Are India and Bangladesh's trade restrictions on each other a sign of growing tensions between them?

After months of rhetoric, India and Bangladesh have recently imposed trade sanctions on each other, raising fears of a major disruption to trade between the two countries.

Last month, Bangladesh decided to restrict imports of cotton yarn from India via land routes to protect local industries from the impact of cheap foreign products.

Dhaka’s decision came at a time when India abruptly announced the end of the facility provided to Bangladesh under which Bangladeshi products were exported abroad through Indian ports and airports.

India has cited the increasing rush of trade goods at its airports and ports as the reason for this decision.

It should be noted that bilateral relations between the two countries have been strained since the fall of the government of former Bangladeshi Prime Minister Sheikh Hasina Wajid in August 2024. Sheikh Hasina has been in India since her ouster, while Nobel laureate Muhammad Yunus is leading an interim government in Bangladesh.

Bangladesh has also repeatedly demanded India's extradition of Sheikh Hasina Wajid so that the court proceedings pending against her in Bangladesh can be completed. Sheikh Hasina has been accused of money laundering and corruption, as well as involvement in serious crimes. Hasina Wajid has denied the charges, while India has never formally responded to Bangladesh's demand for her extradition.

The ongoing tension and tension between the two countries are causing losses to business companies. Cotton yarn is an indispensable raw material for the garment industry in Bangladesh and is still brought to Bangladesh from India by sea and air routes.

In 2024, India exported $1.6 billion worth of cotton yarn to Bangladesh. In the past, India used to facilitate Bangladeshi exporters to send garments manufactured for big brands by road to Indian cities from where they were dispatched to Europe and the US.

Anis Ahmed is the head of supply chain at MGH Group. He says this is a major setback for Bangladesh’s export industry. His company manufactures products for well-known brands like Zara.

He says that goods used to reach their destination via India in a week, while it took eight weeks by sea.

It should be remembered that Bangladesh is the second largest exporter of garments in the world after China, which exported $38 billion worth of garments last year alone.

According to Anis Ahmed, about $1 billion of this was sent via India and this route was gradually becoming a priority.

Many in Bangladesh are blaming India for the closure of the facility on remarks made by Mohammad Yunus during his recent visit to China.

He said Bangladesh was a maritime protectorate for India’s northeast and suggested that the region could be a breeding ground for Chinese economic growth. His remarks were widely criticized by the leaders of India’s northeastern states.

Highlighting India’s strategic weakness in the region, Mohammad Yunus’s remarks have raised alarm bells in Delhi.

India’s northeast is connected to China through the 20-km-wide Siliguri Corridor.

With a history of border tensions and a loss in the 1962 war, India’s defense planners fear that China could target the corridor in any future conflict to cut off the northeastern states from the rest of the country.

But analysts in Bangladesh say Yunus's remarks were misinterpreted and aimed at promoting regional connectivity.

During Yunus's visit to China, Dhaka also welcomed Beijing's interest in a $1 billion Teesta River project in northern Bangladesh.

Indian analysts have warned that China's involvement in the project, which is not far from the Siliguri Corridor, could be a source of concern for Delhi.

 

But both countries are concerned about the strained ties.

Bangladesh is increasingly angry about India's strict visa rules since Sheikh Hasina was ousted.

Two million Bangladeshis used to visit India every year for tourism, business, education and medical purposes, but local media reports say the number of visas issued daily has fallen by more than 80 percent in the past few months.

Sheikh Hasina's stay in India and Bangladesh's demand for her extradition are a key issue.

“Bangladesh should understand that we will never hand over Sheikh Hasina to them because we know what will happen if we do so,” says former Indian foreign secretary Shyam Saran.

Amid growing tensions with Bangladesh, the Indian Garment Manufacturers Association has decided to ban the import of Bangladeshi garments by land.

Bangladeshi analysts have warned that further trade barriers could prove detrimental.

“There is a view in Bangladesh today that we should re-evaluate the transit and delivery facilities given to India by the Sheikh Hasina government,” says Debapriya Bhattacharya, a senior economist at the Centre for Policy Dialogue in Dhaka.

India uses Bangladesh's ports, roads and waterways to transport goods to its northeastern states, but officials say the volume of transit has not yet reached the expected level.

Bangladesh's tensions with India are rising at a time when Bangladesh's relations with Pakistan are improving.

 

Bangladesh, formerly East Pakistan, fought a war of independence in 1971 with India's support. Relations between Pakistan and Bangladesh have been frosty during Sheikh Hasina's 15-year rule.

Last month, Pakistan's Foreign Secretary Amina Baloch visited Bangladesh, the first major visit of her kind in 15 years. In addition, Pakistan's Deputy Prime Minister Ishaq Dar was also about to visit Bangladesh when tensions arose between India and Pakistan after the Pahalgam attack and the visit had to be postponed.

 “I don’t think India is worried about Dhaka’s leaning towards Pakistan, but if they are going to work together and make things difficult for India, then obviously that will raise concerns,” says Shyam Saran.

The strong official reactions from both countries are also affecting public opinion in India and Bangladesh. Anti-India sentiment in Bangladesh is growing as the Indian media is accused of exaggerating attacks on minorities in Bangladesh and the Islamist threat.

The people-to-people ties built over the years appear to be fraying, and analysts say their actions could damage trade and economic ties if the parties fail to remain peaceful.

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May 04, 2025  Blog