Bangladesh is facing a severe political crisis for the first time in nearly five decades. The ousting of former Prime Minister Sheikh Hasina symbolises a deeper, systemic change driven by economic discontent and the resultant power vacuum has left businesses and political observers seeking clarity.
India’s business interests in Bangladesh are being tested. Despite the strong historical ties between the two countries, the recent transitions in Dhaka have raised significant questions about the future. The first concern is if these economic relations can act as a stabilising force and pave the way for political normalisation, or if current instability will overshadow any deeper engagement. As Indian businesses grapple with operational disruptions and assess future investments, New Delhi faces a strategic challenge.
Navigating the political void
The immediate visible impact of the upheaval is a leadership void in Bangladesh. While political authoritarianism has been prevalent in the past, the current instability is primarily driven by economic grievances, including soaring inflation and unemployment. The lack of clarity regarding the next election cycle, deteriorating law and order, and the military’s involvement in civilian administration have created an atmosphere of unpredictability.
India, Bangladesh’s second-largest trading partner, has significant stakes in the situation. Indian companies are increasingly concerned about transaction delays, disrupted supply lines and operations, and the uncertain investment climate. With widespread political unrest and limited online and physical connectivity ensuing in Bangladesh since July, the Foreign Investors’ Chamber of Commerce and Industry estimated a staggering $100 million setback in the FMCG industry. Industry representatives in India have adopted a ‘wait and watch’ approach, reflecting the new power structure’s ambiguous interests and priorities.
This ambiguity has led to Indian businesses operating in Bangladesh facing a sudden yet significant drop in shares and stock prices. For instance, the stock for Pearl Global Industries fell by over 3 per cent, for Marico by over 4 per cent, and the shares for Emami fell by over 4 per cent.
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The economic underpinnings
Bangladesh’s economic challenges have aggravated since the onset of the recent political crisis—inflation is rampant, foreign exchange reserves are dwindling, and unemployment is rising. These factors not only exacerbate domestic discontent but also challenge India’s business operations in the country. The uncertainty has already disrupted textiles, garments, and related industry operations with future investments put on hold. Businesses are preparing for possible delays in payment cycles due to unstable banking, which will have a cascading effect on companies, especially those engaged in large-scale manufacturing. Furthermore, the scarcity of raw materials will make import substitution difficult, adding another layer of complexity to the business environment. India’s garment industry, in particular, which relies heavily on Bangladesh for manufacturing, could see inflationary pressures and demands for wage hikes, further straining bilateral ties.
In the near term, however, Indian industries are likely to gain. According to experts, if 10 to 11 per cent of Bangladesh’s textile exports shift to alternative markets like Tiruppur, India stands to gain an additional business of $300-400 million per month. However, the ongoing crisis has generated significant logistical challenges within India, particularly impacting the eastern states. The necessity to reroute shipments, combined with heightened security protocols, has resulted in increased transportation costs. Reports suggest that these disruptions have acutely impacted multiple sectors, such as retail and manufacturing, where the timely delivery of goods is essential for operational efficiency. Subsequently, major importing nations will need to diversify trade patterns and strengthen partnerships with other South Asian nations. It is critical for Indian industries to ensure supply chain resilience by diversifying supply sources and adaptable investments with consistent geopolitical risk monitoring.
Maintaining steady and positive engagement with the regime in power remains crucial. For New Delhi, adopting a pragmatic approach will ensure that its long-term strategic interests, including securing supply chains, are safeguarded.
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India’s diplomatic imperative
Bilateral and multilateral infrastructure projects in Bangladesh have been halted for the time being. “Work on some of the projects has stalled because of the law and order situation there,” External Affairs Ministry spokesperson Randhir Jaiswal said during a media briefing on 30 August. “Once this situation stabilises and normalcy is restored, we will engage in consultations with the interim government about the development initiatives and how best to take these forward and what kind of understanding we can have with them.” These projects are not only vital for regional connectivity but symbolise India’s strategic outreach in the region. A prolonged political crisis could jeopardise project completion or render them vulnerable to influence from external players.
For New Delhi, the annual renewal of the South Asian Free Trade Agreement (SAFTA) and negotiating a Comprehensive Economic Partnership Agreement (CEPA) will be critical. Such frameworks could institutionalise economic ties, making them resilient to political disruptions.
Parallelly, India must proactively deepen ties with influential actors, like Muhammad Yunus, Chief Adviser of the interim government, and explore extending lines of credit to build confidence in the system. These efforts must be carefully calibrated to avoid any perception of interference in domestic matters.
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Toward stability
To navigate this complex landscape, India must adopt a multi-pronged strategy. Diplomatic channels should remain open regardless of who is in power, and informal networks must be strengthened to ensure continuity in bilateral dialogues. Given the volatility of the political situation, deepening ties with influential figures should be considered with caution.
Furthermore, India’s response should not be limited to reactive measures. Extending lines of credit, supporting ventures in key sectors, and ensuring that infrastructure projects are not abandoned will go a long way in maintaining India’s economic presence. New Delhi should also work toward integrating Bangladesh into broader regional supply chains, reducing its over-reliance on a single player and building a resilient economic partnership.
While economic ties alone may not normalise political relations, they can provide a critical anchor during times of upheaval and reduce the risk of a complete breakdown in bilateral ties.
India’s economic and strategic engagement with Bangladesh must go beyond immediate business calculations. It should be driven by a long-term vision that integrates economic resilience, strategic depth, and diplomatic agility, ensuring that New Delhi is not caught off-guard as Dhaka navigates its turbulent political transition.
Shibani Mehta is a senior research analyst at Carnegie India. Vrinda Sahai is a research assistant at Carnegie India. Views are personal.
(Edited by Theres Sudeep)