Two developments on 12 October 2026 have brought into focus the contradictions in Bangladesh’s economic and strategic policies. On the one hand, Bangladesh has sought continued duty-free access for its exports to India after graduating from the Least Developed Country, or LDC, category. On the other, it has signed a $335.78 million loan agreement with China for the modernisation of Mongla Port, barely 80 kilometres from the Indian border.
Neither development, considered independently, is particularly unusual. Bangladesh has every right to pursue its economic interests, seek foreign investment and diversify its international partnerships. However, when viewed together, these decisions raise a fundamental question: Can Bangladesh afford to overlook its geographical and economic dependence on India while increasingly turning towards China for strategically sensitive infrastructure?
Dhaka would do well to distinguish between relationships that offer immediate financial opportunities and those that remain indispensable to its long-term prosperity, stability and security.
LDC graduation: The need for economic pragmatism
Bangladesh’s scheduled graduation from LDC status on 24 November 2026 represents an important economic milestone. However, graduation also brings challenges. Preferential market access, which has helped Bangladesh’s export-oriented industries, particularly garments, may progressively diminish. Bangladesh has requested an extension of its graduation preparatory period, which remains subject to a United Nations decision. Simultaneously, it has approached India seeking continued preferential treatment after graduation. At the 16th Bangladesh-India Joint Working Group on Trade (held in New Delhi on 8 and 9 October 2026), Dhaka also sought relaxation of restrictions on exports through Indian land ports, withdrawal of anti-dumping duties and improved transit facilities for accessing Nepal and Bhutan.
These demands are understandable. India provides a large neighbouring market, considerably reducing transportation costs and improving the competitiveness of Bangladeshi products. However, preferential access cannot remain an indefinitely one-sided arrangement. Bangladesh must recognise that India, too, has legitimate commercial interests requiring accommodation. Any post-LDC preferential arrangement should therefore be negotiated on the principles of reciprocity, transparency and mutual economic advantage.
Trade must be a two-way process
According to Bangladesh’s National Board of Revenue figures cited in recent reporting, during 2025-26 Bangladesh exported goods worth approximately $1.75 billion to India while importing goods worth $10.96 billion. The imbalance is substantial, although trade deficits do not necessarily indicate unfair trading practices. Many Indian exports, including cotton, yarn, machinery, chemicals and other intermediate products, support Bangladesh’s manufacturing and export industries.
Nevertheless, Dhaka cannot reasonably expect unrestricted access to Indian markets while maintaining avoidable restrictions on Indian products. India has raised concerns over high Bangladeshi import duties on commodities including fruits, rice, iron and steel, besides restrictive arrangements governing trade through land border posts in India’s Northeastern states. Particularly discriminatory in effect is the positive-list system applicable to several Northeastern trading points, compared with the more liberal negative-list arrangement governing trade through West Bengal.
Bangladesh should progressively eliminate such asymmetries. India could consider continuing preferential access for Bangladeshi garments and other labour-intensive products, provided Bangladesh reciprocates through realistic tariff reductions, improved customs procedures, simplified standards and fewer non-tariff barriers. Reciprocity need not mean identical tariffs on every product or balanced trade in monetary terms. Rather, both countries must receive fair opportunities to expand trade.
Reviving border haats: Small initiatives with large dividends
One of the most unfortunate casualties of deteriorating India-Bangladesh relations has been the disruption of border haats. These traditional markets, particularly along the borders of Meghalaya and Tripura, have historically supported local communities whose economic and cultural linkages predate the international boundary. Their importance extends far beyond the modest monetary value of transactions.
Border haats generate livelihoods, provide convenient markets for agricultural products and handicrafts, reduce incentives for petty smuggling and facilitate regular interaction between neighbouring communities. India and Bangladesh had established four such markets before subsequently agreeing on arrangements for expansion. Their revival should become a priority.
Both governments should reopen viable existing haats, identify additional locations, introduce transparent trading regulations and progressively integrate these markets with wider economic activity. For India’s Northeast, border haats could become instruments of livelihood generation and confidence-building. For Bangladesh, they provide direct access to adjacent Indian markets without substantial infrastructure expenditure. Few investments can produce comparable social dividends at such limited cost.
Geography: Bangladesh’s greatest strategic reality
Bangladesh shares more than 4,000 kilometres of land boundary with India. Its territory is surrounded by India on three sides, while the Bay of Bengal provides access to maritime commerce. China, despite its considerable economic and military strength, does not share a land border with Bangladesh. This geographical distinction is fundamental.
Bangladesh’s overland connectivity with Nepal and Bhutan depends upon Indian territory. Its prospects for becoming an important regional logistics hub depend substantially upon cooperation with India. Equally significant are the shared linguistic traditions, historical experiences, family connections, food habits and cultural affinities that transcend the international boundary.
The liberation of Bangladesh in 1971, during which Indian forces and Bangladeshi Mukti Jodhas sacrificed their lives, remains an important historical foundation of this relationship. No investment, regardless of its size, can replicate these advantages. China can finance a port, construct highways or provide industrial equipment. It cannot replace the everyday economic and social relationships that bind Bangladesh to India. Geography creates permanent realities; diplomatic preferences, however, are often temporary.
Water security: Bangladesh’s approaching crisis
Perhaps the greatest long-term challenge confronting Bangladesh is not the development of ports, but the availability and management of freshwater. Bangladesh is among the world’s most vulnerable countries to climatic and hydrological changes.
Its densely populated delta experiences the contradictory challenges of excessive monsoon flooding and inadequate dry-season freshwater. Sea-level rise, saline intrusion, riverbank erosion, sedimentation and groundwater contamination complicate matters further.
India and Bangladesh share 54 transboundary rivers. The Ganga, Brahmaputra and Meghna river systems are central to Bangladesh’s agriculture, inland navigation, fisheries and freshwater security. The situation is likely to become increasingly serious as climate change alters rainfall patterns and the seasonal distribution of river flows.
For Bangladesh, insufficient freshwater is not merely an agricultural problem. It threatens food production, drinking-water availability, industrial development and the livelihoods of millions. Salinity intrusion in southwestern Bangladesh is particularly worrying because it reduces the availability of freshwater for cultivation and domestic consumption. These vulnerabilities could eventually contribute to internal displacement and growing migration pressures. Consequently, Bangladesh’s future economic security will depend as much upon effective water diplomacy as upon foreign investment.
Why India is indispensable to Bangladesh’s water security
The 1996 Ganga Water Sharing Treaty expires in December 2026, making its renewal an immediate diplomatic priority. The proposed Teesta water-sharing arrangement has remained unresolved for years, reflecting competing domestic and interstate requirements.
Bangladesh must appreciate that China cannot substitute for India in negotiating the allocation of water from rivers flowing through Indian territory. Beijing could finance embankments, dredging, reservoirs and river-management infrastructure. It also has a role in upstream Brahmaputra information-sharing. However, no Chinese engineering project can independently guarantee Bangladesh greater dry-season flows from the Teesta or Ganga. That requires negotiations with India.
The logical approach would be to broaden bilateral discussions beyond water-sharing towards integrated basin management, including flood forecasting, sediment management, environmental flows, river restoration and climate adaptation. India must equally appreciate Bangladesh’s legitimate water requirements and pursue arrangements accommodating the interests of Indian riparian states.
The approaching Ganga Treaty renewal offers an opportunity to replace periodic disputes with a more enduring cooperative framework. For Bangladesh, cooperation with India on water security is therefore not simply desirable. It is structurally indispensable.
Mongla Port: A development opportunity or strategic miscalculation?
The latest Chinese financing agreement provides approximately $335.78 million for expanding and modernising Mongla, Bangladesh’s second-largest seaport.
The proposed works include two container terminals, container-handling facilities and associated infrastructure. The loan reportedly carries an interest rate of 2%, repayable over 20 years, including a five-year grace period. On paper, these terms appear attractive. Mongla undoubtedly requires modernisation. Better cargo-handling facilities could improve Bangladesh’s maritime trade, encourage industrial development and reduce pressures on Chattogram Port.
However, the decision assumes greater strategic significance because Bangladesh had earlier cancelled an Indian-backed economic zone project near Mongla. The authorities attributed that cancellation to inadequate progress by the nominated developer. Rather than allowing the Indian initiative to collapse, Dhaka could have explored restructuring the project, introducing alternative Indian investors, or developing a jointly financed industrial and logistics corridor.
India already has an agreement with Bangladesh for using Mongla and Chattogram ports for transit cargo, particularly serving the Northeast. An Indian-supported commercial arrangement could therefore have created assured cargo demand and strengthened regional connectivity, while remaining subject to Bangladesh’s sovereign control. The missed opportunity was not simply the loss of an Indian investment. It was the failure to align port development with the geography of its most accessible regional markets.
Does Chinese involvement in Mongla threaten India?
The Chinese agreement has understandably generated concern in Indian strategic circles. However, the threat must be assessed realistically. Financing a commercial port does not automatically confer military basing rights or operational control upon China. There is presently no established evidence that the Mongla loan constitutes an agreement to establish a Chinese naval facility.
Nevertheless, long-term Chinese participation in sensitive maritime infrastructure could potentially provide opportunities for commercial intelligence collection, access to shipping-related data, hydrographic information and influence over future infrastructure decisions. Such risks become more relevant if financing is subsequently linked to long-duration operating concessions or strategic access arrangements.
India should therefore monitor developments carefully without exaggerating the immediate threat. The Indian Navy’s established presence in the Bay of Bengal, its maritime surveillance capabilities and India’s wider regional geography provide considerable advantages. Moreover, Mongla remains dependent on the navigability of the Pashur River and its commercial hinterland. Its proximity to India does not automatically translate into military utility. For New Delhi, the greater concern should be the possibility of incremental Chinese strategic influence rather than an imminent military challenge.
The debt trap: Why 2% may not tell the whole story
A concessional interest rate does not, by itself, guarantee that a loan is economically sound. Its sustainability depends upon project revenues, repayment currency, construction expenditure, maintenance requirements and the borrower’s overall financial position.
Bangladesh faces significant economic pressures, including constrained government revenues, banking-sector vulnerabilities, inflation and limited fiscal space. The IMF’s January 2026 assessment classified Bangladesh as facing a moderate risk of external and overall debt distress, with limited capacity to absorb shocks.
This does not mean that Bangladesh is already trapped by Chinese debt, or that the Mongla loan will necessarily become unsustainable. Nevertheless, the possibility of future distress deserves serious consideration. If port revenues fall below projections, if construction costs escalate, or if the taka depreciates substantially against the renminbi, the effective repayment burden could increase. The five-year grace period postpones principal repayment but does not eliminate the underlying obligation.
Equally important are contractual provisions concerning dispute settlement, sovereign guarantees, tied procurement, confidentiality and possible refinancing. Research by AidData has identified Chinese overseas loan contracts containing confidentiality requirements, repayment protections and provisions potentially strengthening creditors’ bargaining positions. Whether such provisions exist in the Mongla agreement must be established through disclosure of the contract.
Bangladesh should therefore subject the project to independent commercial appraisal and publish its important financial commitments.
Hambantota: A lesson Bangladesh must not ignore
Sri Lanka’s Hambantota Port offers an instructive example of what can happen when infrastructure ambitions become disconnected from commercial and fiscal realities. The project, financed substantially through Chinese loans, struggled commercially. In 2017, Sri Lanka entered into an arrangement giving China Merchants Port Holdings a controlling commercial interest under a 99-year lease.
It left a lesson for Sri Lanka that financial vulnerabilities and underperforming infrastructure can compel a country to surrender long-term commercial control over strategically important assets. Bangladesh would be unwise to dismiss that possibility. It should ensure that Mongla’s projected traffic justifies the investment, that debt obligations remain manageable and that no future financial difficulty can be exploited to obtain disproportionate commercial or strategic concessions.
The real lesson of Hambantota is that poorly assessed infrastructure projects can seriously compromise a country’s economic freedom of action.
China’s global lending practices: Warning signs
Chinese infrastructure financing has produced useful assets in many developing countries. However, its record also demonstrates the danger of excessive borrowing for ambitious projects.
Laos offers an important example. Large infrastructure commitments and broader external borrowing have contributed to substantial debt vulnerabilities, requiring repeated debt-service deferrals involving China. The IMF continues to assess the country’s public debt as unsustainable.
Montenegro’s Chinese-financed highway project similarly exposed the risks of expensive infrastructure construction without sufficient economic returns, creating considerable fiscal pressures and forcing reconsideration of subsequent construction phases. Malaysia’s renegotiation of its East Coast Rail Link demonstrates another important lesson: recipient countries need not accept the initial pricing and contractual conditions offered by Chinese enterprises.
These experiences reveal recurring concerns involving project selection, procurement transparency, repayment obligations, concentrated contracting and the negotiating power enjoyed by major creditors. Where financing, construction, equipment procurement and subsequent operations remain concentrated within Chinese entities, the borrowing country must ensure that its own commercial interests remain paramount. Bangladesh should examine these international experiences before undertaking additional commitments.
India’s Neighbourhood First policy: An alternative approach
India’s Neighbourhood First approach rests upon the understanding that the security and prosperity of its neighbours are closely connected with its own. Bangladesh has been one of the largest beneficiaries of India’s development partnership.
New Delhi has extended approximately $8 billion in Lines of Credit for projects involving roads, railways, ports and other infrastructure, besides supporting connectivity initiatives through grants and technical cooperation. The Akhaura-Agartala railway link, inland waterway cooperation, cross-border power arrangements and transit initiatives illustrate the practical benefits of geographical partnership.
India’s assistance is not devoid of commercial interests, nor have all projects progressed without delays. However, its enduring advantages lie in proximity, established institutions, cultural familiarity and the prospect of shared economic returns. Unlike a relationship based primarily upon external lending, Indo-Bangladesh cooperation can create economic activity that is sustained by everyday cross-border trade and connectivity.
The way forward: Partnership rather than strategic competition
Bangladesh does not need to choose between maintaining relations with India and receiving investment from China. It is entitled to engage both. However, the terms of that engagement must reflect economic realities rather than geopolitical signalling.
Five priorities deserve immediate attention: negotiating a reciprocal post-LDC trade arrangement; reopening and expanding border haats; concluding an equitable and climate-responsive water-sharing framework; ensuring complete transparency and commercial accountability for the Mongla project; and restoring momentum to India-supported connectivity and investment initiatives.
New Delhi, for its part, must avoid treating every Chinese investment in Bangladesh as a strategic defeat. Its response should be to offer faster implementation, credible investment partnerships and practical economic opportunities.
Bangladesh’s leadership should recognise that national independence is best preserved through economic resilience, diversified partnerships and freedom from excessive external financial dependence. China can provide capital, infrastructure and technology. India offers something more fundamental: geographical proximity, shared history, cultural familiarity, interconnected economies and an unavoidable common future.
For Bangladesh, the central question is not whether China can help build Mongla Port. It is whether the pursuit of such partnerships will enhance national prosperity without diminishing the country’s economic sovereignty or weakening relations with its most important geographical neighbour. Ultimately, Bangladesh’s future will be determined less by the power of distant benefactors than by the wisdom with which it manages its neighbourhood.
Lt Gen Pradeep C Nair (Retd) is the former Director General of Assam Rifles. He is currently the Vice Chancellor of St Mary’s Rehabilitation University, Hyderabad. He tweets @LtGenPCN. Views are personal.
(Edited by Prashant Dixit)