India in the past few years have signed Comprehensive Economic Partnership Agreements (CEPA) with some countries to promote trade relations and economic cooperation.
The process began with Singapore when India-Singapore Comprehensive Economic Cooperation Agreement was signed in 2005, which covers areas such as trade in goods and services, intellectual property rights and investment. Similar agreements were signed with South Korea in 2009, Japan (2011), Malaysia (2011) and Mauritius (2021). India-Bhutan Free Trade Agreement (FTA) was signed in 2009. India and ASEAN too signed a similar pact in 2009 to bolster trade in goods and services, investment and economic cooperation with all the ten member countries belonging to the group. Taking another leap forward, India-UAE signed Comprehensive Strategic Partnership Agreement (CSPA) in January 2022, which has wider ramifications.
These agreements over the years have been beneficial in augmenting mutual trade and investment, facilitating movement of goods and services and creating a more conducive environment for better and more balanced economic cooperation between India and its partner countries.
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India and Bangladesh, the closest among friends and allies, have decided to conclude a joint feasibility study relating to a similar agreement intended to be concluded soon between the two countries. India, in particular, is keen regarding CEPA with Bangladesh, as it will help in enhancing trade in eastern and northeastern region of India. Bangladesh Commerce Minister Tipu Munshi visited India last December when he held extensive discussions with his Indian counterpart, Piyush Goyal to chart a roadmap on the issue. This matter came up too, during talks between Prime Ministers Narendra Modi and Sheikh Hasina during the latter’s recent state visit to India. Experts who closely study India-Bangladesh trade and commerce opine that conclusion of CEPA agreement between India and Bangladesh could double India’s exports to its eastern neighbour to over $32 billion.
Indian exports to Bangladesh in financial year 2021 was $14.09 billion, which rose to $16.15 billion in financial year 2022.There has been an almost 66% rise in Indian exports to Bangladesh in the past three years, and Bangladesh is today India’s fourth largest export destination.
GROWTH TRAJECTORY OF INDIA BANGLADESH TRADE RELATIONS
Over the past 50 years, since the birth of Bangladesh as an independent nation, both neighbours have inked several agreements to develop close economic partnership between the two countries. A bilateral trade agreement was signed immediately after independence of Bangladesh in 1972, which forms the basis of cooperation and covers trade in goods. Also in the same year, India-Bangladesh Protocol of Inland Water Transit and Trade was signed, which allows the use of inland waterways of the two countries for the movement of goods and passengers. This agreement was revised in the year 2015.
To further upgrade and boost economic relations India-Bangladesh Free Trade Agreement was signed in 2011. To enable both countries use each other’s port facilities the India Bangladesh Coastal Shipping Agreement was signed in 2015. To provide India Bangladesh trade promotion and negotiations.
An institutional mechanism the India Bangladesh Joint Economic Commission set up in 1972, which meets at regular intervals to discuss issues relating to trade and investment.
For steady uninterrupted economic growth of Bangladesh, energy security is most crucial. India is assisting Bangladesh in developing its power sector and has invested in power projects including Maitree Super Thermal Power Project; Indian experts are engaged in Rooppur Nuclear Power Plant and India Bangladesh Friendship Pipeline from Siliguri (India) to Parbatipur (Bangladesh) has already become operational. India is also providing assistance to Bangladesh in developing renewable energy projects which can help to reduce greenhouse gas emissions. For a country like Bangladesh, how does extensive and balanced economic relations with India augur well for its own sustainable development is a matter of intense scrutiny and discussion. As the world economic order witnessed fundamental changes following globalisation, “enmeshing advanced and developing economies in a web of mutually beneficial economic and financial linkages” became crucial. It was followed by increasing trade linkages amongst and within the developing world as barriers to trade and financial flows were successively dismantled.
Bangladesh’s economic partnership with India has enabled it to increase bilateral trade, making India one of its largest trading partners. India has invested in several key sectors of the country, including power, energy and infrastructure. Connectivityity is another key area which has received a major boost in recent years. The Protocol on Inland Water Transit and Trade and the Coastal Shipping Agreement has considerably helped to reduce transportation costs and improve trade flows. Since India and Bangladesh are both members of regional organisations like BIMSTEC and mutual development of trade and commerce helps to promote regional integration which is important for the economic development of the region as a whole.
Beyond the region this has important implications for the global economy as both India and Bangladesh are emerging markets with significant potential for growth. Consequently, increased trade and investment between the two countries can contribute to regional and global economic growth and stability.
CURRENT STATUS OF TRADE BETWEEN INDIA AND BANGLADESH
Trade between India and Bangladesh is growing steadily as has been mentioned earlier, it stood at $16.15 billion in financial year 2022. However, trade balance between the two countries is in favour of India. In the fiscal year 2021, Indian exports to Bangladesh were worth $9.4 billion, while Bangladesh’s exports to India were $0.7 billion worth. The major items of Indian exports to Bangladesh have traditionally been petroleum products, iron and steel, cotton, vehicles and pharmaceuticals. Bangladesh, on the other hand, exports raw jute, jute products, leather, textiles and garments to India.
In order to make trade relations more balanced, India provides duty and quota free access to all products from Bangladesh, barring a few items like tobacco and alcohol. This facility has given a boost to exports of Bangladeshi products to India. It may be mentioned that due to the long 4000-kilometre land border shared by both the countries, crossborder trade involving local producers and traders occupy an important position. Post COVID-19 pandemic governments of both countries have been active in resurrecting the border haats which play an important role in promoting trade relations and increasing goodwill and cooperation among the peoples of the two neighbouring countries.
India and Bangladesh share a long history where at times political tensions have overshadowed the economic relationship. Since Prime Minister Narendra Modi’s government assumed power in 2014, the economic partnership between the two countries has strengthened significantly.
This bilateral economic relation has become an important component of regional economic integration in South Asia. There exists today, “a broad consensus that shared economic interests would ultimately triumph and even help smooth over geopolitical frictions”. In a recent seminar organised jointly by the Indian High Commission in Dhaka and Dhaka Chamber of Commerce and Industry entitled “Improved Connectivity: Unlocking Economic Potential between India and Bangladesh”, Indian High Commissioner Pranay Varma said that the proposed Comprehensive Economic Partnership Agreement (CEPA) could be “a game changer for both countries in terms of trade”.
In this context, it was stressed that developing smooth connectivity is crucial to expanding trade and commerce. Expansion of railways and waterways, bridges and land routes are being given due importance by the two countries. Work is in progress in developing infrastructure in the seven land stations, and both governments have agreed to increase the number of borders haats.
Addressing the seminar, Dhaka Chamber of Commerce and Industry President Mohammed Sameer said that “bilateral trade can be expanded to $20 billion by addressing non-tariff barriers and connectivity-related challenges, especially between India’s north-eastern region and Bangladesh”. Mashiur Rahaman, Economic Adviser to Bangladesh’s Prime Minister, said that use of local currencies in bilateral trade is an issue which needs to be given serious consideration. The Rupee Trading Mechanism (TRTM) was established by the Reserve Bank of India (RBI) in July 2022 and Russia has made gainful use of it to bypass the sanctions imposed on it by the West.
The RBI has authorised banks to open twelve Vostro accounts for the exchange of Rupees with Russia. In addition, some media outlets have reported that nations like Sudan, United Arab Emirates (UAE), Cuba, Tajikistan, Malaysia and The Luxembourg have started discussing the international trade settlement in Rupees with India.
In a similar move India and Bangladesh have agreed to settle a portion of their trade transactions in their respective national currencies to ease pressure on dollar holdings. To enable this Eastern Bank and Sonali Bank have been mandated to open vostro/ nostro accounts in two Indian lenders – State Bank of India and ICICI Bank and vice – versa. The Central Banks of both countries have given the necessary green signal to facilitate the process. A delegation of Reserve Bank of India and State Bank of India visited Dhaka this April for consultations on procedural issues after which instructions to implement Rupee- Taka trade were given, confirmed Bangladesh Bank Executive Director and Spokesperson Md Mezbaul Haque.
According to an official statement issued by India’s Ministry of Commerce and Industry, the proposed CEPA to be signed between India and Bangladesh will “incorporate a variety of issues of mutual interest, including development of railway and port infrastructure, border haat, regional connectivity through multimodal transportation; mutual recognition of agreements and harmonisation of standards. It will also help in trading of services and in new and emerging areas like IT and digital platforms, green technologies and renewable energy “.
The primary target of CEPA, however, is to reduce the huge trade gap that exists today between India and Bangladesh. Currently, India grants dutyfree and quota-free access to 99.2% of Bangladeshi goods, and Bangladesh provides similar access to 94.8% of Indian goods. Indian Minister of Commerce and Industry, Consumer Affairs and Textiles Piyush Goyal, while addressing India-Bangladesh stakeholders meet organised by the Indian Chamber of Commerce (ICC) has said, “bilateral relationship is reaching new heights due to the efforts of both the Prime Ministers – Narendra Modi and Sheikh Hasina”.
He further added, “our friendship has not only stood the test of time, but has also blossomed into a multi-faceted enriching relationship with deep collaboration in trade, investment, food security and technology.”
The Minister stressed on some key focus areas in his speech, including-
1. Uninterrupted Supply Chain.
2. Joint production of defence equipment.
3. Explore potential areas of investments like textiles, jute products, leather and footwear, pharmaceuticals, medical equipment, digital health and education services, agribusiness, electronics and renewable energy.
Two Indian exclusive economic zones in Mirsarai and Mongla in Bangladesh are being developed. India-Bangladesh CEOs forum is now actively engaged in attracting investment in the region. 350 Indian manufacturers belonging to the textile and garment industry have set up factories in Bangladesh, taking advantage of low labour costs and favourable investment climate. Signing of Comprehensive Economic Partnership Agreement (CEPA) between India and Bangladesh will definitely generate a positive impact both in India and Bangladesh and beyond. It will also help promote regional economic integration in South Asia and provide an impetus to growth and stability in the region.