Unrest in Bangladesh: Trade ties with India can take a hit; here's why Indian policymakers are worried

Its GDP is just 12.5% the size of India’s, but the troubles from the unrest in Bangladesh with the resignation and flight of former Prime Minister Sheikh Hasina could still impact the Indian economy.

An interim government has been formed headed by Nobel Laureate and microcredit pioneer Muhammad Yunus, but Indian policymakers and businesses are awaiting further signs of stability and are keeping their fingers crossed about the fallout of the turmoil. The situation is still fluid, but Finance Minister Nirmala Sitharaman noted that while India’s garments and textiles sector was facing some uncertainty, it was too early to say what the overall impact on the economy would be. Experts believe that exports, trade ties, infrastructure projects, and investments by some Indian firms could be impacted.

Radhika Pandey, Associate Professor at the National Institute of Public Finance and Policy (NIPFP), points out that Bangladesh features among the Top 10 export markets for India. It accounted for 2.5% of India’s exports in FY24, and India had a trade surplus of $9.2 billion with it. The eastern neighbour is a major market for India’s textile and agricultural exports, she points out, and that could take an immediate hit since the kharif harvest is approaching. Similarly, cotton shipments could suffer as Bangladesh accounts for 35% of India’s cotton exports, she says.

S&P Global Ratings, in a webinar, however, said the fall in exports due to the crisis is unlikely to have any meaningful impact on India’s overall trade position for the year since India is a well-diversified exporter.

Bangladesh has also been facing persistently high inflation at over 9% that has muted consumer demand. Additionally, it is in the midst of a foreign exchange crisis that has limited its ability to import.

There are concerns for some business houses as well, like the future of a power supply agreement with Adani Power commissioned in June 2023 and which supplies 100% of power to Bangladesh. Under the agreement with Bangladesh Power Development Board (BPDB), Adani Power is to supply 1,496 MW of net capacity for 25 years via a 400 kV dedicated transmission system.

“In its normal course of business, BPDB is scheduling the power supply to meet their demand, and as per that schedule, Adani Power continues to supply power to the Bangladesh power utility without any disruption. Going forward too, we will remain guided by BPDB’s schedule and as per the provisions of PPA between two utilities,” says a spokesperson for Adani Power.

Several Indian MNCs, including Dabur India, Marico, and Adani Wilmar, that have a presence in Bangladesh are also scrambling to ensure smooth functioning.

Personal care major Marico has a presence, with its haircare portfolio dominating the market. For Marico, the Bangladesh market is important because of the high profitability there. Marico Bangladesh raked in Rs 1,011.5 crore in sales in FY23—8.5% higher than in the previous year. It reported a net profit of Rs 275 crore.

On August 7, the company told Sebi that “operating conditions in the market are gradually improving; however, we remain watchful of the evolving situation. After a brief interruption, a large majority of our retail sales force and distributors have now resumed operations.”

Adani Wilmar operates in the country through Bangladesh Edible Oil Ltd (BOEL), which is one of the leading players in the burgeoning branded edible oil market there. It sells 30,700 tonnes of palm oil every year and is also now marketing Adani Wilmar’s flagship brands like Fortune (rice bran oil) and King’s (sunflower oil).

Beyond the challenges, Pandey of NIPFP highlights that the turmoil also presents an opportunity as several international buyers of apparel from Bangladesh could shift to India. Bangladesh imports yarn and fabric from India and is a major exporter of apparel.

CareEdge Ratings said recently that if the turmoil continues, around 10% of Bangladesh’s ready-made garment goods export orders could shift, and this can present monthly export opportunities of $200-250 million in the near term and $300-350 million in the medium term for India.

While it’s still early days, hopes are that the crisis will not drag on since Bangladesh is facing economic challenges as well.

(With inputs from Arnab Dutta, Richa Sharma and Surabhi)

@surabhi_prasad, @richajourno, & @arndutt