Source: The post India recalibrates Bay of Bengal trade with caution has been created, based on the article “India’s uneasy balancing act in the Bay of Bengal” published in “The Hindu” on 17 June 2025. India recalibrates Bay of Bengal trade with caution.
UPSC Syllabus Topic: GS Paper2- International Relations-India and its neighbourhood- relations.
Context: India’s economic involvement in the Bay of Bengal has entered a new phase, marked by increased cargo movement through eastern ports and a recent BIMSTEC agreement promoting trade. However, India’s sudden withdrawal of Bangladesh’s transshipment privileges has created tensions, raising concerns about regional economic integration.
For detailed information on Trade diplomacy: on India-Bangladesh trade-related tensions read this article here
India’s Growing Maritime Engagements
- Port Infrastructure Enhancement: Cargo throughput at major eastern ports—Visakhapatnam, Paradip, and Haldia—has grown significantly. Under the Sagarmala programme, India invested heavily to boost coastal logistics and connectivity, resulting in cargo movement on the east coast doubling in the past decade.
- Policy-Driven Expansion: Government incentives, including GST reductions on bunker fuel and coastal shipping encouragement, underpin India’s maritime trade expansion, reflecting its strategic focus on enhancing logistical efficiency along its eastern coast.
- BIMSTEC’s Role in Regional Integration: The recently signed BIMSTEC Maritime Transport Cooperation Agreement aims to streamline customs procedures and foster multimodal connectivity. This initiative seeks to reduce trade costs and facilitate smoother regional commerce, benefiting smaller economies like Bhutan, Myanmar, and Nepal.
Recent India-Bangladesh Tensions
- Withdrawal of Transshipment Facility: India unexpectedly revoked the facility allowing Bangladesh to route exports through Indian ports, citing logistical congestion. Bangladesh interpreted this as a political reaction to its closer diplomatic engagement with China and controversial remarks describing India’s northeastern states as “landlocked.”
- Immediate Economic Impact: Bangladesh’s exporters, particularly the ready-made garment sector (over 85% of export earnings), now face increased logistical costs. Alternative trade routes through Sri Lanka or Southeast Asia are more expensive and slower, adding uncertainty amid already weak global demand.
- Escalating Trade Restrictions: In May, India restricted seven categories of Bangladeshi goods—garments, plastics, processed foods—forcing their entry only through specific seaports. This move, officially a response to Bangladesh’s own import restrictions, was perceived as disproportionate and retaliatory by Dhaka.
Strategic Implications and Risks
- Political Signaling: India’s recent decisions could signal political displeasure towards Bangladesh’s diplomatic overtures with China and Pakistan. This use of trade as geopolitical leverage undermines India’s portrayal of maritime infrastructure as neutral and cooperative.
- Impact on Regional Perception: Other regional countries—Myanmar, Thailand, and Sri Lanka—are closely observing India’s actions. Using trade facilitation as political leverage risks damaging India’s credibility as a stable economic integrator, prompting neighbors to hedge against future uncertainties.
Credibility and Future Prospects
- Infrastructure Versus Trust: Despite India’s superior infrastructure and logistical advantages, regional leadership requires credibility and trust. India’s decisions must avoid politicizing economic cooperation to maintain confidence among its neighbors.
- Opportunity Amid Challenges: The Bay of Bengal region stands at a critical juncture, presenting opportunities for robust trade integration through proposed BIMSTEC free trade agreements. However, geopolitical anxieties could stall progress if trade facilitation remains susceptible to political fluctuations.
Way Forward
India should clearly define conditions for reinstating Bangladesh’s transshipment arrangement or adopt a stable, rules-based mechanism insulating trade from political shifts. Establishing clear boundaries between economic policy and geopolitical strategy is essential for lasting regional integration.
Question for practice:
Discuss how India’s recent trade decisions have impacted regional trust and economic integration in the Bay of Bengal.
