Pratim Ranjan Bose
(This is a speech I delivered at
the “International Conference on Indo-Bangladesh Multi-Sectoral Coperation” on
January 24, 2017 at the Indira Gandhi National Centre for Arts in Delhi. The conference was organised by the Institute of Social
All are aware of the political
relationship between People’s Republic of China
or China as we know it and,
the island nation of the Republic of China better known as Taiwan .
Parallel to this, China and Taiwan witnessed ballooning trade
and cross-investment since 1990. A staggering 93,000 Chinese companies invested
in Taiwan .
In return, Taiwan invested
over $34 billion in China
in the last decade.
Overall, China accounted for 30percent of Taiwan ’s
$318 billion exports in 2014.
There is an important takeaway
from this example before we analyse India-Bangladesh relationship. Economic
ties depend on B2B relations. G2G relations can be a facilitator but it is no
insurance for optimising the relationship.
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| Plenary Session on Indo-Bangladesh Economic Cooperation: Challenges and Opportunities chaired by India's textiles minister, Smriti Zubin Irani. |
India-Bangladesh
It has been more than seven years
that India-Bangladesh G2G relationship is on a roll. Both the countries have
taken a host of measures to integrate the economies. India
pulled down tax barriers in 2011, initiated electricity trade in 2013 and,
offered assistance to Bangladesh
to improve transport infrastructure.
Apparently, such all-round
cooperation impacted bilateral trade.
From $3.5 billion in 2009-10
trade increased to a little over $ 6 billion in 2015-16. Indian exports to Bangladesh increased by nearly $2.2 billion and Bangladesh ’s exports to India , though
much less in comparison, more than doubled from $305 million to $689 million.
From the Indian perspective, Bangladesh is
today its largest trade partner in SAARC. It is also the ninth largest importer
of Indian goods. For Bangladesh ,
India is the second largest
trade partner after China .
On the flipside, after the
initial spurt, the trade is stagnating at a little over $ 6 billion since
2013-14. In fact, it had been marginally down from the peak of $6.5 billion in
2013-14.
This is irrespective of the fact
that the scope of G2G cooperation further increased over the last years. Also, Bangladesh ’s
overall trade increased during the period.
So what’s wrong with the
Indo-Bangladesh trade?
Many argue trade slowed down as Bangladesh is a
small economy with limited capacity to consume and supply.
Some also point out that the
widened trade regime hasn’t gone in Bangladesh ’s favour. Many blame India for
imposing non-tariff measures or NTMs, restricting Bangladeshi exports below
potential.
The argument about one-sided
trade lacks economic logic. India
has a $80 billion, deficit trade with China . The importance of trade lies
in economic value addition.
For example, cotton yarn and raw
material imported from India
helps Bangladesh
earn $30 billion export revenue from readymade garments. The problem is: the
value chain is weak beyond textiles.
NTMs do exist but I think the
emphasis is exaggerated.
There is a lackadaisical approach
from Indian bureaucracy to address some of the issues like absence of a food
quarantine and testing facility in the entire East and North East beyond
Kolkata.
It hurts Tripura - a big time
consumer of fish and dried fish from Bangladesh . But it didn’t stop the
trade of dried fish. Tripura keeps a blind eye to the ‘illegal’ entry of
unchecked food items through the border huts.
Many allegations are baseless as
well. For example, Indian food regulatory authority has set some standards as
per global norms. And loads of food items are imported through this channel.
Can Bangladesh
seek an exception?
To summarise, I don’t think NTMs
are the real stumbling block before India-Bangladesh trade.
NTMs did and would exist in every
country perspective, but trade interests from either side work behind the
screen to iron them out. Whether it is India-China or China-Vietnam trade is
nothing is free from this vices. Yet they thrive on B2B interests.
Limited business interest
is key
I presume Indo-Bangla trade
suffers from limited interest from business communities on either side. A
couple of examples will prove this point.
Consider this, the biggest chunk
of bilateral trade takes place by road through Petrapole-Benapole and is almost
fully non-containerised. This is irrespective of the fact that Indian side is
connected by rail and road movement is not only costlier but subjected to huge
rent-seeking activities on either side.
At the Indian side, export
consignments to Bangladesh
are delayed for days, five km from the border, at Bongaon at the pretext of
traffic management.
Ideally, the cargo should be
containerised and move from road to rail for cost-effectiveness. The Indian
side of the ICP is connected by rail as well. This is exactly what is happening
in India-Nepal trade through Birgunj.
But Indo-Bangla trade remains an
exception. There is a complete lack of interest in using rail facility at
Petrapole.
On the other hand, there is a
definite interest to keep the prevailing practices going. No one from Bangladesh
lodged a protest against rent seeking etc at a recent consultative meeting with
stakeholders organised by CUTS International.
There is a existing broad gauge
connectivity between Kolkata and Dhaka through
Gede-Darshana used for running passenger trains. Can anyone answer why trade
doesn’t demand using the infrastructure for goods movement?
The puzzle may be answered from
the low footprint of Bangladeshi garments business in India .
Six years after the collapse of
the duty barrier, Bangladesh ’s
RMG exports to India
is limited to only $136 million (out of $30 billion). Some economists point out
that the unbranded garments (where Bangladesh
operates) market in India
is overcrowded.
Fair enough but, India is a
destination for brands - both home-grown and foreign. Why don’t I find many
Indian brands, excepting Wills Lifestyle, outsourcing garments from Bangladesh ? Why
Bangladeshi ethnic brands like ‘Aarong’ don’t expand their network here.
The answer is, biggies in Bangladesh are focussed at the US and European
market. They are yet to cross the “psychological barrier” and take interest in
a large growing market next door.
The task of market making is left
with smaller entities who have limited ability to take risks and adjust to the
Indian systems and standards.
Naturally issues like ‘Liliput’ –
an Indian company that went bankrupt failing to fulfil its payment obligations
– grow out of proportion and everyone talks more about “problems” in doing
business in India
than focussing on prospects.
Noteworthy, you wouldn’t hear so
many complaints in public forums in areas where big Bangladeshi businesses are
involved like Nitol-Niloy group – the dealer of Tata trucks and buses – or PRAN
Foods that is investing in India .
They work under the radar to make
way. That is how big business works across the world. The problem is there are
few such examples in the bilateral space at this juncture.
Weak flow of investments
Trade without cross investments
is a low value generating activity with limited interests from either side. I
think India-Bangladesh ties are suffering from that.
Ideally, as a small nation with a
limited industrial base, Bangladesh
should ride the Indian growth story.
Bangladeshi business should pick
stake in the Indian market. And, Indian businesses should use Bangladesh ’s LDC status and zero-duty import
advantage (to India )
to make it a production hub. Both are
not happening to the desired extent.
Many African countries like Nigeria saw a
dramatic rise in Indian FDI during the period. Bangladesh had its opportunity when
Tata Group announced a major project but the bus was eventually missed.
Indian FDI in Bangladesh
Year
|
Net Inflow of FDI from
|
2001
|
2.08
|
2002
|
4.3
|
2003
|
3.63
|
2004
|
6.8
|
2005
|
2.67
|
2006
|
6.09
|
2007
|
1.67
|
2008
|
11.29
|
2009
|
7.99
|
2010
|
43.19
|
2011
|
25.74
|
2012
|
28.43
|
2013
|
45.01
|
2014
|
70.59
|
2015
|
102.7
|
2016 (Jan-Sep)
|
52.79
|
Source: Bangladesh Bank
According to Care Rating, between
2009-10 and 2012-13 Indian companies invested over $ 50 billion overseas. Bangladesh got
barely 142 million (Source: Bangladesh Bank). Another $270 million is added to
this list till September 2016.
The only Bangladeshi investment
to India
that I remember is PRAN putting up a Rs 50 odd crore processing facility in
Tripura.
It means we have a limited sense
of ownership in each others growth, limited mutual interests and low
compatibility. On a business-to-business scale, the two economies are still
working in isolation. And that’s against the basic capitalist principles for
growth optimisation.
The silver lining
The future rests on how quickly
the investment flow increases.
The good news is Indian FDI in Bangladesh is
increasing at a robust rate since 2013. Since 2001, Bangladesh received $416 mn Indian
FDI. Of this two-third flowed in last 4 years. If the trend continues we will
see a reasonable B2B interest in next four-five years.
***
