Bangladeshi Trade With India

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Table of ContentName of the Topic Page

no.

IntroductionBackground

Basic Information

Purposes of study

Significant of study

Literature review

Structure of the report

0202

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041. History of the development of Bangladesh-India trade

1.1 Table: Bangladeshs Trade Balance with India (1973-

2003)

0405

2. The current position of Bangladesh-India trade

2.1 figures shows the commodity composition ofBangladesh and India

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3. The reasons for imbalances between Bangladesh-India

trades

3.1 Improper government support

3.2 Bilateral Exchange rate

3.2.1 Trade scenario between Bangladesh and India

3.2.2 Indian exports to Bangladesh 2003/04

3.2.3 Table: Structure of Bangladesh's Exports to India

3.3 Political Instability

3.4 Tariff and non tariff barriers

3.4.1 Table: Indias Tariff Rate for Selected Commodities

of Bangladesh

3.4.2 Graph: bangladesh india legal trade scenario

3.5 Productivity Factors

3.6 Transportation

3.7 Environmental factors

3.8 Other factors

4. The solutions, how can it be even

4.1 Government support

4.2 Economic efficiency

4.3 Tariff and non-tariff concessions4.4 Political stability

4.5 Infrastructure development and transportation facility

Future Perspective of Bangladesh-India Trade under SAFTA

Conclusion

Reference

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Bangladeshi trade with India: How can it be

even?

1. Introduction:

Now a days, business has become one of the largest earning activity among

people all over the world which has the history started from the beginning of

the human life through give and take activities or exchange. With the

revolution of business with new ideas, concepts, inventions globalization has

been more flexible refers as global village in terms of international business.

Bangladesh has also taken the advantage of this and still taking to expand its

business. Now it has international business link with India, US, Pakistan, China,

Japan, UK, and also so many countries all over the world.

There are so many unions like European Union, NAFTA, SAFTA, SAARC, APEC,

ASEAN etc to integrate the member countries for their business purpose.

Bangladesh is a member of so many unions from which SAARC refers to a

significant one. In SAARC, India is another member country which has so many

businesses with Bangladesh. Bangladesh has several business deals with India

in terms of crops, jute, readymade garments, cosmetics, clothing,

telecommunications, cable channels, fisheries, fruits etc and many more. But,

in terms of export and import India is at the top position for Bangladeshi

import which is the second largest trading partners of Bangladesh. This

situation is not equal for both of the country. In some cases India is getting

more benefit than Bangladesh. So, this position should be equal for bilateral

trade among the countries.

1.1 Background:

After the liberalization of Bangladesh, it has few businesses with India in terms

of jute, crops, clothing etc. After that day by day it has increased with the help

of globalization. And after joining SAARC in 1985 the trade policy between two

countries has been increased at a higher rate. The trade between these two

countries has increased tremendously specially in 1990s.Beside this during1980s to 1995 Bangladesh and India has higher trade rate than the other

countries of the world but Bangladesh always in a deficit due to some political,

economical and obviously natural reasons where Indian has much

opportunities.

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1.2 Basic information:

As we have seen that Bangladesh and India have shared common objectives

for closer economic integration within the South Asia region and trade

between these two countries has grown rapidly since the early 1990s. But

sometimes a free trade agreement has been under consideration. Like the

trading relationships between two countries follow the agreement for the

benefits of both of them. But sometimes for the larger economic benefits and

other supports from the neighboring country India, Bangladesh is lacking

behind in so many perspectives whereas India is being more benefited. Like

the currency rate, trade barriers, resource problem etc are some major facts.

We will see the reasons later of the parts of the report.

1.3 Purpose of the study:

On the basis of the topic, we have several purpose or objective.

Broad Objective:

Our main purpose or objective is to figure out the reasons of inequity of the

trade between these two countries and go for some sort of solutions according

to it.

Secondary Objective:

We have several secondary objectives like-

To determine different types of trades between these countries.

To know about terms and conditions of the businesses

Also find out their trade laws, systems and structures etc

And also to find out the lacking of ours to do the business.

1.4 Significant of the study:

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Though Bangladesh and India both countries have economic integration, but

they have different characteristics in terms of their production, resources,

technology, rules and regulations etc. For satisfying the consumer needs India

is more advance than Bangladesh due to some of its advantages like available

resources, government support, technology, free trade opportunities etc. On

the other hand, Bangladesh is also doing business and involved internationally

but it is still struggling for resource shortages, technology shortage, proper

government support, border securities and so forth. So, for all of these

significant and major current positions it is helpful to us to have this topic for

study on it to have more knowledge

1.5 Literature review:

Before our report preparation on this topic some other people also had have a

study on it. With the help of secondary data sources we came to know that a

PHD student named Md. Mafizur Rahman who is also an Associate Lecturer

made a report on the topic of Bangladeshi India bilateral trade: Causes of

imbalance and measures for improvement in the year of 2006 while

studentship of University of Sydney. There are may be also other students or

researchers who had also gone through this topic as it is very important fact.

1.6 Structure of the Report:

For the better and organized design or format of our report, we have made thebody of the case into four chapters. Each chapter is well organized with proper

heading and information as much as we can. Our first chapter is the history of

the development of Bangladeshi and India trade. Then our second chapter is

about the current position of Bangladeshi India trade. After that our third

chapter is consiststhe reasons for imbalances between Bangladesh-Indiatrade. And moreover the fourth is all about the solutions that how to make it

even.

Chapter 1

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History of the development of Bangladesh-

India trade

There are some clues of the history of the trade development relationship with

these two countries. In 1972 the month of March Bangladesh had a business

agreement with India where Bangladesh used to export naphtha, raw jute, fish

etc and Indias export items are coal, unmanufactured tobacco, machinery etc.

But this agreement was not so effective and limited to government level.

Further Bangladesh had another agreement in 1973 where the export items of

Bangladesh were newsprint, raw jute, fish etc and Indias export items are

cottons, cotton yarns, textiles, books, cement etc. this agreement was quite

effective. But again two nations were failure to achieve their desired goal. The

imbalances were started from then after. Day by day so many contracts like

these were signed up by two of these countries where sometimes they had

effective results and sometimes they had not. But most of the timeBangladesh was the sufferer. Then they had become the member of SAARC in

1985 and have other business deals which they had maintain with the mutual

consent. Then the trade between these countries were not only limited

between the government level. Suddenly private sectors also started to link up

themselves.

1.1 Table: Bangladeshs Trade Balance with India (1973-2003)

Year Exports ($millions) Imports ($millions) Deficit ($ millions)

1973 23.3 114.8 91.51974 0.4 82 81.6

1975 5.3 83.3 78

1976 7.1 58.5 51.4

1977 0.6 55.2 54.6

1978 2.3 43 40.7

1979 12.1 40 27.9

1980 8 55.6 47.6

1981 20.2 64 43.8

1982 20.3 43.3 23

1983 6.9 37.9 31

1984 28.3 60.1 31.8

1985 29.6 64.9 35.3

1986 7.7 57.2 49.5

1987 11 74.4 63.4

1988 8.7 90 81.3

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1989 10.7 120.7 110

1990 22 170 148

1991 23 189 166

1992 4 284 280

1993 13 380 3671994 24 467 443

1995 36 994 958

1996 20 1138 1118

1997 37.2 795.6 758.4

1998 55 1178.8 1123.8

1999 49.5 1023.8 974.3

2000 50.1 945.5 895.32

2001 60.8 1195.5 1134.7

2002 39.3 1145.8 1106.5

2003 52.9 1488.7 1435.9

The above table shows the trade scenario between Bangladesh and

India from 1973 to 2003

Chapter 2

The current position of Bangladesh-India

trade

In every year, so many unrecorded informal trades happen betweenBangladesh and India. Here free cross border trade of so many commodities

even the illegal services use to happen which are totally unethical. Though

free trade is helpful to expand the business for both of the countries, but the

least border security, low quality commodities, smuggling etc are increasing

day by day which is the current phenomenon of the trade. India is now

exporting their clothings, machineries, cosmetics and so many things. On the

other hand Bangladesh is also exporting fish, textile, readymade garments,

footwear, jute etc. Now new technologies like telecommunication has also

expand in our country where Indias company Airtal also exits due to theadvantage of free trade. Beside Indian government has deal with Bangladesh

to import their cosmetics items around 85 form them which Bangladesh

cannot able to import from the other nations. So, these political and

nonpolitical views are commonly seen where Bangladesh is not at the same

positions in terms of resources, technologies and expertise where India is

being more profitable than ours.

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2.1 figures shows the commodity composition of Bangladesh and

India

Chapter 3

The reasons for imbalances between Bangladesh-

India trades

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There are few major reasons of the inequality of the trade between these two

countries those are as follows:

3.1 Improper government support:

In terms of the help and proper support of government, Bangladesh is lackingbehind in the factor of proper resource utilization, technological support,

giving subsidy, micro-credit to the producers, strict border security as well as

taking wise decision while and before trading. On the other hand, Indian

government is much more comprehensive and intelligent to take steps of

business related activities.

3.2 Bilateral Exchange rate:

The exchange rate between these two countries is another major reason for

facing the imbalance situation. In 2004, Indias export rate to Bangladesh was

about 1.7 billion and import from Bangladesh was just only 78 million. Indias

exchange rate was grew rapidly during the year of 1990 and continued to the

year of 2000.On the other hand Bangladeshi exports to India is likely zero in

the early 90s have stagnated at very low levels annually. Bangladeshi trade

deficit with India has increased rapidly. So the exchange rate is far different

and the value of taka is much lower than the Indian rupee, so this is one of the

significant facts for the imbalance of trade.

3.2.1 Trade scenario between Bangladesh and India

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In this graph we can see that the export rate of Bangladesh is far lower from

the year of 1990s and still not so progressive to the year of 2009 where their

import rate from Indian is quite higher.

3.2.2 Indian exports to Bangladesh 2003/04

This table shows the exported items of India to Bangladesh and

its percentages.

3.2.3 Table: Structure of Bangladesh's Exports to India (in percent)

Commodities FY 1994 FY 1995 FY 1996

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Chemical Fertilizer 20.6 57 60.7

Raw Jute 48.8 33.1 16.1

Frozen Fish 0.1 3.8 11.8

Other Mfg..Goods 0.1 0.1 5.9

Leather 12.7 4.1 3.3

Tea 3.2 --- 0.9

0thers 14.5 1.9 1.3

Total 100 100 100

Source: Quoted from Rahman, M (1998)

3.3 Political Instability:

Political instability is one of the major causes behind the imbalance situation in

bilateral trade between Bangladesh and India. Both of the countries are liable

for this situation. Here the Indian government is sound enough for themselves

only. They always take care of their own interest and try to ignore the others.

But this political condition has made the India more developed. For other

countries those who trades with India it is a problem or hindrance to enter

their market. On the other hand Bangladesh has lots of political instabilitywhich is not good enough for us and also for bilateral trade. This instability has

made a huge trade gap between Bangladesh and India. But it is mainly

supported by the fact that India has a lot of non trade barriers for Bangladesh

exports. The commerce minister of Bangladesh has focused on some issues

which are responsible for keeping the Bangladesh export rate lower. The

issues are: laboratory test for every consignment of food products, cosmetics, and leatherand textile products, delay in getting test results, imposition of state tax, packaging

requirement, anti-dumping and countervailing duties. Also, inadequate infrastructure facilities

such as warehousing, transshipment yard, parking yard and connecting roads at land customs

stations of India also hinder exports from Bangladesh, the list elaborated.

3.4 Tariff and non tariff barriers:

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To make the trade much more liberalize, these two countries must have some

agreement to reduce the tax, quotas, interests, tariffs barriers. Though

Bangladesh is more liberalize to free trade but India has still some of

restrictions in spite of having the agreement of SAARC, SAPTA, SAFTA, ASEAN

etc. The tax over some of commodities of India is much higher than

Bangladesh whereas Bangladesh has quite low tax rate or most of the time it

follows the nontariff barrier system. So, how could it be equal if two countries

do not make much liberalize at the same time while trading?

3.4.1 Table: Indias Tariff Rate for Selected Commodities of

Bangladesh

Rate of

duty

Exports To India Unit Standard PreferentialAreas

Reference from IndiaTariff Schedule

Chemicals Kg 15% None Chapter 28 & 29

Frozen

foods (fish)

Kg 30% None Chapter 3

Leather Kg 15% None Chapter 41 & 42

Tea Kg 100% 100% less26 paisa

per Kg

Chapter 9

Battery U 15% None Chapter 85

Source: Tariff and Import Fee Information. Tariff Information Center, USA. 1 May 2006.

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3.4.2 Graph: bangladesh india legal trade scenario

From the above chart we can see the trade flow where import rate of

Bangladesh is higher than its export rate to India just because of adding the

tariffs.

3.5 Productivity Factors:

In case of the productivity issues, it is a major reason for the trade imbalance

that, Indias productivity is much higher in terms of both in agriculture and

industrial sectors than Bangladesh. Because India has a large population or

man power, large economy, technological support as well as more resources

and expertise than Bangladesh. On the other hand, Bangladesh is not that

much productive or resourceful.

3.6 Transportation:

The transportation facility in India is much more flexible than Bangladesh due

to the improvement of their highways, railways and also water and airways to

transport due to have the technology and expertise. For these they also have

sufficient vehicles to trade, which helps them to deliver the products and

services just in time. But here, tariff can affect and make this quite expensive.

On the other hand Bangladesh does not have sufficient transportation system

to trade and those are remaining quite expensive.

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The graph shows the increasing level of transportation in

India.

For their better transportation system they have gained the Cold star

advantages to trade.

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3.7 Environmental factors:

For the environmental factors as well as the calamities, Bangladesh faced

many problems regarding the trade. So many crops and farming lands are

being damaged in every year due to natural calamities. For storage of

products sometimes being damaged which has refused from Indian more of

the time or price decreases. India also faced these types of problems but not

like Bangladesh.

3.8 Other factors:

Beside these political, economical and natural factors, other issues also arise

regarding these inequalities of trade those can be the educational factor, lackof potential business entrepreneurs, difference in life style, culture and so

forth.

So these are the imbalance factors for Bangladesh and India Trade those are

considered as the major constraints to do the trade equally.

Chapter 4

The solutions, how can it beeven?

India is one of the big trade partners of Bangladesh. Both Bangladesh and

India are two major countries of SARRC. They have their agreement for

bilateral trade. Although there are so many obstacles took place in between

them, we are expecting a free trade facility among them. To reduce all the

obstacles or barriers we have to care about some issues and sit for bilateral

discussion and make an effective decision. But one thing we have to

remember that only discussion cannot be a cure, it has to be applied properly.

Now it is time to remove the imbalances of bilateral trade betweenBangladesh and India. Bangladesh had always trade deficit with India since itsindependence, and recently it has increased significantly. Given the currenttrade scenario with India, the obvious question is now what can be done toreduce, if not remove, the huge trade deficit of Bangladesh. There is no simple

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and shortcut answer to this question. The search for effective solution must belooked at with due consideration of macroeconomic reality.

It is important to note that one cannot expect dramatic reduction of tradedeficit of Bangladesh with India within a short span of time even though

required policy options are designed and implemented. This is realized basedon the current pattern and trend of bilateral trade and prevailing state offundamentals of the Bangladesh economy. However, in the short run,detrimental impacts of bilateral trade deficit can be minimized if appropriatesteps are taken. For effective and durable solution, medium and long-termmeasures must be undertaken too.

4.1 Government support:The both countrys government should extend their helping hand to increasethe bilateral trade among them. Here the Bangladesh government should bemore conscious about supporting the trade. Proper infrastructure should bedeveloped so that the investors and traders can get facility from that. As a

result this area would be more attractive to the foreign investors. All theresources which are available in this country should be utilized properly.Government should provide the technological support to the traders and theinvestors. Credit and loan facility should be available and border securityshould be flopped.

4.2 Economic efficiency:The internal dimension of the trade deficit problem is related to the pooreconomic strength of Bangladesh compared to that of India. So the productioncapacity and economic efficiency of Bangladesh must increase in order tomeet the countrys growing demand for importable goods and maximize the

export earnings. Huge exportable surplus are to be generated and exportsmust be diversified and Indian demand requirements should be considered.Bangladesh must earn relative efficiency in the production of exportable goodsand services to reduce its trade deficit.To gain from bilateral trade, there is no alternative but to increase theproductivity in all sectors as a long run measure. For this purpose,Bangladeshs agriculture sector urgently needs a technological spurt. Moreresearch and development transfer of technologies, market based effectiveprice system and appropriate incentive mechanisms are very important toenhance the countrys agricultural productivity. To increase the productivity inthe industrial sector, development of the countrys technical base and

technological capacity building are crucial. To develop the technologicalcapacity building, huge investment, creative intervention of the government,appropriate incentive mechanism to foster technical education must takeplace in the country. As regard the productivity increase in the service sector,quality of education must be increased; quality medical service withinreasonable cost must be ensured. Huge private investment in health and

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education with creative government interventions would be very helpful forthis purpose.

4.3 Tariff and non-tariff concessions:

Bangladeshs trade strategy with India must revolve around the SAPTA tariffnegotiations. In this regard zero export duty strategy is getting importance.India should take necessary steps of unilaterally taking the decision ofproviding zero-tariff access of Bangladeshs exports to India. Tariff preferenceshould be given on those items that have high import value, are actuallytraded and have high potential for entering into Indian market. India mayexclude those irrelevant items from its concession list for Bangladesh, whichBangladesh does not produce, or hardly exports.However mere tariff concession will not reduce the trade deficit of Bangladeshto any significant extant if non tariff barriers are not phased outsimultaneously. Because the non tariff barriers are more serious impediment

to export expansion from Bangladesh to India Appropriate measures must betaken by India in this regard. Such measures would certainly encourage local,Indian and regional investors to locate investment in Bangladesh targeted tothe larger Indian market.

4.4 Political stability:Both countries should come forward to solve their problems which arehindering the bilateral trade. They can solve their problems by discussing witheach other. It would be better if they agree for a free trade facility. Free tradecan facilitate the both countries economy. India should remove all the tariff

and non tariff barriers for Bangladesh. Very recently India and Bangladesh hassigned a new bilateral trade agreement while renew an old one. Here Indiahad agreed to consider Bangladesh as Most Favored Nation (MFN). Now bothcountries are entitled to use each other's waterways, roadways, and railwaysfor transportation of goods between two places in one country through theterritory of the other.

4.5 Infrastructure development and transportation facility:

Infrastructure development is very important issue for a country to facilitatethe bilateral trade and to attract the foreign investors. Both countries should

take proper steps to develop their infrastructures, especially Bangladesh islacking behind in this sector. So it is high time for Bangladesh government totake decision about their infrastructure development. If Bangladesh can ableto improve this sector the productivity will automatically be increased. As aresult Bangladesh will be able to export goods to Indian market.Another important thing is transportation facility. Both countries should givethe opportunity to each other to use each others waterways, roadways, andrailways for transportation of goods.

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Future Perspective of Bangladesh-India Trade under SAFTA:

In January 2004, the SAARC member states signed the SAFTA agreement. Thedecision to strengthen the regional integration is undoubtedly a positive step.

Under this integration, Bangladesh and Indias trade integration and RegionalCooperation has given some hope to Bangladeshis to improve their tradebalance with India. Although Indias Sensitive List under SAFTA includes 763products which is significantly high for LDCs like Bangladesh to gain byexporting to India under SAFTA, here the focus will be on some of the sectorsof the Bangladesh economy on which Bangladesh can capitalize and mayreduce the trade deficit between these two countries by further negotiatingwith India to give free access of the products in Indian market.

Conclusion:

The trade deficit of Bangladesh in the recent past has increased exponentially.And the factors being identified for these imbalances are productivity factor,limited product base, in efficient human resources, infrastructural obstaclesetc. Recently, as Bangladesh move towards the implementation of SAFTA in a

more useful manner, the country needs to improve its positions by removingall the obstacles that it is facing and improve the trade balance of with respectto India. Improving the position is utmost necessary because the economicconditions of Bangladesh which is heavily dependent on the trade position andrelation with India as India accounts most of Bangladeshs imports and theyare the major trading partner of Bangladesh in the SAARC region. So, ifBangladesh can improve its trade relation with India, it will generate manyemployments, increase the competitiveness of its local goods and mostimportantly will increase the economic and social welfare of the country. Inaddition, a special focus also need to given on the Nontariff barriers, becausethat is the part most of the Bangladeshi exporters complain about. All these

obstacles need to be removed to gain from the bilateral trade with India. Thus,if Bangladesh cant improve the situation now, the country will merely becomea market for Indian products, trade status will worsen and country will not beable to exploit the window of opportunities arising from the regionalintegration SAFTA.

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References:

1. 2 treaties penned to boost bilateral trade,The Daily Star, February 10, 2009, P. 1

2. India Bangladesh bilateral trade and potential free trade agreement,http://siteresources.worldbank.org/INTBANGLADESH/Resources/Trade.pdf

3. India Bangladesh potential free trade agreement, http://mea.gov.in/mystart.php?id=50042439

4. India Bangladesh trade relationhttp://www.hcidhaka.org/pdf/Political%20and%20Economic%20relations.pdf

5. Bangladesh India tied with new trade and investment deal,http://gurumia.com/2009/02/09/bangladesh-india-tied-with-new-trade-and-investment-deal/

6. India Bangladesh trade can be double by 2011,http://www.thaindian.com/newsportal/business/india-bangladesh-trade-can-

double-by-2011-ficci_100219990.html#ixzz1SkZlktNF

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http://siteresources.worldbank.org/INTBANGLADESH/Resources/Trade.pdfhttp://mea.gov.in/mystart.php?id=50042439http://mea.gov.in/mystart.php?id=50042439http://www.hcidhaka.org/pdf/Political%20and%20Economic%20relations.pdfhttp://www.hcidhaka.org/pdf/Political%20and%20Economic%20relations.pdfhttp://gurumia.com/2009/02/09/bangladesh-india-tied-with-new-trade-and-investment-deal/http://gurumia.com/2009/02/09/bangladesh-india-tied-with-new-trade-and-investment-deal/http://www.thaindian.com/newsportal/business/india-bangladesh-trade-can-double-by-2011-ficci_100219990.html#ixzz1SkZlktNFhttp://www.thaindian.com/newsportal/business/india-bangladesh-trade-can-double-by-2011-ficci_100219990.html#ixzz1SkZlktNFhttp://siteresources.worldbank.org/INTBANGLADESH/Resources/Trade.pdfhttp://mea.gov.in/mystart.php?id=50042439http://mea.gov.in/mystart.php?id=50042439http://www.hcidhaka.org/pdf/Political%20and%20Economic%20relations.pdfhttp://www.hcidhaka.org/pdf/Political%20and%20Economic%20relations.pdfhttp://gurumia.com/2009/02/09/bangladesh-india-tied-with-new-trade-and-investment-deal/http://gurumia.com/2009/02/09/bangladesh-india-tied-with-new-trade-and-investment-deal/http://www.thaindian.com/newsportal/business/india-bangladesh-trade-can-double-by-2011-ficci_100219990.html#ixzz1SkZlktNFhttp://www.thaindian.com/newsportal/business/india-bangladesh-trade-can-double-by-2011-ficci_100219990.html#ixzz1SkZlktNF

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Bangladeshi Trade With India

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