Table of Content

Name of the Topic Introduction Background Basic Information Purposes of study Significant of study Literature review Structure of the report 1. History of the development of Bangladesh-India trade 1.1 Table: Bangladeshs Trade Balance with India (19732003) 2. The current position of Bangladesh-India trade 2.1 figures shows the commodity composition of Bangladesh and India 3. The reasons for imbalances between Bangladesh-India trades 3.1 Improper government support 3.2 Bilateral Exchange rate 3.2.1 Trade scenario between Bangladesh and India 3.2.2 Indian exports to Bangladesh 2003/04 3.2.3 Table: Structure of Bangladesh's Exports to India 3.3 Political Instability 3.4 Tariff and non tariff barriers 3.4.1 Table: Indias Tariff Rate for Selected Commodities of Bangladesh 3.4.2 Graph: bangladesh india legal trade scenario 3.5 Productivity Factors 3.6 Transportation 3.7 Environmental factors 3.8 Other factors 4. The solutions, how can it be even 4.1 Government support 4.2 Economic efficiency 4.3 Tariff and non-tariff concessions 4.4 Political stability 4.5 Infrastructure development and transportation facility Future Perspective of Bangladesh-India Trade under SAFTA Conclusion Reference Page no. 02 02 03 03 03 04 04 04 05 06 06 07 07 07 08 08 09 09 10 10 11 11 11 13 13 13 14 14 14 15 15 15 16 16

Bangladeshi trade with India: How can it be even? 1. Introduction:

Now a days, business has become one of the largest earning activity among people all over the world which has the history started from the beginning of the human life through give and take activities or exchange. With the revolution of business with new ideas, concepts, inventions globalization has been more flexible refers as global village in terms of international business. Bangladesh has also taken the advantage of this and still taking to expand its business. Now it has international business link with India, US, Pakistan, China, Japan, UK, and also so many countries all over the world. There are so many unions like European Union, NAFTA, SAFTA, SAARC, APEC, ASEAN etc to integrate the member countries for their business purpose. Bangladesh is a member of so many unions from which SAARC refers to a significant one. In SAARC, India is another member country which has so many businesses with Bangladesh. Bangladesh has several business deals with India in terms of crops, jute, readymade garments, cosmetics, clothing, telecommunications, cable channels, fisheries, fruits etc and many more. But, in terms of export and import India is at the top position for Bangladeshi import which is the second largest trading partners of Bangladesh. This situation is not equal for both of the country. In some cases India is getting more benefit than Bangladesh. So, this position should be equal for bilateral trade among the countries. 1.1 Background: After the liberalization of Bangladesh, it has few businesses with India in terms of jute, crops, clothing etc. After that day by day it has increased with the help of globalization. And after joining SAARC in 1985 the trade policy between two countries has been increased at a higher rate. The trade between these two countries has increased tremendously specially in 1990s.Beside this during 1980s to 1995 Bangladesh and India has higher trade rate than the other countries of the world but Bangladesh always in a deficit due to some political, economical and obviously natural reasons where Indian has much opportunities.

1.2 Basic information: As we have seen that Bangladesh and India have shared common objectives for closer economic integration within the South Asia region and trade between these two countries has grown rapidly since the early 1990s. But sometimes a free trade agreement has been under consideration. Like the trading relationships between two countries follow the agreement for the benefits of both of them. But sometimes for the larger economic benefits and other supports from the neighboring country India, Bangladesh is lacking behind in so many perspectives whereas India is being more benefited. Like the currency rate, trade barriers, resource problem etc are some major facts. We will see the reasons later of the parts of the report.

1.3 Purpose of the study:

On the basis of the topic, we have several purpose or objective. Broad Objective: Our main purpose or objective is to figure out the reasons of inequity of the trade between these two countries and go for some sort of solutions according to it. Secondary Objective: We have several secondary objectives like To determine different types of trades between these countries.
To know about terms and conditions of the businesses Also find out their trade laws, systems and structures etc And also to find out the lacking of ours to do the business.

1.4 Significant of the study:

3

Though Bangladesh and India both countries have economic integration, but they have different characteristics in terms of their production, resources, technology, rules and regulations etc. For satisfying the consumer needs India is more advance than Bangladesh due to some of its advantages like available resources, government support, technology, free trade opportunities etc. On the other hand, Bangladesh is also doing business and involved internationally but it is still struggling for resource shortages, technology shortage, proper government support, border securities and so forth. So, for all of these significant and major current positions it is helpful to us to have this topic for study on it to have more knowledge

1.5 Literature review:

Before our report preparation on this topic some other people also had have a study on it. With the help of secondary data sources we came to know that a PHD student named Md. Mafizur Rahman who is also an Associate Lecturer made a report on the topic of Bangladeshi India bilateral trade: Causes of imbalance and measures for improvement in the year of 2006 while studentship of University of Sydney. There are may be also other students or researchers who had also gone through this topic as it is very important fact.

1.6 Structure of the Report:

For the better and organized design or format of our report, we have made the body of the case into four chapters. Each chapter is well organized with proper heading and information as much as we can. Our first chapter is the history of the development of Bangladeshi and India trade. Then our second chapter is about the current position of Bangladeshi India trade. After that our third chapter is consists the reasons for imbalances between Bangladesh-India trade. And moreover the fourth is all about the solutions that how to make it even.

Chapter 1
4

History of the development of BangladeshIndia trade

There are some clues of the history of the trade development relationship with these two countries. In 1972 the month of March Bangladesh had a business agreement with India where Bangladesh used to export naphtha, raw jute, fish etc and Indias export items are coal, unmanufactured tobacco, machinery etc. But this agreement was not so effective and limited to government level. Further Bangladesh had another agreement in 1973 where the export items of Bangladesh were newsprint, raw jute, fish etc and Indias export items are cottons, cotton yarns, textiles, books, cement etc. this agreement was quite effective. But again two nations were failure to achieve their desired goal. The imbalances were started from then after. Day by day so many contracts like these were signed up by two of these countries where sometimes they had effective results and sometimes they had not. But most of the time Bangladesh was the sufferer. Then they had become the member of SAARC in 1985 and have other business deals which they had maintain with the mutual consent. Then the trade between these countries were not only limited between the government level. Suddenly private sectors also started to link up themselves. 1.1 Table: Bangladeshs Trade Balance with India (1973-2003) Year 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988
Exports ($millions) 23.3 0.4 5.3 7.1 0.6 2.3 12.1 8 20.2 20.3 6.9 28.3 29.6 7.7 11 8.7 Imports ($millions) 114.8 82 83.3 58.5 55.2 43 40 55.6 64 43.3 37.9 60.1 64.9 57.2 74.4 90 Deficit ($ millions) 91.5 81.6 78 51.4 54.6 40.7 27.9 47.6 43.8 23 31 31.8 35.3 49.5 63.4 81.3

1989 1990

10.7 22

120.7 170

110 148

23 189 166 1991 4 284 280 1992 13 380 367 1993 24 467 443 1994 36 994 958 1995 20 1138 1118 1996 37.2 795.6 758.4 1997 55 1178.8 1123.8 1998 49.5 1023.8 974.3 1999 50.1 945.5 895.32 2000 60.8 1195.5 1134.7 2001 39.3 1145.8 1106.5 2002 52.9 1488.7 1435.9 2003 The above table shows the trade scenario between Bangladesh and India from 1973 to 2003

Chapter 2 The current position of Bangladesh-India trade

In every year, so many unrecorded informal trades happen between Bangladesh and India. Here free cross border trade of so many commodities even the illegal services use to happen which are totally unethical. Though free trade is helpful to expand the business for both of the countries, but the least border security, low quality commodities, smuggling etc are increasing day by day which is the current phenomenon of the trade. India is now exporting their clothings, machineries, cosmetics and so many things. On the other hand Bangladesh is also exporting fish, textile, readymade garments, footwear, jute etc. Now new technologies like telecommunication has also expand in our country where Indias company Airtal also exits due to the advantage of free trade. Beside Indian government has deal with Bangladesh to import their cosmetics items around 85 form them which Bangladesh cannot able to import from the other nations. So, these political and nonpolitical views are commonly seen where Bangladesh is not at the same positions in terms of resources, technologies and expertise where India is being more profitable than ours.
6

2.1 figures shows the commodity composition of Bangladesh and India

Chapter 3 The reasons for imbalances between BangladeshIndia trades

There are few major reasons of the inequality of the trade between these two countries those are as follows: 3.1 Improper government support: In terms of the help and proper support of government, Bangladesh is lacking behind in the factor of proper resource utilization, technological support, giving subsidy, micro-credit to the producers, strict border security as well as taking wise decision while and before trading. On the other hand, Indian government is much more comprehensive and intelligent to take steps of business related activities. 3.2 Bilateral Exchange rate: The exchange rate between these two countries is another major reason for facing the imbalance situation. In 2004, Indias export rate to Bangladesh was about 1.7 billion and import from Bangladesh was just only 78 million. Indias exchange rate was grew rapidly during the year of 1990 and continued to the year of 2000.On the other hand Bangladeshi exports to India is likely zero in the early 90s have stagnated at very low levels annually. Bangladeshi trade deficit with India has increased rapidly. So the exchange rate is far different and the value of taka is much lower than the Indian rupee, so this is one of the significant facts for the imbalance of trade.

3.2.1 Trade scenario between Bangladesh and India

In this graph we can see that the export rate of Bangladesh is far lower from the year of 1990s and still not so progressive to the year of 2009 where their import rate from Indian is quite higher.

3.2.2 Indian exports to Bangladesh 2003/04

This table shows the exported items of India to Bangladesh and its percentages.

3.2.3 Table: Structure of Bangladesh's Exports to India (in percent) Commodities FY 1994 FY 1995

FY 1996
9

Chemical Fertilizer Raw Jute Frozen Fish Other Mfg..Goods Leather Tea 0thers Total

20.6 48.8 0.1 0.1 12.7 3.2 14.5 100

57 33.1 3.8 0.1 4.1 --1.9 100

60.7 16.1 11.8 5.9 3.3 0.9 1.3 100

Source: Quoted from Rahman, M (1998)

3.3 Political Instability: Political instability is one of the major causes behind the imbalance situation in bilateral trade between Bangladesh and India. Both of the countries are liable for this situation. Here the Indian government is sound enough for themselves only. They always take care of their own interest and try to ignore the others. But this political condition has made the India more developed. For other countries those who trades with India it is a problem or hindrance to enter their market. On the other hand Bangladesh has lots of political instability which is not good enough for us and also for bilateral trade. This instability has made a huge trade gap between Bangladesh and India. But it is mainly supported by the fact that India has a lot of non trade barriers for Bangladesh exports. The commerce minister of Bangladesh has focused on some issues which are responsible for keeping the Bangladesh export rate lower. The issues are: laboratory test for every consignment of food products, cosmetics, and leather
and textile products, delay in getting test results, imposition of state tax, packaging requirement, anti-dumping and countervailing duties. Also, inadequate infrastructure facilities such as warehousing, transshipment yard, parking yard and connecting roads at land customs stations of India also hinder exports from Bangladesh, the list elaborated.

3.4 Tariff and non tariff barriers:

10

To make the trade much more liberalize, these two countries must have some agreement to reduce the tax, quotas, interests, tariffs barriers. Though Bangladesh is more liberalize to free trade but India has still some of restrictions in spite of having the agreement of SAARC, SAPTA, SAFTA, ASEAN etc. The tax over some of commodities of India is much higher than Bangladesh whereas Bangladesh has quite low tax rate or most of the time it follows the nontariff barrier system. So, how could it be equal if two countries do not make much liberalize at the same time while trading?

3.4.1 Table: Indias Tariff Rate for Selected Commodities of Bangladesh Rate of duty
Exports To India

Unit Kg Kg Kg Kg

Standard 15% 30% 15% 100%

Preferential Areas

Reference from India Tariff Schedule Chapter 28 & 29 Chapter 3

Chemicals Frozen foods (fish) Leather Tea

None None None 100% less 26 paisa per Kg None

Chapter 41 & 42 Chapter 9

Battery

15%

Chapter 85

Source: Tariff and Import Fee Information. Tariff Information Center, USA. 1 May 2006. <http://www.ita.doc.gov/td/tic/tariff/country_tariff_info.htm#India>

11

3.4.2 Graph: bangladesh india legal trade scenario

From the above chart we can see the trade flow where import rate of Bangladesh is higher than its export rate to India just because of adding the tariffs. 3.5 Productivity Factors: In case of the productivity issues, it is a major reason for the trade imbalance that, Indias productivity is much higher in terms of both in agriculture and industrial sectors than Bangladesh. Because India has a large population or man power, large economy, technological support as well as more resources and expertise than Bangladesh. On the other hand, Bangladesh is not that much productive or resourceful. 3.6 Transportation: The transportation facility in India is much more flexible than Bangladesh due to the improvement of their highways, railways and also water and airways to transport due to have the technology and expertise. For these they also have sufficient vehicles to trade, which helps them to deliver the products and services just in time. But here, tariff can affect and make this quite expensive. On the other hand Bangladesh does not have sufficient transportation system to trade and those are remaining quite expensive.
12

The graph shows the increasing level of transportation in India.

For their better transportation system they have gained the Cold star advantages to trade.

13

3.7 Environmental factors: For the environmental factors as well as the calamities, Bangladesh faced many problems regarding the trade. So many crops and farming lands are being damaged in every year due to natural calamities. For storage of products sometimes being damaged which has refused from Indian more of the time or price decreases. India also faced these types of problems but not like Bangladesh. 3.8 Other factors: Beside these political, economical and natural factors, other issues also arise regarding these inequalities of trade those can be the educational factor, lack of potential business entrepreneurs, difference in life style, culture and so forth. So these are the imbalance factors for Bangladesh and India Trade those are considered as the major constraints to do the trade equally.

Chapter 4 The solutions, how can it be even?

India is one of the big trade partners of Bangladesh. Both Bangladesh and India are two major countries of SARRC. They have their agreement for bilateral trade. Although there are so many obstacles took place in between them, we are expecting a free trade facility among them. To reduce all the obstacles or barriers we have to care about some issues and sit for bilateral discussion and make an effective decision. But one thing we have to remember that only discussion cannot be a cure, it has to be applied properly. Now it is time to remove the imbalances of bilateral trade between Bangladesh and India. Bangladesh had always trade deficit with India since its independence, and recently it has increased significantly. Given the current trade scenario with India, the obvious question is now what can be done to reduce, if not remove, the huge trade deficit of Bangladesh. There is no simple
14

and shortcut answer to this question. The search for effective solution must be looked at with due consideration of macroeconomic reality. It is important to note that one cannot expect dramatic reduction of trade deficit of Bangladesh with India within a short span of time even though required policy options are designed and implemented. This is realized based on the current pattern and trend of bilateral trade and prevailing state of fundamentals of the Bangladesh economy. However, in the short run, detrimental impacts of bilateral trade deficit can be minimized if appropriate steps are taken. For effective and durable solution, medium and long-term measures must be undertaken too.

4.1 Government support:

The both countrys government should extend their helping hand to increase the bilateral trade among them. Here the Bangladesh government should be more conscious about supporting the trade. Proper infrastructure should be developed so that the investors and traders can get facility from that. As a result this area would be more attractive to the foreign investors. All the resources which are available in this country should be utilized properly. Government should provide the technological support to the traders and the investors. Credit and loan facility should be available and border security should be flopped.

4.2 Economic efficiency:

The internal dimension of the trade deficit problem is related to the poor economic strength of Bangladesh compared to that of India. So the production capacity and economic efficiency of Bangladesh must increase in order to meet the countrys growing demand for importable goods and maximize the export earnings. Huge exportable surplus are to be generated and exports must be diversified and Indian demand requirements should be considered. Bangladesh must earn relative efficiency in the production of exportable goods and services to reduce its trade deficit. To gain from bilateral trade, there is no alternative but to increase the productivity in all sectors as a long run measure. For this purpose, Bangladeshs agriculture sector urgently needs a technological spurt. More research and development transfer of technologies, market based effective price system and appropriate incentive mechanisms are very important to enhance the countrys agricultural productivity. To increase the productivity in the industrial sector, development of the countrys technical base and technological capacity building are crucial. To develop the technological capacity building, huge investment, creative intervention of the government, appropriate incentive mechanism to foster technical education must take place in the country. As regard the productivity increase in the service sector, quality of education must be increased; quality medical service within reasonable cost must be ensured. Huge private investment in health and
15

education with creative government interventions would be very helpful for this purpose.

4.3 Tariff and non-tariff concessions:

Bangladeshs trade strategy with India must revolve around the SAPTA tariff negotiations. In this regard zero export duty strategy is getting importance. India should take necessary steps of unilaterally taking the decision of providing zero-tariff access of Bangladeshs exports to India. Tariff preference should be given on those items that have high import value, are actually traded and have high potential for entering into Indian market. India may exclude those irrelevant items from its concession list for Bangladesh, which Bangladesh does not produce, or hardly exports. However mere tariff concession will not reduce the trade deficit of Bangladesh to any significant extant if non tariff barriers are not phased out simultaneously. Because the non tariff barriers are more serious impediment to export expansion from Bangladesh to India Appropriate measures must be taken by India in this regard. Such measures would certainly encourage local, Indian and regional investors to locate investment in Bangladesh targeted to the larger Indian market. 4.4 Political stability: Both countries should come forward to solve their problems which are hindering the bilateral trade. They can solve their problems by discussing with each other. It would be better if they agree for a free trade facility. Free trade can facilitate the both countries economy. India should remove all the tariff and non tariff barriers for Bangladesh. Very recently India and Bangladesh has signed a new bilateral trade agreement while renew an old one. Here India had agreed to consider Bangladesh as Most Favored Nation (MFN). Now both countries are entitled to use each other's waterways, roadways, and railways for transportation of goods between two places in one country through the territory of the other. 4.5 Infrastructure development and transportation facility: Infrastructure development is very important issue for a country to facilitate the bilateral trade and to attract the foreign investors. Both countries should take proper steps to develop their infrastructures, especially Bangladesh is lacking behind in this sector. So it is high time for Bangladesh government to take decision about their infrastructure development. If Bangladesh can able to improve this sector the productivity will automatically be increased. As a result Bangladesh will be able to export goods to Indian market. Another important thing is transportation facility. Both countries should give the opportunity to each other to use each others waterways, roadways, and railways for transportation of goods.
16

Future Perspective of Bangladesh-India Trade under SAFTA: In January 2004, the SAARC member states signed the SAFTA agreement. The decision to strengthen the regional integration is undoubtedly a positive step. Under this integration, Bangladesh and Indias trade integration and Regional Cooperation has given some hope to Bangladeshis to improve their trade balance with India. Although Indias Sensitive List under SAFTA includes 763 products which is significantly high for LDCs like Bangladesh to gain by exporting to India under SAFTA, here the focus will be on some of the sectors of the Bangladesh economy on which Bangladesh can capitalize and may reduce the trade deficit between these two countries by further negotiating with India to give free access of the products in Indian market.

Conclusion: The trade deficit of Bangladesh in the recent past has increased exponentially. And the factors being identified for these imbalances are productivity factor, limited product base, in efficient human resources, infrastructural obstacles etc. Recently, as Bangladesh move towards the implementation of SAFTA in a more useful manner, the country needs to improve its positions by removing all the obstacles that it is facing and improve the trade balance of with respect to India. Improving the position is utmost necessary because the economic conditions of Bangladesh which is heavily dependent on the trade position and relation with India as India accounts most of Bangladeshs imports and they are the major trading partner of Bangladesh in the SAARC region. So, if Bangladesh can improve its trade relation with India, it will generate many employments, increase the competitiveness of its local goods and most importantly will increase the economic and social welfare of the country. In addition, a special focus also need to given on the Nontariff barriers, because that is the part most of the Bangladeshi exporters complain about. All these obstacles need to be removed to gain from the bilateral trade with India. Thus, if Bangladesh cant improve the situation now, the country will merely become a market for Indian products, trade status will worsen and country will not be able to exploit the window of opportunities arising from the regional integration SAFTA.

17

References:

1. 2 treaties penned to boost bilateral trade, The Daily Star, February 10, 2009, P. 1 2. India Bangladesh bilateral trade and potential free trade agreement, http://siteresources.worldbank.org/INTBANGLADESH/Resources/Trade.pdf 3. India Bangladesh potential free trade agreement, id=50042439 http://mea.gov.in/mystart.php?

4. India Bangladesh trade relation http://www.hcidhaka.org/pdf/Political%20and %20Economic%20relations.pdf 5. Bangladesh India tied with new trade and investment deal, http://gurumia.com/2009/02/09/bangladesh-india-tied-with-new-trade-andinvestment-deal/ 6. India Bangladesh trade can be double by 2011, http://www.thaindian.com/newsportal/business/india-bangladesh-trade-candouble-by-2011-ficci_100219990.html#ixzz1SkZlktNF

18