Published in The Daily Star on Monday, 8 June 2015.
MACRO MIRROR: MODI’S VISIT TO BANGLADESH
Enthralling Modi, Enthusiastic Bangladesh
Dr Fahmida Khatun
Bangladeshis are always interested about India. Geographical proximity, historical affinity and cultural likeness tie the two countries in many ways. Indian politics, cricket, music, movie, food and clothes – all attract a large section of Bangladeshis. Though at the political level, the relationship between the two countries has not been smooth at times, India remains an important factor in Bangladesh’s socio-economic and geo-political life.
Therefore, visits of Indian celebrities and politicians create huge interest in this country. The visit of Indian Prime Minister Narendra Modi has been the most significant visit for Bangladesh in recent times. Since he took office one year ago, Modi has been travelling all over – the powerful, the rich and the strategic countries from North to South and from East to West – to build the image of his country and to strengthen economic and political ties with countries which matter in global politics. So his visit to Bangladesh, despite his busy globe-trotting schedule, carries immense significance. He obviously didn’t forget his regional role. This dynamic leader of South Asia who wants to develop India by focusing on five Ts – talent, tradition, tourism, trade and technology – rightly realised that in order to be part of the global power league, India needs to establish and maintain its regional clout through economic and political strategies.
Even before his arrival, Mr. Modi made his gesture by operationalising the long disputed Land Boundary Agreement between the two countries. With his physical presence in Bangladesh, he offered much more on the economic front as well including connectivity, trade and finance that would be beneficial for both countries which has not been the case so far. For example, bilateral trade relations have not been a win-win situation for both countries as it favours India only. Trade imbalance with India has widened from USD 332 million in FY1993 to USD 5,579 million in FY2014. After China, currently India is the second most important source of Bangladesh’s import. In FY2014, Bangladesh imported goods equivalent to USD 6,036 million as opposed to its export to India worth only USD 456 million.
This has not improved even after the preferential market access granted by India to the least developed countries of SAARC in 2011. High tariff barriers, poor infrastructure facilities, slow clearance of goods, complex customs requirements and lack of quality testing facilities near border points have been the blockades for higher trade. Doing Business Reports of the World Bank reveal that in terms of ease of trading across borders, South Asian region has been consistently ranked second last, only after Sub-Saharan Africa. This underscores the need for trade facilitation, improvement of supply side capacity of Bangladesh as well as mutual recognition of various quality related requirements such as standards, certification, and testing which are essential for reaping benefits from trade agreements.
On the part of Bangladesh, product diversification has been emphasised for increasing its exports not only to India but also to the global market. But trade patterns of Bangladesh with India look different from that of the global ones. While 80 percent of Bangladesh’s total exports are readymade garments at the global level, it is only 20 percent in case of India. This shows that there is an opportunity for product diversification for exporting to the Indian market. It also indicates that RMG exports to India could still be increased, particularly when India has a large middle class with growing purchasing power.
For realising intra-regional trade potentials, transit and connectivity issue was high on the agenda of Mr. Modi’s tour. Ironically, even after the implementation of the SAFTA, intra-regional trade in South Asia is only 5 percent, compared to 22 percent in the ASEAN and 55 percent in the EU regions. Poor transportation between Bangladesh and India, and within the region as a whole, is a major obstacle. Weak infrastructure leads to higher cost of doing business in South Asia – by about 13 to 14 percent of the GDP of the region. Studies also indicate that intra-regional trade could be raised by about 60 percent through improving South Asia’s infrastructure to about half of what East Asia has. So, connectivity among Bangladesh, Bhutan, India and Nepal is crucial to improve trade-related efficiency. But issues such as appropriate charges and security have to be dealt with due sensitivity for the effectiveness of such collaborations.
The gesture of providing a fresh soft loan equivalent to USD 2 billion for infrastructure projects by Mr. Modi’s government is also well-appreciated. We expect that there will be no strings attached to this support. Aid conditionalities create various complications including delay in the implementation of projects as was experienced in case of the earlier line of credit equivalent to USD 1 billion that was provided in 2010 by India. At a time when OECD countries have agreed to reduce tied aid through a formal framework under the Paris Declaration on Aid Effectiveness in 2005, aid conditionalities from India would go beyond the spirit of cooperation. This spirit can of course be upheld through strong political will.
For the last several weeks, Bangladesh has been beaming with glory at the prospect of the gracious steps of Mr Modi on this land of ours. Now that the visit is over and the cards are on the table from both sides, the people of Bangladesh will look forward with similar enthusiasm and hope to the implementation of the promises.
The writer is Research Director at CPD, currently a Visiting Scholar at the Earth Institute, Columbia University, New York.