How India is making Yunus pay for his ‘landlocked Northeast’ comment

In what appears to be India’s first significant retaliation against the increasingly “anti-India stance” of the Muhammed Yunus-led interim government in Bangladesh, New Delhi has revoked the trans-shipment facility it had granted to Dhaka for exporting various items to West Asia, Europe and other countries barring Nepal and Bhutan.During his recent visit to China, Yunus said Bangladesh was the “only guardian” of the Bay of Bengal and suggested that Beijing could use Bangladesh to extend its economic influence to India’s “landlocked” northeastern region.The remark hurt because China has a long-standing interest in India’s Northeast and, in fact, claims Arunachal Pradesh, one of the eight states (including Sikkim) that comprise the region, as its territory. It often marks Arunachal as south Tibet in official maps and unilaterally renames towns and villages in the state.Following Yunus’s statement, Prime Minister Narendra Modi had urged him to avoid rhetoric that could affect bilateral relations, which have remained frosty since the ouster of the Sheikh Hasina government in August last year. The two leaders had met on the sidelines of the BIMSTEC summit in Bangkok recently.And now, the Central Board of Indirect Taxes and Customs (CBIC) has withdrawn the trans-shipment facility offered to Bangladesh.So, how will this move affect Bangladesh?What’s a trans-shipment facility? CBIC, through a notification dated April 8, formally rescinded its earlier circular from June 29, 2020.The trans-shipment facility meant that Bangladesh could export items to foreign countries via India’s land borders (land customs stations) quickly and at low costs. It would also allow Bangladesh access to several Indian ports and airports, including the Delhi airport, to move its export cargo.The facility was aimed at easing trade routes for Bangladesh, particularly for exports to Bhutan, Nepal, Myanmar, and major markets in West Asia and Europe.While India has exempted Bangladeshi exports to Nepal and Bhutan in line with World Trade Organisation (WTO) obligations, the broader privilege extended to Bangladesh as part of regional trade facilitation has now been withdrawn.Introduced in June 2020, this facility streamlined trade between Bangladesh and Western markets, which are the primary destination for ready-made garments — products that account for around 85% of Bangladesh’s exports worth over $50bn.Indian exporters, particularly from the apparel sector, had previously urged the government to revoke this facility, citing concerns over congestion and competitiveness. medium nocaptionhttp://youtu.be/CDsivjH95os?si=SE-262bEbNZcMckrWhy now?While the move is being viewed as New Delhi’s strong response to Yunus’s “lanlocked” Northeast remark, the ministry of external affairs (MEA) says the trans-shipment facility had begun causing significant operational issues at Indian ports and airports.According to MEA spokesperson Randhir Jaiswal, the use of Indian infrastructure by Bangladesh for its exports had led to congestion, logistical delays, and increased costs. These issues, in turn, affected India’s own export operations and created backlogs at key terminals.In response to India’s move, Bangladesh interim government’s commerce adviser Sheikh Bashir Uddin said on April 10 that his country will not face any problems due to the cancellation of the trans-shipment facility and that Dhaka will try to overcome the situation on its own.Why did exporters push for CBIC rollback?According to trade experts, the decision will help Indian export sectors like apparel, footwear, and gems and jewellery.Bangladesh is a big competitor of India in the textile sector.Notably, Indian exporters — particularly in the textile and apparel sectors — had long lobbied for this rollback, citing diminished competitiveness due to Bangladesh’s usage of Indian cargo capacity.The Apparel Export Promotion Council (AEPC) had last year requested the government to suspend the CBIC circular, which allowed trans-shipment of Bangladesh’s export cargo to third countries through the Delhi Air Cargo complex.“Almost 20-30 loaded trucks come to Delhi [from Bangladesh] every day which slows down smooth flow of cargo and this glut is being taken undue advantage of by the airlines. This has led to an excessive increase in air freight rates, delay in handling and processing of export cargo and severe congestion at the cargo terminal at the IGI Airport, Delhi,” AEPC chairperson Sudhir Sekhri had said. medium120198507What’s next for Bangladeshi exporters?Bangladesh’s exporters will now be required to comply with stringent provisions as prescribed in India’s Sea Cargo Manifest and Transhipment Regulations, 2018, officials say.These regulations “stipulate advance notice by authorised carriers for goods arriving in or being exported out of India through gateway seaports”.Bangladesh may now try to use Sri Lanka’s port for trans-shipment but any such move would incur huge cost, according to people familiar with the matter.Ajay Srivastava, founder of Global Trade Research Initiative (GTRI), a think tank, says the withdrawal of this facility is expected to disrupt Bangladesh’s export and import logistics, which depend on Indian infrastructure for third-country trade.“The previous mechanism had offered a streamlined route through India, cutting transit time and cost. Now, without it, Bangladeshi exporters may face logistical delays, higher costs, and uncertainty. Additionally, Nepal and Bhutan, both landlocked nations, may raise concerns about restricted transit access to Bangladesh, especially as this move will hamper their trade with Bangladesh,” he adds. medium120198472Trade tiesThe two-way trade in goods between India and Bangladesh has grown faster than that of India’s total merchandise trade with the rest of the world. Between 2009 and 2023, the size of bilateral merchandise trade increased from $2.4bn to $13.1bn.India’s exports to Bangladesh have also grown faster than that of its total exports to the rest of the world. As a result, the share of Bangladesh in India’s merchandise exports has increased from 1.2% in 2009 to 2.6% in 2023.The share of Bangladesh in India’s merchandise exports is now higher than several big economies such as Japan (1.2%), South Korea (1.5%), France (1.7%) and Germany (2.2%) in 2023.India’s export to Bangladesh reached a record $16bn in 2021 before declining to $12.2bn in 2022 and $11bn in 2023. medium120198403The decline in Indian exports was mainly due to overall decrease in demand for imports in Bangladesh, which has been caused by multiple challenges, like high inflation, supply chain disruptions caused by the Russia-Ukraine war and Bangladesh’s sluggish economy in the post-Covid period.The current socio-political instability is likely to further deteriorate the economic environment in Bangladesh and adversely affect its demand for imports from India, analysts say.The Indian export basket to Bangladesh consists of a variety of products such as cotton, fuel products, vegetables, coffee and tea, automobile goods, machinery and electrical equipment, metal products.India’s imports from Bangladesh, on the other hand, are highly concentrated in a few sectors. For instance, in 2023, more than 59% of Indian imports consisted of textile and clothing products. Other items of import include leather products and footwear.Research by Rajesh Sharma