India–Bangladesh economic ties gain momentum

Author: Tridivesh Singh Maini, JSIA

While attention has focused on India’s strained ties with its neighbours, some notable strides have been made in the bilateral relationship with Bangladesh. Progress on the political front has captured the spotlight, with the recent Land Boundary Agreement. But both sides have also made significant progress in developing their economic ties and connectivity.

Two Indians drive a three-wheeler loaded of tree branches, outskirts of New Delhi, India. (Photo: AAP)

A number of recent developments illustrate this point. On 9 March 2016 Bangladesh signed an agreement with the Exim Bank of India to fund US$2 billion in low-cost loans for a number of social and development projects. This is the largest credit line that India has extended to any country.

The two countries have also signed key partnerships in the energy and power sector. Bangladesh will start receiving 100 megawatts of power from the 726 megawatt thermal power plant at Palatana in Tripura from 23 March. And the state-owned Indian electrical company, Bharat Heavy Electricals Limited, has recently signed a Memorandum of Understanding on a US$1.6 Billion Power project at Khulna, Bangladesh.

Beyond the energy sector, Bangladesh and India have taken some important steps to enhance connectivity. Bus services linking India and Bangladesh have been established and multiple agreements signed to enhance trade by improving maritime cooperation. This includes a Memorandum of Understanding on the use of the Bangladeshi ports of Chittagong and Mongla, which would enable the movement of goods to and from India.

India’s long-standing desire for greater access through Bangladesh has also been resolved. In June 2015, transport ministers from Bhutan, Bangladesh, India and Nepal signed the Motor Vehicles Agreement to regulate the transportation of passenger, personnel and cargo vehicle traffic between their countries.

The political consensus that has formed within India has been vital to developing the bilateral relationship with Bangladesh. During the electoral campaign, Prime Minister Narendra Modi adopted an aggressive posture towards Bangladesh, but since gaining power he has sought to strengthen the relationship. This can be seen in the urgency with which he pushed through the Land Boundary Agreement as well as greater economic ties and connectivity. All these policies will act to bolster Modi’s principal foreign policy priority, the ‘Act East’ policy.

The United Progressive Alliance helped lay the foundation of a robust India–Bangladesh relationship by supporting the ratification of the Land Boundary Agreement, demonstrating that there is a political consensus on better ties with Bangladesh. Without their support, such reform would have been impossible.

This consensus at the national level has been further aided by the Indian border state of Tripura, which has played a significant role in strengthening ties with Bangladesh. In January 2012 Chief Minister of Tripura, Manik Sarkar, invited Bangladeshi Prime Minister Sheikh Hasina to Tripura, where he presented her with an honorary doctorate from Tripura University. Their relationship has since flourished and Hasina has collaborated with Sarkar to deliver the Palatana Project — a gas-based thermal power plant in Tripura that will provide power for parts of Bangladesh and India.

The role of Tripura in improving the relationship also reiterates the importance of state governments in India’s foreign policy, particularly regarding India’s ties with its immediate neighbours. The crucial role played by Tripura in forging ties with Bangladesh could offer important lessons for other border states in improving ties with neighbouring countries.

The credit for growing Bangladesh–India ties goes not just to the Indian political leadership, but also to those in Bangladesh. Bangladeshi Prime Minister Sheikh Hasina has been instrumental in improving ties despite the political risks stemming from the large number of naysayers who have accused her of compromising Bangladesh’s interests.

The respective business communities and Chambers of Commerce have also played a decisive role in improving ties. Bangladeshi firms, in particular, have shown a willingness to open up to further trade and competition, and have played a stellar role in bolstering the economic relationship, despite the trade balance being in favour of India. Their approach has ensured Bangladesh has reaped significant benefits. Bangladesh’s export growth — fuelled by increases in inputs from India — has been substantial enough to offset any negative impacts from the trade deficit with India.

India should seek to further enhance ties with Bangladesh. It is crucial that India builds on present successes to find a way to resolve remaining challenges, such as the stalled Teesta water sharing agreement. Ultimately, Bangladesh is not just relevant for India in the context of South Asia, but is also essential for both its Act East policy and in deepening its connectivity with South East Asia.

Tridivesh Singh Maini is a Senior Research Associate with The Jindal School of International Affairs, OP Jindal Global University, Sonipat. He was previously a SAV Visiting Fellow at the Stimson Center, Washington DC.