 "India and Bangladesh")
India’s Adani Group last week started selling electricity to Bangladesh, which allowed bilateral trade to be settled in Indian rupee. Bangladesh has scant foreign exchange ($29.9 billion, end of May 2023) and India needs more partners for rupee trade, prompting them to step up trade ties at a rapid clip.
Gautam Adani, chairman of the Adani Group, posed for a photograph with Bangladesh Prime Minister Sheikh Hasina last week, after switching on power supply from his coal-fired plant in Jharkhand state of India. Abdur Rouf Talukder, governor of Bangladesh’s central bank, said he expects to launch a taka-rupee denominated dual-currency debit card by September this year. It will ride on Rupay, India’s home-grown card payment network.
Bangladesh developed earlier this year a standard operating procedure for Indian ships to sail through its rivers to reach northeast India. Cargo sails through the rivers of the two nations but there was no agreed rule for it till the National Board of Revenue, the tax department of Bangladesh government, passed an order in April. “We are ready for the start of transit and transhipment of goods between Bangladesh and the northeastern region of India through Chittagong,” Khalid Mahmud Chowdhury, Bangladesh’s minister of state for shipping, had said while outlining his expectations.
The developments will boost trade and connectivity in the region. Mercy Tembon, World Bank country director for Bangladesh and Bhutan wrote in a blog post in 2021, “While trade between India and Bangladesh has increased substantially over the last decade, it is estimated to be $10 billion below its current potential.” The numbers hold.
The agreements are also necessary for India to convince more countries for the internationalisation of the rupee. For rupee to be accepted as a possible tender in international trade, large parts of this subcontinent should be willing to do so. Effectively, it will mean that the rupee will be used by traders and the public in this region for a wide swathe of business. The next stage has to be for banks in the region to do business using each other's currency.
Of course, there will be an asymmetry. Given the high inflation rates in Bangladesh and Sri Lanka, it is unlikely that the rupee can be traded with local currencies easily. The US dollar will still be a mediator of sorts. The next stage is expected to be allowing Bangladesh banks to access the Indian debt market.
On ground, the knock-on positive effects on trade will take time. Border trade between India and Bangladesh increased as connectivity networks improved and India funded infrastructure development through nearly a creditline of $ 9.5 billion. India’s recent announcement that Bangladesh can have free transit access to its ports for export to third countries is also an important step in this direction.
An important reason is that Bangladesh does not allow transit of trucks by road through its territory between eastern and north-eastern India. There was a similar constraint on trade through water, too. Dhaka setting a standard operating procedure in April for ships and barges to sail to India’s northeast using its waters is consequently a big deal.
Volumes have yet to pick up to take advantage of the ease of shipping. Despite the constraints, trade between the two neighbours is improving. Bangladesh is India’s fourth largest export market. For Bangladesh, imports from India are the second largest. China is the two countries' largest trading partner.
This should be surprising when one considers that any item traded by either nation should cost more to exchange with China, just on the basis of logistics alone. Yet, decades of mistrust between India and Bangladesh have allowed layers of rules to accumulate on any consignment which travels between the two.
The two nations signed the Protocol on Inland Water Transit and Trade in 1972 and decided to renew it every two years. “Despite this (understanding), the renewal remained irregular,” said Shahidul Haque, former foreign secretary of Bangladesh in a paper for CSEP.
Before relaxations announced this year, there was already an India-Bangladesh Coastal Shipping Agreement with a standard operating procedure. But evidently those have not worked since the procedures are strict. As an example the rules say “vessels engaged in the designated route will not engage in carrying transshipment cargo between the two ports of another country, without written permission from the Competent Maritime Authorities”.
While trade and connectivity have received priority in bilateral relations, areas for further cooperation include coastal shipping, congestion at land ports and in cargo-handling capacities. The expectations are they will also soon be sorted out.
Despite the need, there are tensions in sharing of energy. "The general consensus is that no single imported source should be more than 10 to 15 per cent of our energy requirement," said Dr M Tamim, professor of petroleum and mineral resources engineering, Bangladesh University of Engineering and Technology, referring to the Adani-Bangladesh deal.
He acknowledged though that the choice of energy for Bangladesh has become clear now when the supply of domestic gas has begun to decline. "The extent of how much energy the country should import from the regional grid is, however, being debated,” he said.
