Bangladesh-India Trade Relations: Trade tensions and the trust deficit in Dhaka-Delhi ties: Why a reset is needed

Professor Dr Golam Rasul :

Bangladesh-India trade, once a symbol of regional cooperation, is now strained by restrictions and mistrust.

India’s curbs on jute exports through land ports have slowed shipments, raised costs, and deepened uncertainty-threatening not just commerce but the trust that underpins one of South Asia’s most vital relationships.

For two nations bound by history, culture, and geography, these tensions run deeper than economics.

They signal an erosion of trust at the heart of one of South Asia’s most consequential relationships. Without renewed diplomacy and dialogue, such frictions could erode decades of progress in trade, energy, and regional connectivity.

Trade restrictions and erosion of trust
India’s recent decision to restrict imports of jute and jute goods from Bangladesh via land ports, allowing entry only through the Nava Sheva seaport in Maharashtra, marks a significant setback in bilateral trade. Over the past months, a series of similar measures have compounded the problem.

In April, India withdrew the facility that allowed Bangladeshi goods to be exported to third countries through Kolkata airport. In May, restrictions were imposed on importing ready-made garments, processed foods, plastics, furniture, and other items through land ports. In June, further curbs targeted woven fabrics, raw jute, and jute yarn.

In retaliation, Bangladesh imposed restrictions on the import of Indian yarn through land routes. This tit-for-tat dynamic, though still limited, highlights a growing trust deficit between Dhaka and Delhi.
For Bangladesh, the Indian market is crucial.

In fiscal year 2023-24, exports of jute and jute goods to India amounted to about USD 855 million-nearly one-fifth of its total jute exports.

Almost 99 per cent of these shipments traditionally moved through land ports such as Benapole, Hili, Burimari, and Sonamasjid. Overall, bilateral trade between the two countries stood at USD 13.51 billion in FY 2024-25, reflecting the depth of economic ties now at risk from these escalating restrictions.

By diverting all shipments to the distant Nava Sheva seaport, transport time has increased from two to three days to as long as six to eight weeks. Costs have surged, and uncertainty has grown. For small and medium exporters, the policy change is not simply an inconvenience-it is a blow to competitiveness and confidence in a long-standing trade relationship.

Historical context and strategic stakes

The Bangladesh-India relationship is one of the most deeply intertwined in Asia. The two countries share a 4,096-kilometre border-the fifth longest in the world-along with centuries of cultural, linguistic, and economic ties.

After Bangladesh’s independence in 1971, India emerged as its strongest political and economic ally. Over the following decades, the partnership diversified into trade, investment, connectivity, and energy cooperation.

Today, India remains Bangladesh’s largest trading partner in South Asia, while Bangladesh has become India’s biggest commercial partner in the region. India also accounts for nearly one-fifth of Bangladesh’s total imports, highlighting Dhaka’s structural reliance on Indian raw materials, foods, fuels, and machinery.

Yet, despite this interdependence, trade frictions recur with unsettling frequency. Beneath the surface lies a structural asymmetry-a much larger Indian economy capable of setting terms, and a smaller Bangladesh reliant on market access and transit routes.

When India acts unilaterally, through sudden policy shifts or non-tariff barriers, it disrupts not only trade flows but also the psychology of trust that sustains bilateral cooperation.

Trade is more than an exchange of goods; it is a reflection of diplomatic confidence and political intent. In a world increasingly defined by protectionism and geopolitical rivalry, economic cooperation between neighbors should serve as a stabilizing anchor. Unfortunately, South Asia often experiences the opposite-a region bound by geography but divided by suspicion.

The jute sector: Economic and social ripple effects The economic and social consequences of these trade tensions are particularly visible in Bangladesh’s jute sector. Jute-once hailed as the “golden fiber”-is not just a product but part of the nation’s heritage.

Although its share of export earnings has declined from around 90 per cent in the 1970s to about 3 per cent today, jute still supports millions of farmers and workers and contributes roughly 1 percent to GDP. Bangladesh remains the world’s largest exporter of raw jute and jute goods, while India is its single biggest market.

The new trade restrictions hit at the heart of this ecosystem. Land routes that once moved jute within days now stand idle, forcing exporters to reroute through costly sea transport.

Shipping delays mean missed contracts, storage losses, and deteriorating product quality. For small producers in Faridpur, Jessore, or Khulna, such delays translate directly into lower farmgate prices and shrinking livelihoods.

The impact goes beyond jute.

Border port restrictions disrupt the rhythm of local economies that depend on cross-border trucking, warehousing, and support services. Over time, these economic ripples can harden into political resentment-fueling negative perceptions that are difficult to reverse.

Connectivity and energy: Hard-won gains in jeopardy The recent trade fallout threatens not only short-term commerce but also the broader architecture of cooperation that Bangladesh and India have painstakingly built over decades. Since their first trade agreement in 1972, successive governments have worked to expand the bilateral relationship beyond traditional trade, anchoring it in connectivity, transit, and energy integration.

A milestone in this process was the 2015 Land Boundary Agreement, which permanently resolved the long-standing enclave and adverse possession disputes-transforming a humanitarian challenge into a diplomatic breakthrough. This historic accord symbolised a shift from mistrust to partnership and laid a strong foundation for future collaboration.

The 2015 Trade and Transit Agreement represented another major step forward. By improving access through road, rail, and inland waterways and by introducing border haats (local markets), it aimed to turn the shared border from a line of division into a bridge of opportunity. Parallel to these initiatives, energy cooperation emerged as one of the most tangible success stories in South Asia.

The interconnection of Bangladesh and India’s national power grids in 2013 opened a new era of regional energy trade. Since then, Bangladesh has been importing electricity from India’s Baharampur, Tripura, and Jharkhand plants, helping to stabilize domestic supply and support industrial growth.

The 1,320 MW Rampal Power Plant in Khulna-a joint venture between the two countries-stands as a symbol of this growing interdependence.

The cooperation has since expanded beyond bilateral borders. Through a tripartite arrangement with Nepal, Bangladesh recently began importing 40 MW of hydropower via India’s transmission network-the first successful example of cross-border electricity trade in South Asia. This marks an important step toward building a regional energy market that could enhance sustainability and reduce collective vulnerability to global fuel price volatility.

These achievements demonstrate what mutual trust and pragmatic cooperation can deliver. But they also highlight what is now at risk. If trade tensions continue to escalate, the broader agenda of regional connectivity, infrastructure integration, and energy security could unravel. The same border that once symbolized shared progress could again become a fault line of friction.

For both countries, safeguarding these hard-won gains requires a return to dialogue, predictability, and partnership. Trade should serve as the foundation-not the fault line-of the Bangladesh-India relationship.

Neighbourhood first or trust deficit? The trade dispute has implications beyond commerce. India’s “Neighbourhood First” and “Act East” policies aim for regional leadership-but unilateral trade barriers undermine that vision and reinforce perceptions of asymmetry.

Bangladesh’s countermeasure-restricting yarn imports-signals it will no longer accept one-sided economics. Yet as the larger economy and at heart of South Asia’s integration, India bears greater responsibility to ensure that cooperation, not coercion, defines regional ties.
Trust is built not by rhetoric but by consistency.

The credibility of India’s regional diplomacy depends on treating neighbors as partners, not dependents. If the trust deficit persists, the fallout will extend beyond bilateral trade-weakening initiatives like BBIN, BIMSTEC, and the broader South Asian free trade agenda. What begins as a trade rift could ripple into a regional setback.

Resetting the terms: From friction to partnership In an era of shifting power dynamics, South Asia can no longer afford inward-looking nationalism. The US-China trade rivalry, the weakening of the WTO, and the rise of mega-regional blocs all underscore the urgency of regional cohesion.

For Bangladesh and India, cooperation is not a choice-it is a necessity. Both benefit from integrated supply chains, shared energy security, and cross-border infrastructure. Both lose when mistrust fragments these gains.

The Dhaka-Delhi relationship is too vital to be hostage to mistrust. A reset built on predictability, fairness, and dialogue would not only stabilise bilateral ties but also offer South Asia a model of cooperation in an era of global uncertainty. The moment for a diplomatic and economic reset is now.