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Dhaka Tribune

Why does India cautiously watch Bangladesh’s economy?

In recent years, China committed funding worth billions of dollars to countries across the subcontinent 

Update : 04 Feb 2019, 11:36 AM

Despite its relationship with Dhaka at an all-time best, Delhi is wary of the Bangladesh economy, especially the prospect of Chinese investment in big-ticket projects.

In recent years, China has committed funding worth billions of dollars to countries across the subcontinent to fulfill President Xi Jinping’s plans to build a new global trade route.

The Chinese president’s visit to Bangladesh in 2016 was marked by over US$20bn in loan agreements, indicating growing ties between Beijing and Dhaka.

Bangladesh Prime Minister Sheikh Hasina however, as of now, has been maintaining a balance with the two big neighbours.

For instance, Dhaka’s keen interest in the Bangladesh-China-India-Myanmar Forum for Regional Cooperation (BCIM) economic corridor has rung alarm bells in Delhi.

China now maintains that the BCIM is a part of its Belt and Road Initiative (BRI).

India, however, has been reluctant to attach itself to BRI. Part of this hesitance is rooted in concerns about Chinese intentions and the possibility of misusing the BRI as geo strategic leverage against India.

India has also refused to be part of the BRI plan due to the involvement of China in Pakistan, particularly in the China-Pakistan Economic Corridor (Cpec) which transgresses Indian-claimed but Pakistan-occupied Kashmir.

Delhi’s clear message on BCIM to Dhaka is that it will only be on board if it has no links with China’s BRI.

Former diplomat Rajeet Mitter, who had served as an envoy to Dhaka, leads the Indian side in the BCIM economic corridor.

He said: “The Belt Road Initiative was floated just two or three years ago, while negotiations over the BCIM corridors have been going on for 20 years. We think there is no option to consider these matters as a single issue.”

Free trade agreement

Another pressing concern for New Delhi is the free trade agreement (FTA), an issue raised by Indian Commerce Minister Suresh Prabhu during his Dhaka visit in September 2018.

A senior official of Indian Commerce Ministry said: “As soon as Bangladesh graduates from a least developed nation, it will lose duty-free and quota-free access to Indian market.”

Wishing anonymity, the official added: “The existing trade pact within Saarc member states (Safta) will not be enough for Bangladesh to enter freely into the Indian market, and that’s why we are focusing on a bilateral deal like an FTA.” 

Two-way trade between the countries stood at $9.3bn in FY2018, up by $1.8bn from the previous fiscal year.

Apart from India, Bangladesh has been in talks with several other countries, including Sri Lanka, China and Pakistan, over FTAs.

Negotiations have significantly progressed with Sri Lanka and China, but not at all with India or Pakistan.

Economic zone for Indian investment

In its bid to attract foreign direct investments (FDI), Bangladesh has said it will set up three special economic zones for Indian investors.

India is keen to combine with Bangladesh to build a South Asian manufacturing supply chain that uses their Bay of Bengal ports, cheap labour and raw materials to manufacture garments, electronic goods and information technology services for export, according to media reports.

The proposed sites of the economic zones –Kushtia’s Bherhamara, Mirsharai Chattogram (Chittagong) and Mongla –have failed to woo Indian investors.

A top official of the top trade body Federation of Indian Chambers of Commerce and Industry (FICCI), said: “We have told the Indian government at least one and half year ago that investors are interested in sites near Dhaka or Chittagong, like the ones for China and South Korea.”

The toll of the Rohingya crisis on the economy

With a GDP per capita of $1,400, the Bangladeshi economy grew by 7.1% in 2016with remarkable progress toward the Millennium Development Goals (MDGs).

The Rohingya crisis, however, is straining Bangladesh. According to international agencies, nearly 800,000 Rohingyas fled Myanmar since late 2017. Bangladesh is now home to nearly 1.1 million Rohingyas.

“It will hamper the progress and achievements in SDGs and MDGs,” Sarah Taylor, country director of international NGO The Asia Foundation, said.

She said the Rohingya crisis is gradually casting a shadow on Bangladesh’s remarkable progress in education, healthcare and socioeconomic indicators over the last decade.

“Bangladesh has graduated to a lower mid-income state from a least developed country, but the next step can be tedious due to the refugee crisis,” she said.

While extensive international humanitarian relief has poured in to support the refugees, it does not cover all the economic costs to the government or to Bangladeshi citizens in the border region. The effect of the influx may not be apparent for some time.

The coastal town and beaches of Cox’s Bazar, which used to be Bangladesh’s main tourist destination, now is awash with foreign aid workers. The area’s hoteliers are prospering, and many Bangladeshis have found jobs with humanitarian organizations. But day laborers and locals have complained about price hikes for basic goods, and about losing work to refugees willing to accept far lower wages.

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