Reducing trade deficit with India
Some economists think that India is a big country and the trade gap is natural but we think it should be rational
Md Harunur Rashid
Bangladeshs trade deficit with one billion populations country like India has enlarged in recent years with import continuously rising while export hitting rock bottom for barriers created on the neighbouring market in India. Especially in the last five years, it reached its all-time high and reflecting a galloping economic imbalance between the two close neighbouring countries. According to Confederation of Indian Industry (CII), bilateral trade between India and Bangladesh could almost double to $10 billion by 2018.
India emerged as one of the largest sources of raw materials for Bangladeshi manufacturing industries, resulting in the import surge. At the same time, Bangladeshi exports hit various non-tariff barriers like products quality to enter the Indian market. Now a question arises: when will a new leaf for boosting economic cooperation and further intensifying trade and investment between the countries turn? Some economists think that India is big country, the trade gap is natural but we think it should be rational.
Indias market size is 250 billion dollars, but Bangladeshs export there only one percent of six hundred. India exports to Bangladesh more than 250 items. The countrys export basket is mainly led by apparel industry while small income is coming from export of agricultural products, frozen fishes, jute and jute goods, leather and leather goods and light engineering items and RMG items.
India gave duty free access for readymade garments but surprisingly, Bangladesh still has to face the state and other hidden taxes, and the state taxes are almost 12 percent. Moreover, the Indians buyer payment system is very poor according to industry insiders of RMG sector of Bangladesh.
In 2014-15 fiscal year the export volume of readymade garments were only $104.25 million dollars. In the same fiscal year Bangladesh imported 6.5 billion dollars goods from India. At the same time Bangladeshs overall export to India was only 527 million dollars items, according to Bangladesh Bank and Export Promotion Bureau report.
South Asian Association for Regional Cooperation (SAARC) countries signed for the South Asian Free Trade Area (SAFTA) agreement to develop trade and economic co-operation in 6th January, 2004. Following that agreement, process of removing duties started from 1st July 2006. But it failed on expectation. That time SAFTA countries made list of sensitive items. India listed 480 items as sensitive for least and non-least developed countries. India marked 868 sensitive items. They banned the sensitive items to import from other countries.
But in 2011, Manmohan Singh, the former prime minister of India, visited Bangladesh and decided to cut short their sensitive items list for Bangladesh. They made 25 sensitive items on that time. Not only that, India declared 46 Bangladeshi items duty free market access to India. In this circumstance another question is raised: if Europe Union can do the business among the countries why not this can be done among the SAARC countries?
On the other hand, countrys business leaders and exporters are continuously demanding that India remove non-tariff and para-tariff barriers to help Bangladesh increase its exports to the country to reduce the galloping trade gap between the two next-door neighbours. The lack of initiatives to negotiate different trade-related issues is hindering the export potentiality to India.
Another major challenge is, a bilateral agreement between Bangladesh and India would not be a viable solution because problems arise from outdated regulations in the trade policies, implementation of import policies in Bangladesh and Countervailing Duties (CVD) which is trade import duties imposed under World Trade Organization (WTO) rules to neutralize the negative effects of subsidies. So, it is high time to reform this for enhancing export to India.
However, there needs to be a level playing ground so that Bangladesh can increase its exports to India without facing tariff and non-tariff barriers. The concerns should be taken seriously both at the business and political fronts which would surely be beneficial to both Bangladesh and India. Bangladesh government sources maintain that the Bangladesh government has been trying to solve the concerning issues.
Special efforts should also be undertaken to enhance exports to India, where Bangladesh could potentially have a strong foothold thanks to her geographical proximity to, and familiarity with the market. Bangladesh probably needs to emphasize on building export capabilities at the level of companies for developing their international selling skills. Now India should recognize the principle of asymmetry and non-reciprocity in trade with Bangladesh and there should be guaranteed market access of Bangladeshi products to India.
However, with the expected economic development of this region, which can be fostered through better and more efficient transport connectivity, significant export opportunities are likely to be created from which Bangladesh could potentially benefit.
As a final point, Bangladesh needs to explore and exploit the opportunities in the growing export market of India by strengthening bilateral negotiations through government-to-government and stakeholders-to-stakeholders initiatives. Enhancement of export is essential for Bangladesh to achieve a middle-income status as envisaged in the Vision 2021.
The writer is Assistant Deputy Secretary, BKMEA
Email: [email protected]
