Indian PM’s Visit to Bangladesh

Arindam Banik



Indian Prime Minister Manmohan Singh will be visiting Bangladesh shortly in a situation when no Indian prime minister has visited Dhaka in twelve years. This aspect is often debated in various places in India. Many Indians feel that India is obsessed with Pakistan. Most of the energies in her foreign Ministry are being spent on Pakistan. Indian media too are busy in the same direction. A recent visit to Delhi by Hina Rabbani Khar, Pakistan’s foreign minister, generated unnecessary Indian media hype over the choice of her handbag and sunglasses. It seems that Mr. Singh is now serious to change the trend because he feels that there are enormous economic potentials in her eastern neighbourhood.

India’s bureaucrats are partly responsible for underestimating Bangladesh and her economic might’s. Many Indian feels that they have very few intelligent bureaucrats now because of many government interventions in the recruitment process. They have little new ideas. In general India has failed to create her well deserved space under the changing global scenario. Experts alleged that her foreign policies are actually responsive type.

India has so far failed to explore strong business potentials of Bangladesh. The number speaks for itself. India is a relative silver carp in investment terms in a country that received nearly $600m in foreign investment last year. More interestingly, Foreign Direct Investment on cumulative term since 1977, India accounted for only 1.5 per cent of Bangladesh’s inward FDI last year.

More interestingly, despite recent global markets shocks, Bangladesh’s growth is exceeding expectations. The current fiscal year will see GDP growth cross 7 per cent – up from projected estimates of 6.6 per cent – whilst next year’s target has also been revised upwards from 7 to 7.2 per cent. In January 2007, foreign currency reserves stood at $3.74 billion, and then increased to $5.8 billion by January 2008, in November 2009 it surpassed $10.0 billion, and as of April 2011 it surpassed the US $12 billion according to Bangladesh Bank. In addition imports and aid-dependence of the country has systematically been reduced since the beginning of 1990s.

When leading top two trading partner countries such as China and India had earned from Bangladesh but so far they have miserably failed to give access her products in to their countries. For example, in 2010- 2011, Bangladesh Imports from her major trading partners such as China 11.4 per cent, Singapore 9.1 per cent , India 8.5 per cent, Hong Kong, 7.1 per cent , Japan 6.5 per cent of the total import of US$ 32 billion. Export-wise, these countries are not even top seven trading partners of Bangladesh. In recent time Bangladesh exported most her products to EU (38.6 per cent), USA (31.8 percent), U.K (7.9 per cent), Kuwait (4.9 per cent), and Japan (4.5 per cent) of the total US$ 22.93 billion.

India enjoys a special position in her neighbourhood due to historical, ethnic and emotional relationships. It may be possible to develop strong economic linkages leveraging on these old relationships. The Indian economy has many complementarities vis-à-vis Bangladesh and these could be used synergistically to result in a win-win situation for both. On the other hand, there are many areas, covering primary, secondary and tertiary sectors of the economy where India has done exceedingly well and there is scope for developing economic linkages based on the same. Many argue that there are prospects of high degree of complementarities in many sectors such as textile, automobile and leather. The magnitude of intra-industry trade and implication of global supply chain are just ignored.
A typical case you might think. Remember that Bangladesh has to import cotton and components from India in order to produce final product. It is necessary to give them a space here. The large volume intra- industry trade in the textile sector between Bangladesh and India in recent time tells us an interesting story. The Indian garments exporters are now facing challenges from countries such as China and Vietnam in the global market. Her currency appreciation, rising cost of labour and real estate issues has actually forced Indian garment exporters to hire production capacity in Bangladesh. In addition many Indian garments exporters are now engaged in Joint collaboration with Bangladesh. It may have some economic rationale when Prime Minister Hasina argues that exporters can even go for buy back arrangement to enter into India with the final product if there is a fear of violating rule of origin (means Bangladeshis may import components from China and then dump the final product in India). It’s a reality now in the global market to have tag “Made in Bangladesh”. Last financial year total export of readymade garments touched US$171,914.46 million and now the 4th largest apparels exports in the world. Let us accept the notion that trade is a win-win game .

Many new avenues of co-operation may be explored. For example, India and Bangladesh together can think about a South Asian Golden Quadrilateral, a sub-regional grouping with Nepal and Bhutan. This may resolve many issues such as sharing of water resources, power and connectivity.

Many feels the citizens of both countries visits each other because of many explanatory factors such as undivided family bond, cultural and historical ties. Likewise, citizens visit India for consumption abroad such as for medical treatment, to see religious places and to study in Indian educational Institutions. They should have no trouble to visit each other. But visa issue is the major irritant now between the two countries. Interestingly, there is a huge arbitrage opportunity for the local professionals and other local service providers in these two economies due to demand and supply gap. As a result people in these economies are not in a position to gain. To achieve greater economic welfare, the barriers have to be removed, defined by FDI and movement of natural persons. The organization of a regional skills council for standardization of skills would be very important to reduce the arbitrage opportunities. Once these are identified, then investments may be encouraged and in the process movement of natural persons without barriers such as simplified visa, favourable work permit, dual taxation, among others, may be resolved. This is a kind of win-win situation in the light of economic welfare gains in these two economies.

A group of people in Bangladesh even feel that India bashing is the best bait for their political survival. They should understand that there are two realities in Asia one, the emerging power of China and two emerging power of India. The truth is that if these two economies are growing then their neighbours has to grow. So growing together is the only option. If a country is unable or slow to respond will have to make room for others. In the process some countries will move quicker. The fact is that innovation will emerge as the key differentiating factor. In the long term, it may even be possible for some economies in the world to survive only on the basis of their capital or technology, but labour alone may be unable to provide this sustenance. Let’s hope that Manmohan’s visit will portray this reality.

The author is Professor at International Management Institute, New Delhi