A small shipment to Bangladesh containing vehicle chassis from Tata Motors worth Rs 1.23 crore has the potential of reversing the rigid attitudes that have dominated trade in the Indian subcontinent since it was partitioned 75 years ago. It could restore some of the economic linkages that were in place between India and Bangladesh, erstwhile East Pakistan, before 1947.
The reason this shipment is so significant is that both the seller and the buyer agreed, for the first time, to make the sale and the purchase in Indian rupees.
The pessimists will pooh-pooh this initiative, the realists will shrug and say that time will tell. Only those who have been burnt by history as well as marginalised by contemporary politics will wonder if some economic normalcy can possibly return in their lifetimes.
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Too small to make a difference?
Let’s start with the pessimist-realist arguments. First, even though the sale reduces India and Bangladesh’s dependence on the US dollar, the numbers remain very small and the importance of the dollar continues to be paramount.
Bilateral trade between Delhi and Dhaka amounted to $18 billion in 2021-22, of which $16 billion was in favour of India. According to Mezbaul Haque, executive director of Bangladesh Bank, one of two Bangladeshi banks where nostro accounts can be opened, Bangladeshi exporters can only use $2 billion worth of Indian rupees for trading — the amount that is equivalent to their exports to India.
Second, Indian banks are reducing their exposure to Bangladesh, which has been hit hard by the Russia-Ukraine conflict. Dhaka’s foreign exchange reserves have dropped from $48 billion in 2021 to $23.56 billion today, equivalent only to four months of imports — and just short of the minimum $24 billion needed in reserves for Bangladesh to apply for an extended International Monetary Fund (IMF) loan facility amounting to $4.7 billion.
The Ukraine war has hugely impacted economies around the world — but none more so than in South Asia. Sri Lanka has, in principle, been promised a $2.9 billion bailout by the IMF, but only if China is onboard the restructuring of the economy. Pakistan secured a $3 billion IMF bailout in July 2023 when its reserves were down to $3 billion and inflation had shot up to 38 per cent, following which Saudi Arabia gave $2 billion, the United Arab Emirates (UAE) $1 billion, while China rolled over a $3 billion loan to tide over Islamabad’s economic mess.
Third, the growing influence of China over Bangladesh is not just instructive. It seems like a model that could be adopted by the rest of the region. Bangladesh and China decided to convert a part of their trade into yuan a year ago – similar to what is happening with India today. But what is most interesting is that Bangladesh has told Russia that it will pay for the $12.65-billion civil nuclear plant, which Russian atomic company Rosatom is setting up in Rooppur, in Chinese yuan. And Moscow, hurt badly since it was banned from the SWIFT international payments system when it invaded Ukraine, has settled for it.
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Hasina needs India on her side
Whether or not this is the beginning of the de-dollarisation of the globe’s most popular currency is a topic for debate elsewhere. What is certain here is that with elections around the corner at home, Bangladeshi Prime Minister Sheikh Hasina is thinking up new ways to shore up her own influence and win an unprecedented fifth term in power.
Despite remarks by Indian Home Minister Amit Shah likening Bangladeshi infiltrators to “termites”, Hasina knows that Indian support will count a huge lot during the elections. Perhaps it is the main reason that she has not publicly voiced her displeasure against Shah’s comments. She understands that a key reason she may win again is that India is so solidly behind her.
Certainly, it means that Hasina is both keen and interested in smoothening the process of India-Bangladesh trade. It’s good for her and good for India. Red tapism and ingenious bureaucracy amount to the squelching of most good ideas – including the fact that it takes 138 hours and 55 signatures to move one truck from India to Bangladesh, according to World Bank’s Cecile Fruman.
According to Fruman, just 5 per cent of South Asia’s total trade takes place within the region and “greater integration and seamless connectivity” could increase trade to $44 billion. The rupee-rupee trade between India and Bangladesh is expected to spur some of that activity.
As for the potential of regional economic integration in the subcontinent, India is clearly putting all her eggs in the Sheikh Hasina basket. Meanwhile, a Taka-Rupee dual currency card will be launched in September in Dhaka, which will allow Bangladeshi nationals visiting India to spend in rupees, thereby avoiding the interim US dollar convertibility. This is bound to give a fillip to the rupee-rupee trade that has just had a small beginning at the Petrapole border in West Bengal with the Tata Motors shipment.
Of course, these are tentative, baby steps. Opening up the economy to Indian and Bangladeshi players comes with its own risks – including those related to China. Only recently, Hasina inaugurated a China-built six-slot submarine base costing $1.2 billion in Cox’s Bazar, right at the mouth of the Bay of Bengal — and India seems worried.
But despite China’s expanding influence in Bangladesh, Delhi and Dhaka both know that India plays a key role in the development of the region. And since economics and politics are so closely intertwined, it is clear that India is keen on shoring up its ally in the east. Delhi is pushing connectivity projects, restoration of railway links by gifting 10 locomotives to Bangladesh, with Dhaka reciprocating the gesture by allowing India access to the Mongla and Chattogram ports and the expansion of Bangladesh-specific power projects — Gautam Adani offered 1600 MW of electricity to the neighbouring country in a recent meeting with Hasina.
Does this all mean that India is hoping Hasina will come back to power? Of course, the people of Bangladesh will decide who they want to lead their country, but Delhi certainly hopes that the rising economic tide that lifts all boats will also impact their decision at the hustings.
Jyoti Malhotra is a senior consulting editor at ThePrint. She tweets @jomalhotra. Views are personal.
(Edited by Humra Laeeq)