Bangladesh-India Cooperation in Economic Fronts

Jayanta Roy Chowdhury

22nd February, 2018 09:45:25 printer

Bangladesh-India Cooperation in Economic Fronts

History: Historically Bengal’s wealth sprang from its geographic position at the mouth of the Ganges and Brahmaputra rivers linked to the rest of the Indian sub-continent by roads and rivers, which allowed its traders to become fabulously rich.

The Mauryan Emperor Ashoka built the first trans-South Asian highway named the ‘Uttara Path’ connecting Pataiiputra, (modern Patna) with Purushapura or Peshawar with a spur to link up the port of Tamrilipti or Tamluk and other ports in the Sunderban deltaic region. Tamrilipti became a premier port for Mauryan exports to the Hellenic world in the west and to the lands in the Far East.

If Sri Lanka’s Mahavamsa epic is to be believed the original Sinhalas sailed to the island of Lanka from this very port.


Almost 1,800 years later, another Emperor, Sher Shah Suri, in the early 16th century rebuilt this highway connecting it further east till Sonargaon, near Dhaka. However, by his time the sea linkages which Bengal enjoyed had shrunk to maritime trade with other Indian ports and to ports in Burma, Siam and Malacca.

Nevertheless the trade which flourished in the delta was legendary as was its wealth. Manick Chand whose nephew Jagat Seth became infamous as a banker to the East India Company, was considered the richest man in the world in his time and enjoyed the reputation for being world’s most important banker.

The trade that went through Bengal, transformed the whole of North India and contributed to the Indian sub-continent’s high GDP. In the year Christ was born, India accounted for 32 per cent of the world’s GDP, a thousand years later it still accounted for 28 % of the globe’s income. Even in the year 1600, when the East India Company was founded, Britain accounted for a mere 1.8 per cent of the world’s GDP, while India, despite the ravages of medieval incessant war and stoppage to its sea-borne trade with the Far East by inward looking rulers, accounted for 22.5 per cent of global GDP. Today South Asia’s combined GDP accounts for less than 3 per cent of the Gross World Product.

Connectivity: India, Bangladesh and ASEAN countries have been striving since the last several decades to reverse this downturn in its fortunes. Key to the economic dynamics of the region is the need to promote connectivity with which trade and investment flows would necessarily be catalysed.

China has caught global attention with its bold plan for a New Silk route which it calls the One Belt, One Road initiative seeking to recreate old trade linkages through massive infrastructure building in India’s neighbourhood. India’s and Bangladesh’s plan which has the backing of multinational agencies like the Asian Development Bank and countries like Japan, is in some ways a recreation of an older plan to build Asian Highways Number 1 to link India via Myanmar with Thailand, via Bangladesh and India’s North East.

The four-lane showcase highway will be part of the proposed East-West Corridor which will connect India with Malaya and Singapore with one spur and with Vietnam with another. Another spur is expected to link up at some stage with China. The project also has eventual ambitions to link up with the Trans-Asian Highway-1 that runs from Japan to Turkey, where it connects with the European highway network. The western leg of the highway is however held up by Pakistan which is yet to agree to many of linking of Indian roads with those in Afghanistan and Iran.

A parallel but little reported Japanese initiative to part-fund a string of ports in South Asia and ASEAN is expected to link this highway to the industrial powerhouse of Japan.

ASEAN-India trade has been growing steadily, with ASEAN taking the spot of India’s fourth largest trading partner. India’s trade with ASEAN has increased to $70 billion in 2016-17 from $65 billion in the previous year. This is a pattern being replicated by Bangladesh too.

BIMSTEC: India’s largest trade partner in South Asia today is Bangladesh. The two countries together traded some $7.5 billion worth of goods in 2016- 2017, with India accounting for $ 6.8 billion, and Bangladesh $ 700 million worth of goods. Nearly 40 % of India’s exports to Bangladesh feed into its own export industry of ready-made garments which has hit global headlines with its rapid growth.

With the connectivity plans energised, this two way trade could grow manifold and it is estimated that for starters Indo-Bangladesh trade could hit $ 10 billion by 2019.

Crucial to the success of this mega-connectivity plan would be energising the regional grouping BIMSTEC or Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation, the 7-nation trade grouping, which comprises India, Nepal, Bhutan, Bangladesh, Sri Lanka, Myanmar and Thailand, have been negotiating a Free Trade Agreement for some time which could potentially create a free trade pact covering 1.6 billion people with a total GDP of over $ 3 trillion.

A BBIN plus deal on allowing motor vehicles’ easy access through the region would help push trade, while an investment deal which would allow investments in services through the region would open up new avenues for growth. A motor vehicles deal is being pushed by India as it could help seamless transport of exports through the region, especially as India along with Myanmar and Thailand are building a 1360 km long trilateral highway which links India’s Manipur with Mae Sot in Thailand via Bagan in Myanmar.

India which does about $ 28 billion in two-way trade with other BIMSTEC countries is already linked with Nepal, Bhutan and Bangladesh through a road and rail network and this is expected the feed into the tri-lateral highway which will eventually form part of an Asia-wide highway network.

The BIMSTEC report which was prepared by ASSOCHAM says the way forward would be to extend India’s e-visa system and Thailand’s visa on arrival scheme and share it through the region to create a Shengen type visa. “BIMSTEC countries may consider the Shengen type visa for certain types of travellers, particularly tourists, businessmen and patients... this is possible since most BIMSTEC countries offer on arrival visa,” the report said.

Energy: The rapid rate at which the region is growing has made energy cooperation a crucial cornerstone for the overall relation between the countries in South Asia.

Compared to the world per capita electricity consumption of 3,128 Kilowatt/hour, the average per capita electricity consumption in South Asia is roughly 600 Kilowatt/hour, which is bound to increase at a fast pace with the India-Bangladesh-Bhutan Nepal region growing at near 7 per cent annually.

As the region runs a huge deficit in hydro-carbon resources, it tins out of necessity to rely on Thermal, Hydro-electric, Nuclear and Non-conventional energy resources and to cooperate in these sectors to try and not only allow energy resources to flow from energy surplus parts of the sub-continent but also to eventually build a regional grid and an energy marketplace.

Bangladesh and India, during the past years, have taken the lead in this cooperation. During Sheikh Hasina’s landmark visit to New Delhi in 2010, the two nations signed an agreement for power supplies and subsequently India started exporting electricity to Bangladesh from December 2013. Some 500 megawatt (MW) of power is reeled through from the Bheramara-Bahrampur inter-nation connection, while another 160 MW of power is being sent to Bangladesh using the Tripura-Comilla grid link. More recently India’s state run NTPC has been awarded a contract to supply 300 MW of electricity from its plants in India to Bangladesh.

India is also jointly building with Bangladesh a 1320 megawatt coal-fired power plant at Rampal. More importantly using the Bangladesh-lndia Friendship Company (BIFCL) which will run the Rampal plant, Bangladesh is planning to build a solar or coal-based power electricity plant on Indian soil. Bangladesh with its densely populated geography has long sought to build power plants in India and Nepal from which it can export electricity to meet the needs of its growing industry.

Tentative talks have been to explore the possibilities of two nations collaborating in building hydel projects jointly in India’s North East or in Bhutan. The Bhutan project, if it fructifies, could generate 1,125 MW of electricity to be shared by the three nations. India’s Reliance Power, has also signed a pact to execute 3,000 MW integrated combined cycle gas-based power project at Meghnaghat, near Dhaka and a 500 mmscfd LNG terminal at Kutubdia island in different phases.

Investment: India’s latest credit line of $ 5 billion which includes a $4.5 billion line of credit for 17 major development projects in Bangladesh and another $500 million for defence hardware purchases by Dhaka was announced by Prime Minister Narendra Modi last year.

However, a mere 25 % of the earlier two lines of credit given in 2010 and 2015, totalling $3 billion, have been used till now. This is a cause for some concern for both the countries.

Key projects such as a railway link between Bangladesh’s ports of Khulna and Mongla which had been held up as land acquisition has been extremely slow, have however now been resolved.

Currently, some 80 % of the spending from the line of credit has to be on purchases from India; however this condition may be relaxed to 65 % on a project-by-project basis as a lot of material used in the infrastructure projects in the railway, highways and ports sectors can be bought or made in Bangladesh at a cheaper or comparable rate. This is considered a crucial factor in keeping costs low, reducing transportation time and in encouraging Bangladeshi industry.

The Indian credit line at a nominal 1 % interest repayable over a 20 year period, is not merely a bid to win friends; it has two more objectives - to demonstrate that an infrastructural development model can be a win-win for both neighbours and India and secondly it could show-case to the world the potential for South Asian collaboration.

India had converted some $200 million out of the first credit line into a grant which is being used for a mega bridge over the river Padma by Bangladesh. Some $240 million has also been spent to buy train sets, wagons, busses and dredgers from India.

India has also signed changes in a bilateral investment treaty with Bangladesh to give national treatment to Bangladeshi investors which implies they will be treated at par with Indian investors on policy issues, a ticklish issue till now with complaints by Bangladeshi investors of less than preferential treatment. The changes in the form of ‘Joint Interpretative Notes’ also brings in clauses which disallow international arbitrators the right to challenge tax laws in line with other bilateral investment treaties which India has signed.


The writer is a columnist from India.