Bangladesh crisis: A look at India’s trade with neighbouring country

Amid the escalating situation in neighbouring Bangladesh in the wake of widespread protests, India's exporters could face hurdles in the near term. The exports to Bangladesh were already facing issues due to the shortage of foreign exchange in the protest-hit country, but with the current developments, the businesses may face more disruptions.

Bangladesh is India’s biggest trading partner in the subcontinent and India is its second biggest export partner. As per the Ministry of Commerce, Bangladesh saw a trade deficit of $9.2 billion with India in the financial year ending FY24, down from $10.1 billion in FY23, while in four months of FY24, the deficit stood at $2.3 billion.

India’s overall exports to the neighbouring country stood at $11 billion in the fiscal year ending March 2024, a 9.45% drop from $12.21 billion in the previous year. Imports, on the other hand, dipped to $1.84 billion, an 8.7% drop from $2 billion a year ago, the ministry data shows.

The exports had touched its highest value at $16.1 billion in FY22, up from $9.6 billion in FY21. Imports from Bangladesh remain almost flat in the past few years, with the value hitting its peak at $2 bn in FY23.

Globally, Bangladesh remains the 4th top export destination for India, with vegetables, coffee, tea, cotton yarn, petroleum products, other cereals, chemicals, iron, steel, and vehicles accounting for the most. India's imports from Bangladesh include fish, leather, apparel, plastic and others.

Last year, Bangladesh became the 19th nation that signed for bilateral trade settlements in the Indian rupee. To stem dollar outflow, policymakers in India’s neighbourhood signed rupee trade settlement deals, providing a boon for nations like Bangladesh that run trade deficits with India. To settle cross-border trade with India, Bangladesh authorised its two banks Sonali Bank and Eastern Bank Limited to open Rupee Vostro accounts with India’s ICICI bank and State Bank of India.

Overall, in fiscal year 2024, India experienced a drop in trade, with exports falling by 3.1% and imports by 5.7% from the previous year. According to the GTRI data, from FY 2019 to FY 2024, India’s total merchandise exports increased 32.41%, from $330.08 billion to $437.07 billion, and imports rose by 31.39%, from $514.08 billion to $675.44 billion.

The death toll in Bangladesh, meanwhile, has risen to 300, with curfew and internet blackouts imposed in several areas seeing the anti-government protests. Former prime minister Sheikh Hasina, who resigned on Monday as protests went out of control, fled the country with her sister Rehana to land in India. Her abrupt departure even prompted protesters to storm her official residence. Bangladesh Army Chief General Waqar-uz-Zaman, who has taken charge of the interim government, urged citizens to cease violence and promised a probe into the recent killings. The unrest began with student protests over quotas in July, resulting in over 300 deaths. Violence escalated on July 16 after clashes between protesters, security officials, and pro-government activists.