FORMAL TRADE BETWEEN INDIA AND BANGLADESH: AN EMPIRICAL ANALYSIS

Abstract

The importance of improving trade flows between India and Bangladesh is not only beneficial to them, but for the whole SAARC region, given that Bhutan and Nepal utilise Bangladesh ports as gateways to trade outside the region. Bangladesh’s overall exports are dominated by labour-intensive manufacturing and its imports to India by primary commodities. The shares of manufactured goods in country’s overall export were about 92 and 91 percent in 2001 and 2011 respectively. However, the composition of bilateral trade between these two countries has been changing over time. Addition and removal in the list of products of trade basket is a usual process. Consistent products in the trade basket of Bangladesh are ready made garments and sea food, whereas those of India are raw cotton, cereals and products and machinery of iron and steel. Expansion of trade of these countries with outside world, but not with each other confirms the prevalence of certain barriers, physical or non-physical in nature, rendering many potential products remain untraded. India and Bangladesh being geographically proximate to each other possess huge scope to trade. Specifically as both the countries are rich in natural resources and are competent in the production of small-scale manufacturing and agrarian supplies, mostly from the eastern parts of India and Bangladesh, both possess huge potential for bilateral trade. Many items having high trade potential are still not able to get market exposure in the neighbouring country because of various non-tariff barriers prevailing in current trade scenario, which have hiked up the cost of doing business to unacceptable proportions and as most of the highly tradable products are still kept under the sensitive lists of Bangladesh. There are numerous bottlenecks in the current trade infrastructure which turns out to be physical barrier to trade. The present paper highlights the import export and Exchange Rate change and prospects of bilateral trade between the two countries.