From the caveman's era to the present day, men always traded among themselves for fulfilling their necessities. Before introducing the system of currency, man used 'barter trade' for exchanging necessary commodities and services. Nowadays, every country wants to lead its economy to a higher level to survive in this competitive world. From this point of view, bilateral trade is very significant. Bilateral trade receives more attention in the political arena. This is important because international relations pertain to relations among nations, so politicians and diplomats are naturally drawn to statistics measuring country to country economic transactions. In the recent time, trade deficit of Bangladesh with India is the most discussed issue.
Both Bangladesh and India are important members of the SAARC and have long common historical and cultural bonds. As far as trade relation is concerned, India is the third-largest trading partner of Bangladesh just after the USA and Europe, while India's position is at the top for Bangladesh's imports from the world. Therefore, an analysis of current trade status between the two nations, obstacles and opportunities for mutual trade expansion is very critical for economic development of both the countries, especially of Bangladesh, as Bangladesh has been experiencing a large trade deficit with India since its Independence. The trade deficit has been increasing exponentially in the recent past. In the fiscal year (FY) 2010-2011, Bangladesh imported goods worth US $4570 million from India while its export to that country was just $512 million.
A World Bank report titled "India and Bangladesh: Bilateral trade, potential free trade agreement" revealed that in 2004, India's officially recorded exports to Bangladesh were about $1.7 billion, but its imports from Bangladesh were just $78 million. Indian exports to Bangladesh grew very rapidly during the 1990s, and have continued to grow since 2000. By contrast, Bangladesh's exports to India-- almost zero in the early 90s, have stagnated at very low levels at well below $100 million annually. Since 1996-97, Indian exports to Bangladesh have been growing at 9.1 per cent annually, just slightly above the general rate of growth of its total merchandise exports (8.4 per cent), but India's imports from Bangladesh over the same period have grown on average at only 3.0 per cent annually compared to the average growth of its total imports of 9.2 per cent. Consequently, Bangladesh's bilateral trade deficit with India has been increasing rapidly, on average at about 9.5 per cent annually. For India, trade with Bangladesh is a very small part of its total trade-just over 1.0 per cent since the mid-1990s, and currently about 3.0 per cent of its total exports and a miniscule share (0.01 per cent) of its total imports, according to the WB report. Bangladesh's exports as a percentage of India's total imports are next to nothing. On the contrary, Bangladesh's imports as percentage of India's total exports have increased steadily.
Bangladesh enjoys trade surplus with her major trading partners of Western Europe and North America but is in big deficit with her neighbour, India. In FY 2010-2011 (July-March) from the USA, Bangladesh imported commodities worth $374 million while export was worth $3776 million. The data from the Ministry of Commerce and Industry of India shows that India exported goods to Bangladesh via formal channel worth $2.43 billion and imported goods worth $254.66 million in FY 2009-10. It is believed that the informal channels also witnessed similar transactions. According to the World Bank, illegal trade between the two countries amounts to three-fourth of regular trade. Therefore, bilateral trade with India is very important not only for making a trade surplus, but also for a vibrant economy through mutual development and fortunately India's large size (both population and GDP) makes it a large export market while geographical proximity, profuse natural resources and diversified production structure make India a cheaper and convenient source of supply. But India has handicapped the entry of Bangladeshi products in India by setting many restrictions like tariff and non-tariff barriers. According to Dr Abul Bayes, economist and former vice chancellor of Jahangirnagar University, if India gives us duty-free entry of our products our export will raise to $1.0 billion. Previously, 480 Bangladeshi products were on India's negative list although all products are supposed to get duty-free access by 2016 under the South Asian Free Trade Area (SAFTA) agreement. With the deal on duty-free access of 46 Bangladeshi textile items to India, the negative list came down to 434. India had also increased the duty-free access to 10 million pieces of readymade garments (RMG) from Bangladesh every year.
However, Bangladeshi businessmen often complain about the non-tariff barriers imposed by Indian authorities especially in matters of testing the standard. About the significance of this deal, former FBCCI president Annisul Huq says, "It is difficult to assess the benefit that the garment industry will accrue from this because we've heard that the Indian manufacturers are standing against this deal. Then there are the non-tariff barriers like testing and others. Problem of connectivity is also a kind of non-tariff barrier. So, accruing the benefit from this deal will not be possible if the non-tariff barriers are not lifted by India and if infrastructure is not developed by Bangladesh." He, however, says that with this deal it has been proved that demand for our garment products is growing in India.
"We've an expanding market in India. So, we needed a good gesture from India, which we have got. I believe trade imbalance will also be reduced to some extent for this. But the appraisal of the full benefit is a matter of time and at the same time depends on how India will play its non-tariff barriers." Why there is a big trade deficit with India while Bangladesh is enjoying a trade surplus with countries like the USA and Germany? Prof Ayubur Rahman Bhuyan of the economics department identified the causes as the overvalued exchange rate (BDT vis-à-vis Indian Rupee); tariff and para-tariff barriers like countervailing duties (CD), anti-dumping duty (ADD), supplementary duty (SD), additional customs duty, luxury tax, surcharge etc; non-tariff barriers such as health and quality standards, permits and licences, obtaining Indian Standard Institute (ISI) certificate, health certificate, technical standards, labelling and marking provision etc; and failure of South Asian Preferential Trade Arrangement (SAPTA) to enhance trade and weak production structure. There are also some unexpected harassment like filing cases for alleged violation of rules regarding health, weights and measures, refusal kto grant SAPTA concessions, rejecting consignments on false pretext and overall disinclination to allow entry of Bangladeshi products to Indian market. Recently, the inter-state deal of exporting 46 RMG products to India is facing a strong protest from Indian businessmen even before implementation.
In this circumstance, a Free Trade Agreement (FTA) might offer a solution to reduce the trade imbalance between Bangladesh and India. It can reduce the trade deficit of Bangladesh, can improve the living standards of Indians and can stop illegal trading. A good bilateral trade relation is very necessary for mutual development. India is considered as the fastest growing economy and also a rising power. Despite some ups and downs, Bangladesh and India has had a good relation since Independence. Now, we are hoping for a more stable inter-state relationship between the two nations.
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