India–Bangladesh Trade Disrupted by Politics

• University: National University of Modern Languages (NUML)

• Author: Sidra Asif

• Date: 10-10-25

India–Bangladesh Trade Disrupted by Politics By Sidra Asif

Introduction

India and Bangladesh share one of the most dynamic bilateral relationships in South Asia, rooted in shared history, culture, and geography. Since Bangladesh’s independence in 1971, India has been both a political ally and an economic partner. Over the decades, trade between the two nations has expanded remarkably, positioning India as one of Bangladesh’s largest trading partners. However, this trade relationship has often been overshadowed and disrupted by political tensions, border disputes, and domestic policy shifts on both sides. The intricate blend of economics and politics has repeatedly challenged the potential of what could be one of South Asia’s most mutually beneficial trade partnerships.

Historical Background of Trade Relations

Following the independence of Bangladesh, India played a crucial role in its reconstruction and economic recovery. The early 1970s saw the signing of several bilateral trade and transit agreements aimed at boosting economic cooperation. However, the relationship experienced highs and lows as successive governments in both countries adopted different political approaches. In the 1990s, the introduction of liberalization policies in India and Bangladesh’s growing export capacity created opportunities for deeper trade integration. The signing of the South Asian Free Trade Area (SAFTA) agreement and India’s unilateral duty-free access for Bangladeshi products under the South Asian Preferential Trading Arrangement (SAPTA) were steps toward economic cooperation. Despite these frameworks, political differences continued to affect the practical implementation of such agreements.

Current Trade Overview

India is Bangladesh’s second-largest trading partner after China. According to recent data, the bilateral trade volume reached around USD 15 billion in 2022, with India exporting goods worth over USD 13 billion and importing around USD 2 billion from Bangladesh. Major exports from India include petroleum products, cotton, machinery, and vehicles, while Bangladesh exports readymade garments, jute, and agricultural products.

Trade between the two countries primarily occurs through land border crossings, especially Petrapole-Benapole, the largest land port in South Asia. Despite strong economic indicators, non-tariff barriers, infrastructural bottlenecks, and political disputes often slow trade activities.

Political Factors Disrupting Trade

Trade relations between India and Bangladesh have repeatedly been disrupted by political issues that range from domestic policy shifts to regional and bilateral tensions. Several major factors explain how politics has overshadowed economic cooperation:

1. Water Sharing Disputes One of the most contentious political issues is the Teesta River water-sharing agreement, which remains unresolved for over a decade. While both governments have negotiated terms, domestic politics in India—particularly opposition from the West Bengal state government—has delayed progress. This issue has created frustration in Dhaka and occasionally affected trade negotiations, as water disputes are seen as symbols of broader political mistrust.

2. Border and Security Concerns Persistent border management issues, smuggling, and illegal migration have influenced trade policies. Both nations share a 4,096-kilometer border, one of the longest in the world, where security tensions often flare up. Border killings and the construction of fences have at times slowed cross-border trade and affected local economies reliant on small-scale border commerce.

3. Domestic Political Dynamics in Bangladesh In Bangladesh, opposition parties often criticize the ruling government for being “too close” to India, portraying trade deals as favoring New Delhi. This domestic narrative pressures the government to adopt cautious or sometimes nationalist trade policies. The politicization of trade issues means that economic decisions often depend more on political timing than economic logic.

4. Protectionism and Trade Imbalance Despite growing trade, Bangladesh faces a significant trade deficit with India. Dhaka imports far more from India than it exports, creating perceptions of economic dependency. This imbalance has political implications, as Bangladeshi policymakers and industries demand fairer access to Indian markets. India’s occasional use of protectionist policies, such as restrictions on certain imports or sudden tariff changes, adds to the tension.

5. Regional Politics and Geopolitical Competition The India–Bangladesh trade dynamic is also shaped by broader regional politics. China’s growing presence in Bangladesh through infrastructure investment and trade has raised strategic concerns in New Delhi. India’s efforts to balance this influence sometimes manifest in political conditionality tied to trade cooperation, further politicizing economic engagement.

Impact on Bilateral Trade

The politicization of trade has tangible economic consequences. Frequent disruptions in border procedures, delays in customs clearance, and lack of coordination between border agencies increase transaction costs. For instance, small and medium enterprises (SMEs) in Bangladesh suffer from inconsistent trade policies and frequent changes in import-export regulations driven by political motives.

Moreover, infrastructural projects such as the BBIN (Bangladesh, Bhutan, India, Nepal) Motor Vehicles Agreement—which could have revolutionized regional connectivity—remain slow due to political hesitations and bureaucratic delays. Such disruptions not only limit bilateral trade but also hinder the development of a more integrated South Asian regional market.

Recent Developments and Cooperation Efforts

Despite these challenges, both governments have recently demonstrated a willingness to strengthen trade ties. During high-level visits, India and Bangladesh have signed agreements related to power exchange, connectivity, and digital commerce. Initiatives like the India Bangladesh CEO Forum, the Joint Economic Commission, and the Bangladesh-Bhutan India-Nepal Initiative aim to address trade bottlenecks and reduce political friction.

Furthermore, the introduction of border haats (local cross-border markets) has improved small-scale trade and people-to-people connectivity. Improved rail and river transport routes have also been revived, such as the Chilahati–Haldibari rail link, which had remained closed since 1965. These developments show that economic cooperation can advance despite political complexities when there is mutual interest.

The Way Forward

For trade relations to reach their full potential, both nations must depoliticize economic cooperation. A few key steps can strengthen mutual trust and stabilize trade:

• Institutionalizing trade frameworks that function beyond political cycles. • Finalizing the Teesta agreement to remove a symbolic barrier to trust. • Enhancing border infrastructure and adopting digital customs management. • Reducing non-tariff barriers to facilitate easier access to markets. • Promoting regional integration through SAARC and BIMSTEC to create shared economic incentives.

Mutual economic growth should not be held hostage by political differences. Sustainable and transparent trade cooperation can also foster long-term political stability between the two neighbors.

Conclusion:

The India–Bangladesh trade relationship illustrates how politics can both enable and disrupt economic progress. While historical ties and geographic proximity offer immense potential for mutual benefit, domestic politics, border disputes, and regional rivalries have repeatedly complicated this partnership. However, the ongoing dialogue, shared economic interests, and regional integration initiatives indicate that the two nations are capable of transcending political disruptions for greater economic prosperity. Ultimately, the success of India–Bangladesh trade lies in separating politics from commerce and embracing a vision of cooperative regional growth.

Word Count: ~902 Author: Sidra Asif