NCAER Workshop – "Studies on Indo-Bangladesh Trade"

Future to be based on trust and the spirit of cooperation – Jairam Ramesh

 

 

The adage, "the answer to the most difficult question is often a very simple one", is probably true of Indo-Bangladesh trade relations. It is quite impossible to overstate the value that could accrue to both countries’ domestic economies and the quantum leap upwards in terms of living standards that the inhabitants of one of the most impoverished regions of the world could experience if only both governments simplified procedures, improved infrastructure, and, above all, diluted their trade policies of its political content.

 

NCAER has been associated with analyses of the problems, both trade and non-trade related, that bedevil regional trade in the region in general and the Indo-Bangladesh bilateral track in particular. Our senior economist, Sanjib Pohit has contributed to World Bank's studies on different dimensions of the two economies’ partnership in the context of its extensive 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

       (From left, Ashok V. Desai, Jairam Ramesh and Suman Bery)

work programme on South Asian trade and country policies impacting it. It was in this connection that a workshop was organised at Parisila Bhawan on Tuesday, March 20.

 

The Indian Minister of State for Commerce, Mr Jairam Ramesh, in his keynote address, manifested his keen interest in ensuring that Indo-Bangladesh trade overcome its three-decade-old logjam and achieve full potential. Its been a decade since the historic water sharing agreement (over Farakka in December 1996) was signed and now India is in the process of developing a big package of collaborations based on water and other natural resources.

 

 

KEY POLICY DECISIONS

He chose the forum to make some important policy decisions. These include:

  • Acceleration of the policy of unilateral tariff reduction by placing a $ 64 million order for garments without fabric restrictions. This, he admitted, constitutes only "a drop in the ocean" ( of uneven Bangladeshi deficit vis a vis India) but contributes to forward movement

  • Setting up world class facilities at the Petrapole land border station by integrating customs checking, laboratory testing, banking and financial services and other associated facilities under one roof. There may be public-private participation for this project that would address the long-standing need for better infrastructure. RITES, the Department of Border Management and the Ministry of Commerce would jointly execute this Rs 300 crore project

  • Similar facilities to come up in other land customs stations – Agartala, Borsorah, Dawki, Demagiri, Ghasuapara, Changrabanda, Hili and Sutarkhandi. These, however, would be government projects

  • Talks on with West Bengal government to acquire land for a warehouse in Bongaon

  • Protocol on movement of container traffic being developed

  • 35 bank branches all over Northeast India given the rights to carry out foreign exchange dealings to facilitate Indo-Bangladesh trade

 

Mr. Ramesh combined scholarly insight with his considerable command over political economics in the course of his presentation. He admitted that historically Indo-Bangladesh trade relations have been hampered by narrow wisdom. But the beginning of the South Asia Free Trade Agreement process has lent a new urgency to the old endeavor to address the outstanding issues, both trade and non-trade related. In the recent past, he said he had done much to dismantle old non-tariff related procedures, which led to higher than necessary landing costs. For instance, he pointed out, it was necessary to send a Jamdani sari all the way to Lucknow for testing for dyes. Hilsa fish had to be cleared by the Central Food Laboratory in Kolkata. Now, the Ministry of Commerce has identified three laboratories in Bangladesh for testing export samples meant for India. Facilities for testing are also being set up at the Petrapole border.

 

 

‘HAVE FAITH IN US’

The Minister revealed that the existing 10:1 trade deficit with Bangladesh couldn’t be resolved easily. But, as it happened in the case of Sri Lanka where an "Indian trigger" (in the form of investments) led to the reduction of the deficit, Bangladesh too must liberalise its outlook towards Indian investment. The Tata Group’s $ 3 billion project, which got bogged down in politics and eventually had to be scrapped, was a package that could have benefitted the Bangladeshi economy immensely. Projects in energy, power, steel and fertiliser would have led to the catapulting of Bangladeshi exports to India.

 

"We are telling Bangladesh, ‘have faith in us – bring in the ADB as a neutral observer if necessary but you have no option but place faith in us’," Mr. Ramesh said. India’s old request for transit and gas may not feature for too long in the bilateral track because India is already making alternative arrangements with Myanmar. "While India is looking inwards to check which of its policies are hindering growth of bilateral trade, Bangladesh too should liberalise its outlook towards India", he added.

 

The Minister’s arrival was preceded by a freewheeling discussion on various issues concerning Indo-Bangla trade. Dr. Shanta Devarajan, chief economist for South Asia with the World Bank, set the ball rolling by saying that the event was part of a programme of engaging with stakeholders on both sides of the border on how to move forward. The potential for South Asian regional trade, despite all the steps already taken, remains much bigger than what is currently realised. At present all the countries are seeing annual growth rates of upwards of 6 per cent. There is a real chance now to accelerate this growth and eliminate poverty. "That is why we will see greater strides towards cooperation", he said.

 

Mr. Suman Bery, the Director-General of NCAER, referred to India as the metaphorical "500-pound gorilla" for whom it is time to play a more vigorous role in the region. China, he pointed out, had struck trade deficits with each of its neighbours as part of its WTO commitment. Brazil too is in the process of dismantling quantitative restrictions on trade with its neighbours. "Is it by design or accident? In politics, a deficit is sometimes more desirable", he observed.

 

Dr Zaidi Sattar, Chief Economist, World Bank, Bangladesh, recalled the Indian process of scrapping quantitative restrictions. In 2002, India became the first South Asian country to reduce its tariff levels. There is a proposal for an Indo-Bangladesh Free Trade Area (FTA), which is stalled at the moment. But, he feared a FTA might prove counter-productive. It could cause trade diversions, for instance.

 

He pointed out certain disconnects which, if addressed, could lead to better understanding. Bangladesh’s exports to the rest of the world are growing at the annual rate of 15 per cent. Garments alone is growing by 20 per cent. Yet, why is the Indian market resisting Bangladeshi products? There is huge scope for cooperative schemes between the two countries. It is time to examine these.

 

 

CONVERTIBILITY PROBLEM

Mr. Arun Goyal, Director, Academy of Business Studies, related the ground experience: How exporters suffer long delays due to bureaucratic red tape, encounter corruption and the various non-trade barriers which continue to beleaguer trade relations. An old problem was the RBI’s restriction on Rupee-Taka convertibility. This is one of the chief reasons for the flourishing of the huge informal trade, which, in his opinion, is twice the volume of official trade. In 2006, Indian exports to Bangladesh stood at $ 2 billion, while Bangladeshi exports to India totalled $ 242 million.

 

He proposed that India adopted a pragmatic approach towards bilateral trade. "Whatever we do, there will always be informal trade. To counter this, let’s develop softer borders and regularise what is inevitable. Working out a conversion rate would be a good beginning", he opined.

 

Mr. Tapan Chattopadhyay, Deputy Director-General of the Federation of Indian Export Organisations (FIEO), Kolkata, drew the Minister’s attention to the irregularities that thrive in the execution of letters of credit. Mr. Ramesh made a note of this phenomenon and said his Ministry would look into the matter. In this connection, Mr. Bery opined that lobbies like FIEO could play a major role in the process of dismantling the non-tariff barriers.

 

Mr. Sanjib Pohit, who has done substantial research in the area of informal trade, was invited by the Minister to present a paper on the subject. He also raised an important question: why cannot customs forms be printed in Bengali?

 

The High Commissioner of Bangladesh in India, Mr. Liaqat Ali Choudhury, was observed as an intent listener for the most part. But, making his observations at the fag end of the programme, he remarked that the Indian tendency to perceive any Bangladeshi articulation of concern as "anti-Indian" was misplaced.

 

 

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