India’s ‘Free Transit’ Offer to Bangladesh: Prospects and Challenges

India has offered free transit facilities to Bangladesh which will allow the latter to export products to third countries through specific land customs stations, airports, and seaports in India. In addition, as part of the initiative, the Indian stakeholders invited the Bangladesh business community to use the neighboring country’s port infrastructure for transshipment to other countries. The announcement came in a joint statement earlier this month,following a bilateral talk between Prime Minister Sheikh Hasina and her Indian counterpart Narendra Modi, held at the Hyderabad House in New Delhi.

Stating that India has also been delivering free transit to Bangladesh for exporting its products to Nepal and Bhutan, the joint statement said that Bangladesh also requested rail connectivity with Bhutan through the newly installedChilahati–Haldibari route, and India agreed to consider the request, based on its viability and feasibility.

To make viable connectivity in the region, the joint statement said New Delhi requested Dhaka to remove port restrictions, inter alia at the Chilahati–Haldibari crossing. The two leaders also agreed to accelerate efforts to enhance bilateral and sub-regional connectivity through the early operationalization of the BBIN (Bangladesh, Bhutan, India, Nepal) Motor Vehicle Agreement. While the ‘free transit’ offer opens plenty of opportunities for Bangladesh’s economy, there are still challenges that need to be addressed for proper utilization of the facilities.

Background

Bangladesh and India celebrated their 50 years of historic relationship in December last year. Their bilateral relations can be described as a ‘multidimensional fraternal relationship’ that sustained throughout the last five decades. From the 1971 Bangladesh War of Independence to recent years, the historical ties have increasingly deepened into the comprehensive and ever-expanding area of cooperation between the two nations. In the meantime, Bangladesh’s eco-political strength and geographical proximity have made the country a hotspot for South Asian trade and connectivity, transforming it into the most valuable neighbor for India. It has also opened a bundle of opportunities for the two nations to attain sustainable development through mutual collaboration.

Though Bangladesh has been offering transit and other connectivity amenities to India, the latter has always taken a more selective approach. However, the recent free transit offerfrom India –allowing Bangladesh to use Indian lands to do business with third countries like Bhutan and Nepal, can ensure a win-win situation for both countries.

Increase Bangladesh’s National Income

According to a report by World Bank, smooth transport connectivity between India and Bangladesh has the potential to increase national income by as much as 17 percent in Bangladesh and 8.0 percent in India.

The report is titled ‘Connecting to Thrive: Challenges and Opportunities of Transport Integration in Eastern South Asia’. Itexamines the Bangladesh-Bhutan-India-Nepal (BBIN) Motor Vehicles Agreement (MVA), contrasts it with international best procedures, and detects its strengths and weaknesses for smoothregional connectivity.

The report also examines regional policy actions the countries can take to strengthen the MVA and suggests priorities for infrastructure investments that would help the nations maximizetheir gains. The study found that enhancing transport connectivity between the two countries could boost exports even further, yielding a 297 percent increase in Bangladesh’s exports to India and a 172 percent increase in India’s exports to Bangladesh. In light of that free transit through India can ensure tremendous prospects for Bangladesh’s economy as its location makes it a strategic gateway to India, Nepal, Bhutan, and other East Asian countries. Bangladesh can also become an economic center by expanding regional trade, transit, and logistics networks.

Win-Win Situation

To increase regional connectivity, Bangladesh has taken several initiatives. It constructed the Padma Multipurpose Bridge which has shortened the distance between Dhaka and Kolkata while increasing the capacity of Mongla port. India seeks regular transshipment facilities through Chattogram and Mongla ports, as four scheduled trial runs have already been completed successfully. India is also enjoying transit facilities to use Bangladeshi territory to transport goods to its northeastern states. It suggests that India has gained a lot from Bangladesh’s friendly gestures so far.

However, India has offered similar facilities to Bangladesh during PM Sheikh Hasina’s latest visit. It said Bangladeshi exporters can export to third countries using Indian territory through designated land ports, airports, and seaports. As a result, this proposal by India can roll out a win-win situation for both countries. 

Challenges

Though the free transit facility offered by India may ease up Bangladesh's entry into Nepal and Bhutan, the huge trade gapbetween Bangladesh with India cannot be reduced instantly with the facility. In addition, Bangladesh usually takes fewer Indian routes for trade with third countries. So, how much Dhaka will gain from the new offer is yet to be calculated.

In addition, for the successful operation of transit facilities for Bangladesh’s products through Indian territory, it is crucial to finalize the Bangladesh-Bhutan-India-Nepal Motor Vehicles Agreement (BBIN-MVA). Nevertheless, to obtain the advantages of the Indian transit facility, Bangladesh’s land ports, roads, and other infrastructures need to be improved. In this part, New Delhi can help with financial and technical support.

The free transit offered by India is undeniably welcomed, but there must be effective implementation of the policy for proper utilization. There should not be any uncertainty in the policy implementation from the Indian side as there are several similar cases.

In a nutshell, India’s proposed free transit facilities for Bangladesh’s export products – allowing them to third countries through Indian territory, can reduce the disparities between India and Bangladesh’s bilateral trade gap. However, for effective utilization of the facilities, the existing challenges need to be addressed with utmost priority.

By: Kazi Fahim Ahmed

Kazi Fahim Ahmed, is currently working as a Research Intern at the East Asia Study Center, University of Dhaka. He studies at the Department of International Relations, University of Dhaka. His interest area consists of South and Southeast Asian Geopolitics, US Foreign Policy, Great Power Rivalry, and Indo-Pacific Region. Some of his recent articles have been published in Australian Outlook, The London Globalist, Modern Diplomacy, and The Daily Observer.

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