Commentary: Boosting Business in the Bangladesh Corridor is Crucial to India's 'Act East' Policy
26 September 2017
This commentary by Mr. Sanjay Kathuria, Lead Economist and Coordinator, South Asia Regional Integration, World Bank Trade and Competitiveness Global Practice, highlights how the growing cooperation between Bangladesh and India provides a glimpse into a more integrated South Asia. He discusses how this economic relationship can change the economy of India's northeast region and advance India's 'Act East' vision.
by Mr. Sanjay Kathuria
Let’s begin with connectivity. After 1947, Northeast India has had to access the rest of India largely via the “Chicken’s Neck” near Siliguri, greatly increasing travel times. For example, to reach a port, traders need to travel 1,600 km from Agartala in Tripura to Kolkata in West Bengal, via Siliguri, instead of travelling less than 600 kms to reach the same destination via Bangladesh, or even better, travel only 200 km to access the nearby port of Chittagong in Bangladesh.
This is set to change as close cooperation between Bangladesh and India (including various ongoing initiatives such as the trans-shipment of Indian goods through Bangladesh’s Ashuganj port to Northeast India, expanding of rail links within Northeast India and between the two countries, the BBIN Motor Vehicles Agreement) can dramatically reduce the cost of transport between Northeast India and the rest of India. The resultant decline in prices of goods and services can have a strong impact on consumer welfare and poverty reduction in the Northeast. Such cooperation also opens up several additional possibilities of linking India with ASEAN via Myanmar: for example, with Mizoram and Manipur acting as a connector between Bangladesh and Myanmar. Think of medicines being transported by land from Hyderabad in Andhra Pradesh to Thailand, via Bangladesh, Manipur and Myanmar.
Digital connectivity is increasingly important. Broadband connectivity of 10 gbps for Northeast India is now being provided from Bangladesh’s Cox’s Bazar to Tripura and beyond, to help improve the speed and reliability of internet access in Northeast India. And Bangladesh has the capacity to provide more.
Trade relations have been gathering strength, going up from $1 billion in 2002, to over $6 billion now. With India providing duty-free treatment to all Bangladeshi products (save 25 “sin” products such as alcohol, arms, etc.) since 2011, India’s (dollar value) imports from Bangladesh grew an average of 6% per year over 2012-16, even as its imports from the world dropped by 8% per year. For Northeast India, Bangladesh is potentially its most important economic partner, given the latter’s size and location. However, the potential of the relationship between Northeast India (NEI) and Bangladesh has barely begun to be tapped. For example, agricultural products, where NEI has a strong advantage can feed into Bangladesh’s vibrant food processing industry, while NEI can provide a market for its processed foods.
Investment is another untapped area. At a national level, India is a growing investor in Bangladesh, and now has land earmarked for development of special “Indian economic zones” in Bangladesh. At the sub-national level, however, it is Bangladeshi companies which could become some of the key investors in Northeast India — a process that has just scratched the surface so far.
Energy cooperation is delivering results. India already exports 600 MW of power (including 100 MW from Tripura) to Bangladesh, and much more is in the offing. In the future, this energy trade could well link up with potential hydropower exports from Bhutan and Nepal to form a BBIN (Bangladesh, Bhutan, India and Nepal) power market. Deeper cooperation would also facilitate access to energy supplies through projects such as the natural gas pipeline linking Myanmar to India via Bangladesh.
Leveraging the potential of the India-Bangladesh economic relationship has the power to change the economy of Northeast India, and also advance India’s Act East vision. Some critical steps to move this agenda forward would involve expanding direct connectivity between Northeast India and the rest of India via Bangladesh, while giving Bangladesh similar access to Nepal and Bhutan via India; reducing the time and cost of trading across the two borders, which will require reducing perceived and real non-tariff barriers and promoting efficient customs procedures and border facilities; encouraging Bangladeshi companies to invest in Northeast India, and Indian companies to expand their presence in Bangladesh.
Finally, the continued and growing momentum in the India-Bangladesh relationship also offers a tantalising glimpse of the possibilities of a more integrated South Asia.