The bustling bazaars of Dhaka, lined with vibrant textiles and aromatic spices, have long symbolized the spirit of trade that connects Bangladesh to its neighbors, especially India. For decades, this economic interplay has flourished under a delicate balance of political stability and diplomatic cooperation. But today, that balance teeters on the edge, much like a precarious boat navigating the turbulent waters of the Padma River during monsoon season.
Bangladesh, India’s eighth-largest trading partner, has always been more than just a neighboring country—it’s been a gateway for cross-border investments, a supplier of skilled labor, and a consumer of Indian goods. In the financial year 2022-23, bilateral trade soared to over $18 billion, highlighting the mutual economic dependence between the two nations. However, the political storm brewing in Dhaka threatens to disrupt this flourishing relationship.
The backdrop is dramatic: Sheikh Hasina, a leader whose tenure has been synonymous with pro-India policies and economic collaboration, has been violently ousted and forced into exile. With an interim government stepping into the spotlight, uncertainty looms large over everything from trade agreements to energy collaborations. This regime change doesn’t just impact Bangladesh—it sends ripples across the Bay of Bengal, directly affecting Indian businesses.
This is not the first time Bangladesh’s political waters have turned choppy. Its history since independence in 1971 is a tale of resilience, punctuated by moments of upheaval. But for Indian businesses, this latest twist in the tale is a reminder that in geopolitics, economic ties are as fragile as the threads of the finest Muslin—a fabric both nations share a history of weaving.
As the dust begins to settle, the question isn’t just about what happens in Dhaka but how those events reverberate in Kolkata, Delhi, and Mumbai. How do Indian policymakers and business leaders navigate this evolving narrative? In this article, we unravel the story of Bangladesh’s political transition, analyze its domino effects on Indian businesses, and explore the steps being taken to weather this storm. The stakes are high, and the consequences, far-reaching. But as history has shown, the ties between these two nations are resilient, even in the face of uncertainty.
Existing Trade Relations Before the Regime Change
The India-Bangladesh trade relationship has been a cornerstone of South Asia’s economic dynamics, showcasing a mix of shared interests, interdependence, and opportunities for growth. In the years leading up to the regime change in Bangladesh, this bilateral partnership evolved into a robust economic collaboration, driven by strategic initiatives, cultural proximity, and mutual economic benefits.
India-Bangladesh Trade Volumes: A Flourishing Partnership
India’s trade with Bangladesh has grown significantly over the last decade, reflecting deepening ties between the two nations. The bilateral trade volume increased from a modest $2.4 billion in 2009 to $13.1 billion in 2023, with India traditionally enjoying a trade surplus. Exports from India to Bangladesh peaked at $16.2 billion in 2021-22 before moderating to $11.3 billion in 2023 due to multiple factors, including economic challenges in Bangladesh.
On the flip side, Indian imports from Bangladesh remained limited but noteworthy, rising from $0.4 billion in 2010-11 to $2 billion in 2022-23, before slightly declining to $1.8 billion in 2023. Over half of these imports (59%) comprised textile and clothing products, highlighting the concentration of trade in select sectors.
Key Sectors of Cooperation: A Diverse Economic Tapestry
1. Textiles: The Thread That Binds
Both India and Bangladesh are global players in the textile industry, with complementary strengths. Bangladesh’s booming garment sector, fueled by its skilled workforce and competitive costs, relies heavily on India for raw materials like cotton and fabrics. India exported $1.5 billion worth of cotton to Bangladesh in 2022 alone, making it the largest supplier. While Bangladesh has carved a niche in finished garments, India’s textile exports, especially in intermediary goods, have been crucial in supporting this ecosystem. The relationship here is both collaborative and competitive, as India also vies for market share in global textile exports.
2. Energy: Powering Collaboration
Energy cooperation has been another critical area of engagement. The Adani Group’s $2 billion power project in Bangladesh, aimed at providing 1,600 MW of electricity, highlights India’s role in addressing Bangladesh’s growing energy demands. Additionally, cross-border power transmission lines have symbolized the tangible benefits of this partnership.
3. Tourism: Medical and Beyond
Bangladeshis make up a significant portion of India’s medical tourists. In 2022, nearly 54% of all foreign patients in India came from Bangladesh, contributing to states like West Bengal’s booming medical tourism industry. This inflow not only bolsters healthcare revenues but also fosters people-to-people ties.
4. Agriculture: Feeding Shared Prosperity
India has been a key supplier of essential agricultural products like rice, wheat, sugar, and spices. However, recent export restrictions to stabilize domestic prices affected this trade, leading to a decline in agricultural exports to Bangladesh.
5. Diverse Exports: A Wide Spectrum
Beyond the key sectors, India’s export basket to Bangladesh includes machinery, vehicles, refined petroleum products, and chemicals. This diversification has mitigated risks while ensuring sustained growth in trade volumes.
The Dependence of Indian Businesses on Stability in Bangladesh
Political stability in Bangladesh has been the bedrock of this thriving trade relationship. Under the leadership of Sheikh Hasina, Bangladesh experienced remarkable economic progress, with GDP growing from $123 billion in 2009 to $455 billion in 2024. This transformation not only lifted millions out of poverty but also made Bangladesh an attractive trade partner.
For Indian businesses, this stability meant predictability in policies, steady demand for goods and services, and unhindered investments. India’s export sectors are particularly vulnerable, given that Bangladesh accounted for 2.6% of India’s merchandise exports in 2023, a significant jump from 1.2% in 2009. The stakes for Indian businesses remain high, as any instability could cascade into job losses in labor-intensive industries like textiles and agriculture.
Bangladesh’s Regime Change: A Nation at a Crossroads
The fall of the Awami League government has thrust Bangladesh into a period of instability, with protests and violence intensifying across the country. Nobel Laureate Muhammad Yunus now leads an interim government tasked with stabilizing the nation amid this upheaval. His 16-member advisory council, including professionals from diverse fields, faces the daunting challenge of steering the country through political and economic crises while preparing for upcoming elections.
Bangladesh’s economy is in deep distress, with inflation soaring and GDP growth slowing to 4.8%. Rising external debt and dwindling foreign exchange reserves have compounded the situation. Yunus, a renowned microfinance pioneer, faces an uphill battle to stabilize the economy. While reforms are underway, the government’s limited time to deliver tangible results presents significant challenges.
The interim government’s mandate is to ensure free and fair elections within three months, but uncertainty looms over the participation of major political parties. Restoring public trust and reforming key institutions will be crucial, but the path to stability is unclear.
In this challenging transitional period, the new regime must navigate complex political and economic obstacles. How they manage these crises will determine whether Bangladesh moves toward recovery or deeper turmoil.
Turmoil in Bangladesh: Ripple Effects on Indian Businesses
The ongoing political and economic unrest in Bangladesh has thrown a wrench into its economic machinery, creating waves of disruption that are increasingly felt across the border in India. As Bangladesh occupies a pivotal position in India’s export landscape, this turmoil demands a deeper dive into its multifaceted impacts on Indian businesses.
A Hit to Export Revenues: Cotton, Agriculture, and Beyond
Bangladesh is a significant export destination for India, particularly for raw cotton, textiles, and agriculture-related products. In FY 2023-24, India’s exports to Bangladesh amounted to $11.1 billion, with over 75% of these in manufactured goods and agricultural commodities. However, unrest in Bangladesh has stalled the movement of these goods, bringing payments and new orders to a standstill.
Raw cotton exports, which account for over half of India’s total cotton exports at $1.2 billion, are now facing a sharp decline as demand dwindles amidst the crisis. Similarly, agricultural exports, including oil meals and spices, have been severely impacted. These commodities form the backbone of India’s rural economy, employing millions of workers. A prolonged disruption threatens not only export revenues but also domestic livelihoods.
Textile and Apparel: The Double-Edged Sword
India and Bangladesh share a symbiotic relationship in the textile industry. While Bangladesh is a leading exporter of readymade garments globally, it heavily relies on India for raw materials like cotton yarn and fabrics. Surat, a major hub for textile exports to Bangladesh, has seen its business hit hard, with payments stuck and no new orders in sight.
This disruption also presents a strategic opening for India. As global buyers of textiles from Germany, the US, and the UK scramble to diversify their sourcing away from Bangladesh, India stands to gain, provided it addresses structural inefficiencies in its MSME-dominated textile sector. A pivot toward man-made fibre garments and specialty apparel—products that align with global demand—could be India’s ticket to capturing market share. However, achieving this requires urgent investment in technology, scaling operations, and policy reforms.
Engineering and Chemical Exports: Struggles Amid Weakening Demand
Manufactured goods, including engineering items, machinery, and chemicals, accounted for 55% of India’s exports to Bangladesh in FY 2023-24. However, demand for these goods has been on a downward spiral due to Bangladesh’s deteriorating economic conditions. Engineering goods, which represent 19% of exports, have been particularly affected by
Bangladesh’s reduced industrial activity.
The crisis adds further strain to an already sluggish export market for Indian engineering products, which has been hit by weak demand in advanced economies. Similarly, chemical exports—another 10% of exports to Bangladesh—have been declining for two consecutive years, further denting India’s revenue streams.
Strategic Sectors at Risk: Power and Cross-Border Investments
One of the most significant Indian investments in Bangladesh is Adani Group’s power export agreement, which supplies 1,500 megawatts of electricity. With Sheikh Hasina’s resignation, the project could come under critical scrutiny from the interim government, especially given earlier controversies regarding pricing.
Moreover, Indian firms like Asian Paints, Dabur, Bajaj Auto, and Tata Motors, which have extensive business ties with Bangladesh, are grappling with the uncertainty. Declining stock values of these companies reflect growing investor anxiety over potential losses in sales and revenues.
Tourism and Healthcare: A Sudden Roadblock
Bangladesh is not just an export destination; it is also a critical source of inbound tourism for India. Bangladeshi tourists accounted for more than 20% of all tourists to India in the first four months of 2024, with healthcare tourism driving significant traffic to West Bengal. Political unrest threatens to disrupt this flow, with visa restrictions and mobility constraints likely to dampen people-to-people movement. This has broader implications for sectors such as hospitality, retail, and medical services, which rely on these visitors.
The Road Ahead: Risks and Opportunities
The current crisis in Bangladesh represents both a challenge and an opportunity for Indian businesses. While disruptions in trade and supply chains pose immediate risks, they also open up avenues for India to strengthen its position as a stable alternative in global markets.
To capitalize on this moment, India must act swiftly. Key measures include scaling up production in labour-intensive industries like textiles, diversifying its export portfolio, and addressing structural bottlenecks in its MSME sector. Simultaneously, strategic diplomatic efforts are required to ensure that bilateral trade and investment ties remain resilient amidst political uncertainty.
Indian Stance and Actions Amid Bangladesh’s Political Turmoil
India has adopted a cautious yet pragmatic stance amid the political uncertainty in Bangladesh following the ousting of Sheikh Hasina’s Awami League government. With a longstanding history of cooperation and significant investments in Bangladesh, India is closely monitoring the situation while engaging with the interim government under Yunus.
Continued Engagement with the Interim Government
India’s Prime Minister Narendra Modi sent a congratulatory message to Yunus, and Indian High Commissioner Pranay Verma attended his swearing-in ceremony on 8 August 2024. These gestures underscore India’s willingness to work with the interim administration, albeit with an eye on the unfolding political dynamics.
Indian envoy Pranay Verma recently reassured the interim government about India’s commitment to its ongoing projects. During discussions with Bangladesh’s Finance Adviser Salehuddin Ahmed, both sides emphasized enhancing bilateral economic cooperation, particularly focusing on India’s funded projects under its three lines of credit.
India-Funded Infrastructure Projects
Bangladesh’s interim government has affirmed its commitment to continuing Indian-funded projects, acknowledging their significance to the country’s development. Key projects include:
- Diesel Pipeline: The 131.5-km pipeline inaugurated by Modi and Hasina in March 2023 aimed to transport up to 1 million tonnes of diesel annually from Assam to northern Bangladesh. While India paused plans to extend this pipeline further due to political turbulence, its operation remains crucial for Bangladesh’s energy and industrial needs, particularly in the textile sector.
- Lines of Credit: India has extended three lines of credit to Bangladesh, totaling $7.36 billion since 2010. These funds have supported critical infrastructure projects, though disbursement delays and current political instability have raised concerns. Indian authorities have indicated that contractors will resume work as the situation stabilizes.
- Power Supply Agreements: Five Indian power companies supply electricity to Bangladesh, with over $1 billion owed to them, including $800 million to Adani Power. Despite payment delays, Indian companies continue to supply electricity, showcasing India’s commitment to supporting Bangladesh’s energy needs.
Challenges and New Proposals
While cooperation persists, India faces challenges in its engagement with Bangladesh. The BNP’s rising influence has introduced uncertainty in India-Bangladesh ties, with the party advocating a review of agreements signed during the Awami League’s tenure, including the Adani electricity deal.
Bangladesh has expressed interest in importing 1,000 MW of renewable electricity from India, alongside plans to source hydropower from Nepal and Bhutan via Indian corridors. These projects highlight the critical role India plays in fulfilling Bangladesh’s energy needs, especially as its foreign reserves dwindle.
Rising Anti-India Sentiment
Amid cooperation, anti-India rhetoric has intensified. Recent comments by Mohammad Nahid Islam, an adviser to the interim government, blaming India for flooding in Bangladesh due to the Dumbur dam in Tripura, reflect the challenges India faces in navigating public perception in Bangladesh. Attacks on the Hindu minority further complicate India’s engagement, raising concerns over the safety of ethnic and religious communities.
India has also taken measures to protect its economic interests amid the turmoil. Recent amendments to electricity export rules allow Indian companies like Adani Power to divert power intended for Bangladesh to the domestic market in case of payment delays, safeguarding Indian stakeholders from potential losses.
Economic Reliance on India
Despite rising political and public tensions, Bangladesh remains heavily reliant on India for essential commodities, energy, and infrastructure development. India’s ability to leverage this interdependence while managing the evolving political landscape will play a pivotal role in shaping the future of Indo-Bangla relations.
Bangladesh’s political upheaval has thrown India into a balancing act that demands both strategic foresight and pragmatic patience. The removal of Sheikh Hasina’s government marks the end of an era of unparalleled cooperation, but this isn’t just a story of political change—it’s a tale of deep-seated ties, mutual dependencies, and a test of resilience for both nations.
A Critical Moment for Strategic Patience for the Corporate World
Bangladesh’s strategic and geopolitical significance for India cannot be overstated. Nestled between India and the Bay of Bengal, it serves as a vital transit point and a buffer zone in the region. For India, already grappling with strained relations with Pakistan and an assertive China, the emergence of another hostile neighbor is a scenario it simply cannot afford.
On the economic front, the two nations are intertwined in ways that go beyond trade statistics. Bangladesh is a significant importer of Indian raw materials, from cotton for its textile industry to electricity powering its grid. Indian power companies like Adani Power and NTPC continue to supply electricity even as payments are delayed, highlighting India’s commitment despite uncertainties.
In return, Bangladesh provides India with an invaluable market for exports and a source of labor in certain sectors. This economic symbiosis underscores why New Delhi’s approach has been measured and patient. As the fire of political passions rages, Delhi seems to understand that this is a storm to be weathered, not fought against.
It’s true that the honeymoon period India enjoyed under Sheikh Hasina’s leadership is unlikely to return. However, the relationship doesn’t need to be romantic to be robust. As passions subside and pragmatism takes center stage, the interim government—or whatever new leadership emerges—will likely recognize the necessity of maintaining good relations with India.
Strategic patience, as demonstrated by New Delhi, is the key. The corporate world, too, must adopt this mindset. While anti-India sentiment may currently dominate headlines, history has shown that such phases are transient. India’s steady commitment to its projects and partnerships in Bangladesh will eventually serve as the bridge over troubled waters.
Ultimately, this moment in India-Bangladesh relations is a test, not a verdict. The ties between these two nations, though strained, remain strong at their core. Like a seasoned sailor navigating a storm, India must hold its course, knowing that calmer seas lie ahead. And when the winds settle, the interwoven destinies of these two neighbors will steer them back toward cooperation—if not to the intimacy of the past, then at least to a partnership built on necessity and shared futures.