delhi-Dhaka trade relations and argues for sustained engagement and cooperation

Following the 1974 Indo-Bangladesh Land Boundary Agreement (LBA) finally coming into force on 01 August 2015 for the formal exchange of 162 enclaves, expectations soared high with regards to the resolution of other sundry outstanding issues between the two South Asian neighbours. However, the same could not materialise as there remains a baggage of numerous longstanding problems.

Policymakers in both countries need to realise that India-Bangladesh relations can no longer be held hostage to their domestic politics. The opportunity cost of the same shall be too high if further time is lost to consolidate upon the historical and cultural ties by building cascading functional ties in many other issue areas.

First, there is an urgent definitive need to unleash the shackled trade potential between the two countries. However, observers feel bilateral economic ties between the two continue to be hobbled due to various undesirable restrictions and barriers. It is these restrictions that encourage illegal trade through cross-border smuggling, resulting in heavy revenue losses to both governments. There still remain several commodities and areas where trading is disallowed. Cattle smuggling is one glaring example. The prohibition of cattle trade has encouraged associated smuggling across the borders and resulted in substantive revenue loss to the exchequer.

Even though there has been substantive improvement of the infrastructures along the borders, a lot still remains to be done. The construction and improvement of the Land Customs Station (LCS), the setting up of Immigration Centres, and further development of Land Ports across the international borders are emergently required along with the simplification of procedures and protocol for bettering the ease of doing business for the traders of the two countries. A synergised approach to promote holistic economic ties will also hammer out many export-import issues between them.

Maritime connectivity between both countries has long been a problem area for their traders, who have trade via the ports of Colombo and Singapore. The recently reached consensus regarding working out the Standard Operating Procedure (SOP) for operating smaller river-sea vessels between the two countries is a path-breaking development and will certainly provide a major thrust to the bilateral trade by way of reduced transportation costs and increased trade volume. Contextualised with the recent commencement of the Kolkata-Dhaka-Agartala bus service, this Agreement will further consolidate the gains made thus far.

So far, large vessels from both countries skirted trade via Singapore and Colombo due to marginal profit accruals. Being fairly long routes, transportation charges and the costs of goods have only increased over the years. All these years, economic ties between New Delhi and Dhaka suffered due to adverse economies of scale. The movement of cargo across the extant maritime expanse straddling India and Bangladesh was impeded by the obtaining sea route; and due to this, such an SOP as concluded recently was not attempted all these years. It is now hoped that smaller ships will directly connect India’s eastern ports with the ports of Bangladesh, including Chittagong. It is believed that the ensuing competitive freight rates will further help bilateral trade in addition to providing direct trading linkages instead of negotiating the same through a third country.

Employment opportunities are likely to increase as a result of increased maritime trade stemming from this development, as also emphasised by Union Shipping Minister Nitin Gadkari. Nevertheless, it is felt that the list of permissible trading commodities should be expanded to further liberate the trading potential between the two neighbours. The instant agreement opens new vistas in bilateral cooperation by committing both countries to accord the same treatment to vessels of the other country as done to national vessels engaged in international transportation.

The other highlight of the SOP is that both countries have agreed to use what they call River Sea Vessels (RSV) for coastal shipping. With one trade barrier crossed, it becomes more imperative to implement the Memorandum of Understanding on the use of Mongla and Chittagong ports (both in Bangladesh) and the dredging of intervening rivers. It is axiomatic that trade cannot flourish if the draft in the upper reaches of rivers is low.

A cognate subject warranting attention is the border management of common rivers and sharing of their waters including that of Teesta. But Teesta water sharing, of all the issues, has eluded a solution due to the inability to bridge the trust deficit to reach a common ground. Foreign policy observers feel that without accommodating and securing the agricultural interests of farmers in West Bengal, it would be a real herculean task to reach a consensus on the matter.

One just hopes that India and Bangladesh continue building upon the bilateral relations via sustained engagements and cooperation, something that would have positive implications for security and strategic cooperation between both countries.

The views expressed here are personal and don’t reflect those of the Government.