The potential for global de-dollarization remains a subject of debate. However, one thing is clear—the Rupee-Taka trade benefits both Bangladesh and India
An opportunity to foster change has emerged with the arrival of a modest shipment to Bangladesh, consisting of vehicle chassis from Tata Motors valued at Rs 1.23 crore. This event has the potential to break free from the long-standing rigid attitudes that have dominated trade in the Indian subcontinent since its partition 75 years ago. The economic ties that once flourished between the regions prior to the 1947 partition of India seem poised for restoration.
The significance of this shipment lies in its historic nature, marking the first time that trade between Bangladesh and India has commenced in the Indian currency, the rupee. While some may doubt the success of this initiative, the realists argue that only time will reveal its true impact. However, those well-versed in history and attentive to contemporary politics will eagerly embrace this step towards economic normalization.
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With the initiation of trade between India and Bangladesh using alternative currencies, the pessimists argue that although there will be a decrease in the two countries’ reliance on the US dollar, the reduction may be relatively insignificant. The need for dollars is expected to remain paramount due to the substantial scale of bilateral trade between Delhi and Dhaka.
In the fiscal year 2021-22, the total bilateral trade between the two nations reached $18 billion, with India’s exports accounting for $16 billion of that sum. While the use of alternative currencies may have some impact, the sheer volume of trade conducted in dollars indicates that it will continue to play a pivotal role in the economic exchange between India and Bangladesh.
Harsh reality: Ukraine-Russia war
According to Bangladesh Bank Executive Director Majbaul Haque, Bangladeshi exporters are only allowed to conduct trade using Indian rupees up to a value of 2 billion dollars. This means that the exports from Bangladesh to India can only be traded in rupees up to this specified amount.
Adding to the challenges, Indian banks have been reducing their exposure to Bangladesh, and the economy of Bangladesh has been severely impacted by the Ukraine-Russia war. As a result, Dhaka’s foreign exchange reserves have significantly dropped from $48 billion to $23.56 billion, which is only sufficient to cover import expenses for about four months. This decline in reserves means that Bangladesh does not meet the minimum requirement of $24 billion to qualify for additional loans from the International Monetary Fund (IMF).
The war in Ukraine has created a major economic crisis worldwide, but its effects have been particularly acute in South Asia. The IMF has offered aid worth $2.9 billion to Sri Lanka, and Pakistan has already received a loan of $3 billion from the IMF. The inflation rate in Pakistan has soared to a record 38 percent, and their reserves have dipped below $3 billion. However, Pakistan received financial assistance of $2 billion from Saudi Arabia, $1 billion from the United Arab Emirates, and an additional $3 billion from China, which has helped prevent their economy from collapsing.
The situation in Bangladesh remains challenging, with limited trade opportunities in Indian rupees and a economic shock due to global events, while neighboring countries in South Asia are also grappling with their own economic crises and seeking external aid to stabilize their economies.
China’s influence on Bangladesh
As China’s influence in Bangladesh continues to grow, the successful model of cooperation between the two nations has drawn the attention of other countries in the region. In a similar fashion to its trade with India, Bangladesh and China decided to utilize the yuan for their bilateral trade a year ago. This development reflects the evolving trend of using alternative currencies in international trade.
What’s particularly remarkable is Bangladesh’s decision to repay the loan of 12.65 billion dollars obtained from Russia for the construction of the Rooppur nuclear power plant in yuan. This move comes in the context of Russia being cut off from the international payment system SWIFT due to Western sanctions. Surprisingly, Russia has accepted Bangladesh’s proposal for repayment in yuan, indicating a willingness to explore new avenues for financial interactions.
The ongoing Ukraine-Russia war has sparked worldwide discussions on de-dollarization, with many countries considering increasing the use of alternative currencies as a strategic response to the uncertainties surrounding the US dollar.
China’s influence in Bangladesh is expanding, and the use of alternative currencies like the yuan is gaining traction in regional trade. Bangladesh’s move to repay Russia in yuan exemplifies the shift towards exploring alternative financial systems amid global geopolitical developments. The ongoing discussions about de-dollarization signify a growing interest in diversifying currency dependencies in international transactions.
India’s influence on Bangladesh
The global implementation of de-dollarization remains a topic of debate, but one thing is certain—Bangladesh Prime Minister Sheikh Hasina is contemplating innovative strategies to bolster her influence and secure her return to power before the upcoming elections.
Recently, Indian Home Minister Amit Shah made controversial remarks, likening Bangladeshi infiltrators to termites. Despite this, Sheikh Hasina has refrained from expressing her displeasure publicly. Because, India’s support is an important issue.
Sheikh Hasina’s focus on fostering India-Bangladesh trade is evident, recognizing the mutual benefits for both nations. Currently, the process for a truck to enter Bangladesh from India takes a considerable 138 hours and involves 55 signatures. Cecil Fruman of the World Bank has highlighted that only 5 percent of South Asia’s total trade occurs between countries within the subcontinent. However, with the potential to increase this trade volume to $44 billion, the use of rupee-taka trade between Bangladesh and India can serve as a catalyst to achieve such ambitious targets.
Sheikh Hasina’s determination to enhance India-Bangladesh trade aligns with her aspirations for increased influence and electoral success. The potential growth in trade between the two nations presents an opportunity for economic advancement and strengthened relations in the region.
Launching Taka-Rupee dual-currency
India is unequivocally directing its endeavors towards supporting Sheikh Hasina’s vision of fostering regional economic integration in the subcontinent. A significant step towards this goal is the upcoming launch of the Taka-rupee dual currency card in Bangladesh, scheduled for next September. With this card, Bangladeshi visitors to India will have the convenience of shopping in rupees without the hassle of converting their money to dollars. This move is expected to bolster rupee-rupee trade and further enhance economic ties between the two nations.
Undoubtedly, such initiatives are experimental and relatively modest in scale. The process of opening up economies entails inherent risks for both India and Bangladesh. However, both countries seem willing to venture into this territory, recognizing the potential benefits of greater cooperation and economic integration in the region. While there may be challenges along the way, the pursuit of regional economic collaboration remains a shared objective, emphasizing the significance of these pioneering initiatives.
Delhi worried about China’s growing influence
The emergence of China as a significant player in Bangladesh’s development is a cause for concern. Recently, Sheikh Hasina inaugurated a submarine base in Cox’s Bazar, a project constructed by China at a cost of 1.2 billion dollars, strategically positioned at the mouth of the Bay of Bengal. India is closely monitoring this development and is understandably anxious about China’s increasing influence in its neighboring country.
India is committed to supporting Bangladesh
Despite China’s growing presence in Bangladesh, both Delhi and Dhaka are aware of India’s crucial role in the region’s progress. Recognizing the intertwining of economics and politics, India is committed to supporting its eastern ally. Currently, Delhi is assisting Bangladesh in restoring railway connectivity, a significant communication project, while Dhaka is reciprocating by granting India access to Mongla and Chittagong ports.
Furthermore, during a recent meeting with Sheikh Hasina, India’s Gautam Adani extended an offer to supply 1600 MW of electricity to Bangladesh, further deepening economic ties between the two nations.
While the ultimate decision on who will govern Bangladesh lies with its people, it is evident that India seeks to strengthen economic bonds as a means to foster positive influence and reinforce its partnership with Sheikh Hasina’s government. The evolving economic relations between the two countries are undoubtedly playing a pivotal role in shaping the decision-making process in Bangladesh.
(Note: The provided rewrite is a summary based on the information available and may not fully capture the nuances or complete context of the original analytical article by The Print Senior Consultant Editor Jyoti Malhotra on Bangladesh-India Economic Relations.)
