​Trade diplomacy: on India-Bangladesh trade-related tensions

India and Bangladesh share a complex yet deeply intertwined relationship marked by shared history, geography, culture, and commerce. As per the Ministry of Commerce and Industry, bilateral trade between India and Bangladesh stood at over $18 billion in FY 2022–23, making Bangladesh India’s largest trading partner in South Asia. India exported goods worth $13.8 billion to Bangladesh and imported about $4.9 billion.
However, the recently escalating trade tensions — highlighted by India’s May 17, 2025 trade restrictions, and Bangladesh’s earlier curbs on Indian goods — signify a troubling shift. According to the Global Trade Research Initiative (GTRI), India’s restrictions will affect 42% of bilateral imports, amounting to $770 million, including $618 million worth of garments.

What is the Recent issue Unfolding Trade Issue?

Recently escalating trade tensions — highlighted by India’s May 17, 2025 trade restrictions, and Bangladesh’s earlier curbs on Indian goods — signify a troubling shift. According to the Global Trade Research Initiative (GTRI), India’s restrictions will affect 42% of bilateral imports, amounting to $770 million, including $618 million worth of garments. These changes have flared, largely due to internal political changes in Bangladesh:

1. Regime Change in Bangladesh: The new interim government led by Mohammad Yunus, which replaced the Awami League-led administration, has taken a visibly different political and diplomatic stance.
2. Trade Restrictions by Bangladesh: In April 2025, Dhaka banned Indian yarn imports through five key land ports and introduced curbs on rice, fish, dairy, and tobacco. It also imposed a transit fee of 1.8 taka per ton per kilometer on Indian cargo. It further imposed a transit fee of 1.8 taka per ton per kilometer on Indian cargo — a move that disrupted Indian logistics and supply chains.
3. Geopolitical Flashpoint: Yunus’s March 2025 visit to China and his remarks describing India’s northeast as “landlocked” and offering Chinese access via Bangladesh further irked New Delhi, raising sovereignty and security alarms.

In retaliation, India:

1. Revoked a key transshipment facility on April 9, 2025, which allowed Bangladesh to export via Indian airports, especially to Europe and the Middle East.
2. Announced curbs on Bangladeshi imports, particularly garments, plastic products, and processed food, restricting their entry only through the Kolkata and Nhava Sheva seaports, thus cutting off key land corridors.

According to the DGFT, this is a “calculated response” to Bangladesh’s restrictions and diplomatic alignment with China. Thus, the trade standoff is less an economic disagreement and more a manifestation of broader strategic recalibrations in South Asia.

What is the Significance of India-Bangladesh Relations?

1. Economic and Trade Partnership: Bangladesh is India’s 6th largest export destination globally. Cross-border trade supports millions of livelihoods, especially in border states like West Bengal, Assam, and Tripura. Over 350 Indian companies have invested in Bangladesh, including Tata Motors, Marico, and Aditya Birla Group.
2. Geostrategic Importance: Bangladesh is the gateway to India’s northeast, with ports like Chattogram being crucial for Indian transshipment. The India-Bangladesh Protocol on Inland Water Transit and Trade (PIWTT) enables Indian cargo to pass through Bangladeshi rivers. Bangladesh is also a major beneficiary of India’s Neighborhood First Policy and Act East Policy, and enjoys duty-free access under the South Asian Free Trade Area (SAFTA) framework.
3. Security Cooperation: Counter-terrorism cooperation and joint border patrols have improved regional security. The return of ULFA and JMB militants by Bangladesh in past years reflects deep security trust.
4. Connectivity and Infrastructure: Projects like BBIN Motor Vehicle Agreement, Maitree Express, and Kolkata-Dhaka-Agartala bus services have fostered people-to-people and commercial links. The India-Bangladesh Friendship Pipeline (2023) enhances energy cooperation.
5. Environmental and Water Diplomacy: The Teesta water-sharing agreement remains unresolved, causing discontent in Dhaka. Collaboration on river management (e.g., Ganga and Brahmaputra) is vital for both countries, especially with growing climate risks.
6. Cultural and Educational Exchanges: Bangladesh students constitute a major chunk of foreign students in Indian universities. Shared cultural icons like Rabindranath Tagore and common linguistic heritage deepen ties.
7. Global and Regional Multilateralism: Both nations are part of SAARC, BIMSTEC, IORA, and SASEC, platforms that offer avenues for economic integration and joint climate action.

What are the Challenges in India-Bangladesh Relations?

1. Trade Protectionism: Port restrictions, non-tariff barriers, and transit fees (1.8 taka/km/tonne) disrupt supply chains. GTRI reports show a 42% impact on bilateral imports due to India’s latest restrictions.
2. Political Instability in Bangladesh: The Yunus regime lacks popular mandate, with bans on major parties like Awami League, raising international alarm.
3. China’s Expanding Influence: Over $40 billion in Chinese investments and alignment under Belt and Road Initiative (BRI) threaten India’s strategic space. The offer of land-sea access to China via Bangladesh undermines India’s Northeast security.
4. Border Management Issues: Over 1,200 border deaths due to cross-border crimes since 2000 (as per Human Rights Watch). Issues of illegal migration and cattle smuggling fuel tensions.
5. Water Disputes: Stalled Teesta agreement affects irrigation in both countries. Projects like Tipaimukh Dam remain contentious.
6. Perception of Indian Hegemony: India is often viewed as the ‘Big Brother’ in Bangladesh, affecting grassroots diplomacy and public sentiment.
7. Rising Anti-India Sentiment: Media narratives and political groups in Bangladesh leverage nationalism to target Indian policies.
8. Lack of People-Centric Diplomacy: Absence of robust civil society, academic, and cultural engagement limits long-term trust-building.

What can be the Way Forward?

1. Institutionalize Trade and Economic Dialogue: Set up a Permanent Joint Trade Commission with business chambers and technical experts to resolve trade irritants swiftly.
2. Diversify Political Engagement: Go beyond ruling regimes. Engage with civil society, academia, youth leaders, and opposition parties, as advocated by the Observer Research Foundation (ORF).
3. Finalize the Teesta Agreement: Use expert panels and independent mediation models like the Indus Waters Treaty to resolve water-sharing disputes.
4. Counterbalance China’s Influence: Accelerate projects under India’s Development Partnership Administration (DPA) and offer low-interest credit lines and capacity-building initiatives.
5. Enhance Connectivity Infrastructure: Fast-track completion of the Akhaura-Agartala rail link, expand PIWTT, and develop joint SEZs for bilateral production.
6. Launch a ‘People First’ Policy: Expand student scholarships, ease visa regimes, support media exchanges, and hold cultural festivals in both countries.
7. Leverage Subregional Frameworks: Activate BBIN, BIMSTEC, and SASEC for joint logistics, trade corridors, and disaster management.
8. Ensure Democratic Support: As per MEA’s parliamentary standing committee (2023), sustained diplomacy must encourage free and fair elections and constitutional order in Bangladesh.

Conclusion: Navigating the Future with Prudence:
India-Bangladesh ties are too strategically vital to be derailed by short-term trade disputes or political frictions. As noted by columnist Suhasini Haidar, “Diplomacy, not economic coercion, is the enduring currency of regional leadership.” India must strike a balance between safeguarding strategic interests and fostering goodwill in the neighbourhood. As South Asia enters a phase of geopolitical churn with China’s assertiveness and internal political transitions, India must remember that “stable, democratic, and economically integrated neighbours are the best guarantee of national security.” The roadmap ahead lies not in ports and prohibitions, but in principled diplomacy rooted in mutual respect, trust, and cooperation.